<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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)
110 N. Wacker Dr., Chicago, IL 60606
------------------------------------
(Address of principal executive offices, Zip Code)
(312) 960-5000
--------------
(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 10,
1999 was 51,677,425.
<PAGE> 2
GENERAL GROWTH PROPERTIES, INC.
INDEX
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998............. 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1999 and 1998........... 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998....... 5
Notes to Consolidated Financial Statements............ 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 22
Liquidity and Capital Resources of the Company........ 25
Item 3: Quantitative and Qualitative Disclosures
about Market Risk..................................... 30
PART II OTHER INFORMATION.
Item 2: Changes in Securities and Use of Proceeds......... 31
Item 4: Submission of Matters to a Vote of
Security Holders...................................... 32
Item 6: Exhibits and Reports on Form 8-K.................. 32
SIGNATURES................................................. 33
2 of 33
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
ASSETS
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Investment in Real Estate:
Land $ 372,162 $ 364,699
Buildings and equipment 3,351,200 3,222,237
Less accumulated depreciation (350,062) (301,789)
Developments in progress 123,059 89,860
---------- ----------
Net property and equipment 3,496,359 3,375,007
Investment in Unconsolidated
Real Estate Affiliates 466,735 386,301
---------- ----------
Net Investment In Real Estate 3,963,094 3,761,308
Cash and cash equivalents 18,605 19,630
Tenant accounts receivable, net 75,907 74,585
Deferred expenses, net 76,659 71,593
Investment in and note receivable from
General Growth Management, Inc. 93,943 84,716
Prepaid expenses and other assets 32,039 15,642
---------- ----------
$4,260,247 $4,027,474
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes and other debts payable $2,808,297 $2,648,776
Distributions payable 35,479 33,757
Accounts payable and accrued expenses 121,020 122,303
---------- ----------
2,964,796 2,804,836
---------- ----------
Minority interest in
Operating Partnership 309,871 299,431
---------- ----------
Commitments and contingencies
Preferred Stock: $100 par value;
5,000,000 shares authorized;
345,000 designated as PIERS (Note 1)
which are convertible and carry a
$1,000 liquidation value; 337,500
of which were issued and outstanding
at June 30, 1999 and December 31,
1998, respectively 337,500 337,500
---------- ----------
Stockholders' Equity:
Common stock; $0.10 par value;
210,000,000 shares authorized;
41,655,386 shares and 39,000,972
shares issued and outstanding at
June 30, 1999 and December 31,
1998, respectively 4,166 3,900
Additional paid-in capital 917,315 843,238
Retained earnings (deficit) (270,237) (258,267)
Notes receivable - common
stock purchase (3,164) (3,164)
---------- ----------
Total Stockholders' Equity 648,080 585,707
---------- ----------
$4,260,247 $4,027,474
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3 of 33
<PAGE> 4
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $ 86,698 $ 56,012 $ 170,471 106,519
Tenant recoveries 40,764 27,261 82,896 52,852
Percentage rents 5,326 2,580 9,187 5,013
Other 2,216 1,441 4,661 2,371
Fee Income 912 1,324 2,961 2,310
---------- ---------- ---------- ----------
Total Revenues 135,916 88,618 270,176 169,065
---------- ---------- ---------- ----------
Expenses:
Real Estate taxes 11,504 7,117 23,350 12,901
Management fee to affiliate 1,300 985 2,600 1,860
Property operating 31,624 19,948 62,763 42,057
Provision for doubtful accounts 1,161 121 2,198 729
General and Administrative 1,596 997 3,097 2,143
Depreciation and amortization 25,753 15,132 50,768 29,099
---------- ---------- ---------- ----------
Total Expenses 72,938 44,300 144,776 88,789
---------- ---------- ---------- ----------
Operating Income 62,978 44,318 125,400 80,276
Interest expense, net (37,270) (23,088) (76,357) (40,971)
Equity in net income/(loss) of
unconsolidated affiliates:
GGP/Homart 4,177 6,601 7,669 8,336
Property Joint Ventures 2,906 593 6,480 1,634
General Growth Management, Inc. (2,560) (1,291) (5,416) (9,260)
Gain on sale 2,977 --- 2,977 ---
---------- ---------- ---------- ----------
Income before extraordinary item
& allocation to 33,208 27,133 60,753 40,015
minority interest
Income allocated to minority interest (8,793) (8,992) (13,009) (13,419)
---------- ---------- ---------- ----------
Income before extraordinary item 24,415 18,141 47,744 26,596
Extraordinary Items --- --- (8,693) ---
---------- ---------- ---------- ----------
Net Income $ 24,415 $ 18,141 39,051 26,596
---------- ---------- ---------- ----------
Convertible Preferred Stock Dividends (6,117) (1,199) (12,234) (1,199)
---------- ---------- ---------- ----------
Net income available to
common stockholders $ 18,298 $ 16,942 26,817 25,397
========== ========== ========== ==========
Earnings before extraordinary item
per share-basic $ .44 $ .47 $ .87 .71
========== ========== ========== ==========
Earnings before extraordinary item
per share-diluted $ .44 $ .47 $ .87 .71
========== ========== ========== ==========
Net earnings per share - basic $ .44 $ .47 $ .66 .71
========== ========== ========== ==========
Net earnings per share - diluted $ .44 $ .47 $ .65 .71
========== ========== ========== ==========
Distributions declared per share $ .49 $ .47 $ .98 .94
========== ========== ========== ===========
Weighted average common shares
outstanding - basic (in thousands) 41,638 35,877 40,862 35,784
========== ========== ========== ==========
Weighted average common shares
outstanding - diluted (in thousands) 41,776 36,056 41,002 35,996
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4 of 33
<PAGE> 5
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
SIX MONTHS ENDED
JUNE 30,
1999 1998
---------- ----------
Cash flows from operating activities:
Net Income $ 39,051 $ 26,596
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 13,009 13,419
Gain on sale (2,977) --
Extraordinary items 8,693 --
Equity in net income of unconsolidated affiliates (8,733) (710)
Provision for doubtful accounts 2,198 729
Depreciation 48,272 25,919
Amortization 2,495 3,180
Net Changes:
Tenant accounts receivable (3,520) (7,793)
Prepaid expenses and other assets (2,456) (994)
Accounts payable and accrued expenses (1,283) 6,598
---------- ----------
Net cash provided by (used in)
operating activities 94,749 66,944
---------- ----------
Cash flows from investing activities:
Acquisition/development of real
estate and improvements (165,487) (923,787)
Increase in investments in
Property Joint Ventures (381) (19,207)
Deposit on Ala Moana Center (16,200) --
Change in notes receivable from General
Growth Management, Inc. (14,643) (27,764)
Increase in mortgage notes receivable, net -- (50,061)
Distributions received from GGP/Homart 12,490 6,257
Distributions received from
Property Joint Ventures 13,215 2,550
Increase in deferred expenses (6,589) (10,354)
---------- ----------
Net cash provided by (used in)
investing activities (177,595) (1,022,366)
---------- ----------
Cash flows from financing activities:
Cash distributions paid to common stockholders (37,466) (32,893)
Cash distributions paid to minority interest (19,021) (17,148)
Payment of dividends on PIERS (12,234) --
Proceeds of preferred stock issuance
net of issuance costs -- 322,604
Proceeds from exercised options 760 --
Additional equity issuance costs (74) --
Proceeds from issuance of mortgage / other
notes payable 292,000 1,141,000
Principal payments on mortgage notes and
other debt payable (141,134) (450,666)
Purchase of treasury stock -- (1,136)
Capital contribution from minority interest -- 119
Penalty on retirement of debt (38) --
Increase in deferred expenses (972) (2,443)
---------- ----------
Net cash provided by (used in)
financing activities 81,821 959,437
---------- ----------
Net change in cash and cash equivalents (1,025) 4,015
Cash and cash equivalents at beginning of year 19,630 25,898
---------- ----------
Cash and cash equivalents at end of period $ 18,605 $ 29,913
========== ==========
Supplemental disclosure of cash flow information
Interest paid $ 91,196 $ 45,517
Interest capitalized 8,027 2,806
Non-cash investing and financing activities:
Treasury stock exchanged for Operating
Partnership Units $ -- $ 1,875
Common stock issued in exchange for
Operating Partnership Units 170 --
Common stock issued in exchange for
GGP/Homart stock 90,511 --
Penalty on retirement of debt 8,655 --
Debt assumed as consideration to seller for
purchase of real estate -- 174,026
Notes receivable issued for exercised
stock options -- 3,040
Partnership units and common stock issued
as consideration for purchase of real estate -- 18,437
The accompanying notes are an integral part of these consolidated financial
statements.
5 of 33
<PAGE> 6
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
NOTE 1 ORGANIZATION
Readers of this quarterly report should refer to the Company's audited financial
statements for the year ended December 31, 1998 which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(Commission File No. 1-11656) dated March 19, 1999, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this report. Capitalized terms used
but not defined in this quarterly report have the same meanings as in the
Company's 1998 Annual Report on Form 10-K.
GENERAL
General Growth Properties, Inc., a Delaware corporation ("General Growth"), was
formed in 1986 to own and operate enclosed mall shopping centers. All references
to the "Company" in these Notes to Consolidated Financial Statements include
General Growth and those entities owned or controlled by General Growth
(including the Operating Partnership as described below), unless the context
indicates otherwise. Proceeds from General Growth's April 15, 1993 initial
public offering of common stock (the "Common Stock") 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 enclosed mall
general partnerships owned and controlled by the Company and its original
stockholders. The Company conducts substantially all of its business through the
Operating Partnership.
During June 1998, General Growth completed a public offering of 13,500,000
depositary shares (the "Depositary Shares"), each representing 1/40 of a share
of 7.25% Preferred Income Equity Redeemable Stock, Series A, par value $100 per
share ("PIERS"). General Growth received net proceeds of approximately $322,686
which were utilized to fund certain of the acquisitions described in Note 2 and
for other working capital needs. The PIERS are convertible at any time, at the
option of the holder, into shares of Common Stock at the conversion price of
$39.70 per share of Common Stock. The PIERS and the Depositary Shares are
subject to mandatory redemption by General Growth on July 15, 2008 at a price of
$1,000 per PIERS, plus accrued and unpaid dividends, if any, to the redemption
date. Accordingly, the PIERS have been reflected in the accompanying financial
statements at such liquidation or redemption value.
During July, 1999, General Growth completed a public offering of 10,000,000
shares of Common Stock (the "1999 Offering"). General Growth received net
proceeds of approximately $331,725 which were used to reduce outstanding loans
including certain indebtedness to affiliates of the underwriter of the 1999
Offering. In addition, the underwriter of the 1999 Offering has an option
expiring on August 13, 1999 to purchase an additional 1,000,000 shares of Common
Stock at a purchase price of $33.2225 per share, solely to cover
over-allotments. A portion of the proceeds of the 1999 Offering were used to
fund a portion of the purchase price of Ala Moana Center (Note 2).
6 of 33
<PAGE> 7
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
OPERATING PARTNERSHIP
The Operating Partnership commenced operations on April 15, 1993 and as of June
30, 1999, the Company owned 100% of fifty-two enclosed regional shopping centers
(the "Wholly-Owned Centers"); 51% of GGP/Ivanhoe, Inc. ("GGP/Ivanhoe"), 50% of
Quail Springs Mall and Town East Mall and 51% of GGP Ivanhoe III, Inc. ("GGP
Ivanhoe III") (collectively the "Property Joint Ventures") or ("PJVs"); 50% of
the stock of GGP/Homart, Inc. ("GGP/Homart") and a 100% non-voting preferred
stock interest representing 95% of the equity interest in General Growth
Management, Inc. ("GGMI"). As of such date, GGP/Homart owned interests in
twenty-three shopping centers (the "Homart Centers"), GGP/Ivanhoe owned 100% of
The Oaks Mall and the Westroads Mall, and GGP Ivanhoe III (through a wholly
owned subsidiary) owned 100% of six shopping centers. Together, the Wholly-Owned
centers, the centers owned by the Property Joint Ventures and the Homart Centers
comprise the "Company Portfolio" or the "Portfolio Centers".
As of June 30, 1999, the Company owned an approximate 68% general partnership
interest in the Operating Partnership (excluding its preferred units of
partnership interest as discussed below). The remaining approximate 32% minority
interest in the Operating Partnership is held by limited partners that include
trusts for the benefit of the families of the original stockholders who
initially owned and controlled the Company and subsequent contributors of
properties to the Company. These minority interests are represented by common
units of limited partnership interest in the Operating Partnership (the
"Units"). The Units can be redeemed for cash, or at General Growth's election,
with certain restrictions, for shares of Common Stock on a one-for-one basis.
The holders of the Units also share equally with General Growth's stockholders
in any distributions by the Operating Partnership on the basis that one Unit is
equivalent to one share of Common Stock.
In connection with the issuance of the Depositary Shares and in order to enable
General Growth to comply with its obligations in respect to the PIERS, the
Operating Partnership's partnership agreement was amended to provide for the
issuance to General Growth of preferred units of limited partnership interest in
the Operating Partnership (the "Preferred Units") which have rights, preferences
and other privileges, including distribution, liquidation, conversion and
redemption rights, that mirror those of the PIERS. Accordingly, the Operating
Partnership will be required to make all required distributions on the Preferred
Units prior to any distribution of cash or assets to the holders of the Units.
At June 30, 1999, 100% of the Preferred Units (337,500) were owned by General
Growth.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and the Operating Partnership consisting of the fifty-two centers and
the unconsolidated investments in GGP/Homart, GGMI, GGP/Ivanhoe, Quail Springs
Mall, Town East Mall and GGP Ivanhoe III. All significant inter-company 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 June 30, 1999 and the results of operations for the three and six months
ended June 30, 1999 and 1998 and cash flows
7 of 33
<PAGE> 8
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
for the six months ended June 30, 1999 and 1998 have been included. The results
for the interim periods ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be obtained for the full fiscal year.
EARNINGS PER SHARE ("EPS")
Basic per share amounts are based on the weighted average of common shares
outstanding of 40,861,764 for 1999 and 35,783,726 for 1998. Diluted per share
amounts are based on the total number of weighted average common shares and
dilutive securities (stock options) outstanding of 41,001,796 for 1999 and
35,996,404 for 1998. The effect of the issuance of the PIERS is anti-dilutive
with respect to the Company's calculation of diluted earnings per share for the
three and six months ended June 30, 1999 and 1998 and therefore has been
excluded. In addition, options to purchase 2,000 shares of Common Stock at
$37.69 per share in 1999 and 227,500 shares of Common Stock at $36.19 per share
in 1998 were outstanding but not included in the respective computations of
diluted earnings per share because the options' exercise prices were greater
than the average market prices of the common shares for the applicable periods
and, therefore, the effect would be anti-dilutive. The outstanding Units have
been excluded from the diluted earnings per share calculation as there would be
no effect on the EPS amounts since the minority interests' share of income would
also be added back to net income. Options to purchase 313,964 shares of Common
Stock pursuant to General Growth's 1998 Incentive Stock Plan were granted March
25, 1999 but were not included in the computation of diluted EPS because the
conditions which must be satisfied prior to the issuance of any such shares
under the Plan were not achieved during the applicable period.
The following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Numerators:
Income before extraordinary item $24,415 $18,141 $ 47,744 $26,596
Dividends on PIERS (6,117) (1,199) (12,234) (1,199)
------- ------- -------- -------
Income available to common shareholders before
extraordinary item - for basic and diluted EPS 18,298 16,942 35,510 25,397
Extraordinary Items -- -- (8,693) -
------- ------- -------- -------
Net income available to common
shareholders - for basic and diluted EPS $18,298 $16,942 $ 26,817 $25,397
======= ======= ======== =======
Denominators:
Weighted average common shares
outstanding (in thousands) - for basic EPS 41,638 35,877 40,862 35,784
Effect of dilutive securities - options 138 179 140 212
------- ------- -------- -------
Weighted average common shares
outstanding (in thousands) - for diluted EPS 41,776 36,056 41,002 35,996
======= ======= ======== =======
</TABLE>
8 of 33
<PAGE> 9
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
NOTES RECEIVABLE - COMMON STOCK PURCHASE
In April, May and September, 1998 certain officers of the Company issued to the
Company an aggregate of $3,164 of notes in connection with their exercise of
options to purchase an aggregate of 166,000 shares of Common Stock. The floating
rate notes bear interest at a rate (5.56% per annum at June 30, 1999) determined
by reference to the published broker call loan rate adjusted to reflect a market
rate, are collateralized by the shares of Common Stock issued upon exercise of
such options, provide for quarterly payments of interest and are payable to the
Company on demand.
REVENUE RECOGNITION
Minimum rent revenues are recognized on a straight-line basis over the term of
the related leases. Percentage rents are recognized on an accrual basis (see
Note 8). Recoveries from tenants for taxes, insurance and other shopping center
operating expenses are recognized as revenues in the period the applicable costs
are incurred. The Company provides an allowance for doubtful accounts against
the portion of accounts receivable (including amounts recognized as receivable
due to the recognition of minimum rents on a straight-line basis as described
above) which is estimated to be uncollectible. Such allowances are reviewed
periodically based upon the recovery experience of the Company.
BUSINESS SEGMENT INFORMATION
The Financial Accounting Standards Board (the "FASB") issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") in June of 1997. Statement 131 requires disclosure of certain
operating and financial data with respect to separate business activities within
an enterprise. The sole business of General Growth and its consolidated
affiliates is owning and operating shopping centers. General Growth evaluates
operating results and allocates resources on a property-by-property basis.
General Growth does not distinguish or group its operations on a geographic
basis. Accordingly, General Growth has determined it has a single reportable
segment for Statement 131 purposes. Further, all operations are within the
United States and no customer or tenant comprises more than 10% of consolidated
revenues. Therefore, no additional disclosure due to the adoption of Statement
131 is currently mandated.
9 of 33
<PAGE> 10
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
NOTE 2 PROPERTY ACQUISITIONS AND DEVELOPMENTS
WHOLLY-OWNED PROPERTIES
1999
- ----
On January 11, 1999, the Company acquired a 100% ownership interest in The
Crossroads Mall in Kalamazoo, Michigan. The aggregate purchase price was
approximately $68,000 (subject to pro-rations and certain adjustments), which
was funded initially from a new $83,655 short-term floating rate interim loan.
(See Note 4).
On May 3, 1999, the Company entered into a definitive purchase agreement to
acquire Ala Moana Center in Honolulu, Hawaii and paid a non-refundable deposit
of $16,200 (which has been included in prepaid expenses and other assets at June
30, 1999). On July 30, 1999 the Company completed this transaction and currently
owns a 100% interest in the Ala Moana Center. The total acquisition price was
$810,000 (before closing adjustments, including a credit for the cost to
complete an ongoing expansion project), and was funded with the proceeds of a
short-term first mortgage loan of approximately $438,000 and approximately
$294,000 in cash including a portion of the net proceeds from the 1999 Offering.
The short-term loan bears interest at LIBOR (5.21% at June 30, 1999) plus 115
basis points per annum and matures on October 29, 1999. The Company currently
expects to fully refinance the short-term mortgage loan before or on its
maturity through the issuance of commercial mortgage backed securities.
1998
- ----
On April 2, 1998 the Company acquired a 100% ownership interest in Southwest
Plaza located in Denver, Colorado. On May 8, 1998, the Company completed the
acquisition of 100% of the ownership interest in the Northbrook Court Shopping
Center located in Northbrook (Chicago), Illinois. The aggregate purchase price
for Southwest Plaza and Northbrook Court was approximately $261,000, including
approximately $149,000 of assumed and acquisition-related debt.
On June 2, 1998, the Company acquired the U.S. retail property portfolio (the
"MEPC Portfolio") of MEPC plc, a United Kingdom based real estate company
("MEPC"), through the purchase of the stock of the three U.S. subsidiaries of
MEPC that directly or indirectly owned the MEPC Portfolio. The Company acquired
the MEPC Portfolio for approximately $871,000 (less certain adjustments for
tenant allowances, construction costs, MEPC U.S. subsidiary liabilities and
other items). The Company borrowed approximately $830,000 to finance the
purchase price for the stock, which was paid in cash at closing as more fully
described in Note 4. The MEPC Portfolio consists of eight enclosed mall shopping
centers: Apache Mall in Rochester, Minnesota; The Boulevard Mall in Las Vegas,
Nevada; Cumberland Mall in Atlanta, Georgia; McCreless Mall in San Antonio,
Texas; Northridge Fashion Center in Northridge (Los Angeles), California;
Regency Square Mall in Jacksonville, Florida; Riverlands Shopping Center in
LaPlace, Louisiana and Valley Plaza Mall in Bakersfield, California.
10 of 33
<PAGE> 11
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
On July 21, 1998 the Company acquired Altamonte Mall in Altamonte Springs
(Orlando), Florida. The aggregate consideration paid for the Altamonte Mall was
$169,000 (subject to pro-rations and certain adjustments) part of which was paid
by the payoff of approximately $24,000 of indebtedness assumed at acquisition
from cash funded from the Company's credit facility (the "Credit Facility") as
more fully described in Note 4 and the balance of which was paid by the issuance
of 3,683,143 Units.
On September 3, 1998, the Company acquired Pierre Bossier Mall in Bossier City
(Shreveport), Louisiana. The aggregate consideration paid for the Pierre Bossier
Mall was approximately $52,700 (subject to pro-rations and certain adjustments)
which was paid in the form of approximately $10,000 in cash (funded from the
Company's Credit Facility), a new mortgage loan (obtained from an independent
third party) of approximately $42,000 and the assumption of approximately $700
of existing debt. The Company had previously loaned the sellers approximately
$50,000 in early 1998 and received an option to buy the property. In conjunction
with the closing of the sale, the loan was fully repaid.
On September 15, 1998, the Company acquired Spring Hill Mall in West Dundee
(Chicago), Illinois. The aggregate consideration paid by the Company was
approximately $124,000 (subject to pro-rations and certain adjustments) which
was paid in the form of approximately $32,000 in cash (through the Company's
Credit Facility) and a new 10-year fixed-rate $92,000 mortgage.
On September 18, 1998, the Company acquired Coastland Center in Naples, Florida
for approximately $114,500 in cash (subject to pro-rations and certain
adjustments). The aggregate consideration paid was borrowed under the Company's
Credit Facility.
On October 21, 1998, the Company acquired Mall St. Vincent in Shreveport,
Louisiana. The aggregate consideration paid for Mall St. Vincent was $26,400
(subject to pro-rations and certain adjustments) which was paid by issuing
200,052 redeemable Units in the Operating Partnership (of which 88,871 were
immediately redeemed for cash, funded by the Company's Credit Facility, upon
demand of the holders of such Units) and by assuming approximately $19,200 of
fixed rate debt maturing in December 2007.
In addition, in 1998 the Company, through an unconsolidated joint venture,
acquired the U.S. Prime Property, Inc. ("USPPI") portfolio as described in
Note 3.
The Company financed the forgoing acquisitions through a combination of secured
and unsecured debt, issuance of Operating Partnership Units and the proceeds of
the public offerings of Depositary Shares and Common Stock as described in Note
1.
The acquisitions completed as of June 30, 1999 were accounted for utilizing the
purchase method and accordingly, the results of operations are included in the
Company's results of operations from the respective dates of acquisition (for
pro forma effect, see Note 9).
11 of 33
<PAGE> 12
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
DEVELOPMENTS
During 1996, the Company acquired three new development sites in the following
locations: Coralville (Iowa City), Iowa; Grandville (Grand Rapids), Michigan and
Frisco (Dallas), Texas, respectively. Coral Ridge Mall, located in Coralville,
Iowa was completed and opened as scheduled in July of 1998. Construction of the
RiverTown Crossings Mall located in Grandville, Michigan commenced in December,
1997 and the mall is scheduled to open in November of 1999. Construction of
Stonebriar Mall at the Bridges, located in Frisco, Texas commenced in October of
1998 with an anticipated completion date in the summer of 2000.
During 1999, the Company formed a joint venture to develop an enclosed mall in
Westlake (Dallas), Texas. As of June 30, 1999, the Company has currently
invested approximately $12,100 in the joint venture. The Company is currently
obligated to fund pre-development costs (estimated to be approximately $1,545)
and actual development costs are not resolved at this time. The retail site,
part of a planned community which will ultimately contain a resort hotel, a golf
course, luxury homes and corporate offices, is currently planned to contain up
to six anchor stores and up to 1.6 million square feet of tenant space including
a multi-screen theater. There can be no assurance that development of this site
will proceed beyond the pre-development phase.
The Company also owns or is investigating certain other potential development
sites, but active development of these sites has not yet commenced.
NOTE 3 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
GGP/HOMART
The Company currently owns 50% of GGP/Homart with the remaining ownership
interest held by the New York State Common Retirement Fund, an institutional
investor. At June 30, 1999, GGP/Homart owned interests in twenty-three regional
shopping malls, six of which were owned jointly with venture partners. During
1999, GGP/Homart purchased its venture partner's interest in the Parks at
Arlington. GGP/Homart has elected real estate investment trust status for income
tax purposes. The Company shares in the profits and losses, cash flows and other
matters relating to GGP/Homart in accordance with its ownership percentage.
The Company's co-investor in GGP/Homart has an exchange right under the
GGP/Homart Stockholders Agreement which permits it to convert its ownership
interest in GGP/Homart to shares of Common Stock of General Growth. If such
exchange right is exercised by a stockholder, the Company may alternatively
satisfy such exchange in cash. In early 1999, the Company received notice that
an institutional investor (which then owned an approximate 4.7% interest in
GGP/Homart) desired to exercise its exchange right. The Company satisfied the
exercise of such exchange right (effective as of January 1, 1999) by issuing
1,052,182 shares of Common Stock, thereby increasing its ownership interest in
GGP/Homart from approximately 38.2% in 1998 to approximately 42.9% for the first
quarter of 1999. During the second quarter of 1999, two additional co-investors
(which then owned in the aggregate an approximate 7.1%
12 of 33
<PAGE> 13
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
interest in GGP/Homart) notified the Company that they desired to exercise their
exchange rights. The Company satisfied the exercise of such exchange rights
(effective as of April 1, 1999) by issuing an aggregate of 1,551,109 shares of
Common Stock, thereby increasing its ownership interest in GGP/Homart to 50%.
USPPI
On July 23, 1998, effective as of June 30, 1998, GGP Ivanhoe III, acquired the
U.S. Prime Property, Inc. ("USPPI") portfolio through a merger of a wholly-owned
subsidiary of GGP Ivanhoe III into USPPI. The common stock of GGP Ivanhoe III,
which will elect to be taxed as a REIT, is owned 51% by the Company and 49% by a
joint venture partner. The aggregate consideration paid pursuant to the merger
agreement was approximately $625,000 (less certain adjustments, including a
credit of approximately $64,000 for outstanding mortgage indebtedness and
accrued interest thereon and other miscellaneous items). The acquisition was
financed with a $392,000 interim loan bearing interest at LIBOR plus 90 basis
points which became due July 1, 1999, (subsequently extended to October 1, 1999)
and capital contributions from the Company and the joint venture partner in
proportion to their respective stock ownership. Pursuant to the GGP Ivanhoe III
stockholders' agreement, the Company has contributed approximately $91,290 to
GGP Ivanhoe III (less certain interest and other credits). The Company's capital
contributions were funded primarily from proceeds from the Company's Credit
Facility. The properties acquired include: Landmark Mall in Alexandria,
Virginia; Mayfair Mall and adjacent office buildings in Wauwatosa (Milwaukee),
Wisconsin; Meadows Mall in Las Vegas, Nevada; Northgate Mall in Chattanooga,
Tennessee; Oglethorpe Mall in Savannah, Georgia; and Park City Center in
Lancaster, Pennsylvania.
The joint venture partner in GGP Ivanhoe III is an affiliate of Ivanhoe Inc. of
Montreal, Quebec, Canada ("Ivanhoe") and is also the Company's joint venture
partner in GGP/Ivanhoe (described below). The Company and Ivanhoe share in the
profits and losses, cash flows and other matters relating to GGP Ivanhoe III in
accordance with their respective ownership percentages except that certain major
operating and capital decisions (as defined in the stockholders' agreement)
require the approval of both stockholders. Accordingly, the Company is
accounting for GGP Ivanhoe III using the equity method.
GGP/IVANHOE
GGP/Ivanhoe owns The Oaks Mall in Gainesville, Florida and Westroads Mall in
Omaha, Nebraska. The Company contributed approximately $43,700 for its 51%
ownership interest in GGP/Ivanhoe and Ivanhoe owns the remaining 49% ownership
interest. The terms of the stockholder's agreement are similar to those of GGP
Ivanhoe III.
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<PAGE> 14
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
TOWN EAST MALL / QUAIL SPRINGS MALL
The Company owns a 50% interest in Town East Mall, located in Mesquite, Texas
and a 50% interest in Quail Springs Mall in Oklahoma City, Oklahoma. The Company
shares in the profits and losses, cash flows and other matters relating to Town
East Mall and Quail Springs Mall in accordance with its ownership percentage.
GGMI
The Operating Partnership currently holds all of the non-voting preferred stock
ownership interest in GGMI representing 95% of the equity interest. Certain key
employees of the Company hold the remaining 5% equity interest through ownership
of 100% of the common stock of GGMI, which is entitled to all voting rights in
GGMI. Accordingly, the Company utilizes the equity method to account for its
ownership interest in GGMI. GGMI cannot distribute funds to its common
stockholders until its available cash flow exceeds all accumulated preferred
dividends owed to the preferred stockholder. As of June 30, 1999, no such
distributions by GGMI have been made. Due to these currently unpaid and accrued
preferences on the preferred stock, the Company has been allocated 100% of the
earnings (loss) and cash flows generated by GGMI since 1996. Any dividends in
excess of the preferred cumulative dividend are allocated 95% to the preferred
stockholder and 5% to the common stockholders. The Operating Partnership also
has interest-only loans to GGMI which bear interest at rates ranging from 8% to
14% per annum and which mature by 2016. GGMI may make principal payments on the
loans if it has sufficient cash flow. GGMI manages, leases, and performs various
other services for the Portfolio Centers and other properties owned by
unaffiliated parties.
NOTE 4 MORTGAGE NOTES AND OTHER DEBTS PAYABLE
Mortgage notes and other debts payable at June 30, 1999 and December 31, 1998
consisted of the following:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Fixed-Rate debt
Mortgage notes payable $1,784,642 $2,036,210
---------- ----------
Variable-Rate debt
Mortgage notes payable 831,655 412,566
Credit facility 192,000 200,000
---------- ----------
Total Variable-Rate debt 1,023,655 612,566
---------- ----------
Total mortgage notes and other
debts payable $2,808,297 $2,648,776
========== ==========
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<PAGE> 15
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
FIXED RATE DEBT
MORTGAGE NOTES PAYABLE
Mortgage notes payable consist primarily of fixed rate non-recourse notes
collateralized by individual or groups of properties. Certain mortgage notes
payable may be prepaid but are generally subject to a prepayment penalty of a
yield-maintenance premium or a percentage of the loan balance.
On July 26, 1999, the Company obtained a ten-year loan in the principal amount
of $100,000, secured by a mortgage encumbering Cumberland Mall in Atlanta,
Georgia. The loan proceeds were used to repay a portion of the MEPC acquisition
financing which had been secured by a mortgage on the MEPC Portfolio (which
includes Cumberland Mall) as described below. The loan bears interest at a rate
per annum of 7.85% and provides for monthly payments of principal and interest
until its maturity on August 1, 2009.
VARIABLE RATE DEBT
MORTGAGE NOTES PAYABLE
Variable mortgage notes payable consist primarily of a $100,000 loan
collateralized by Northbrook Court, (due on November 1, 1999), the remaining
$63,655 of interim financing as described below and the $613,000 outstanding
balance of the MEPC acquisition financing as described below. The loans are
generally short term in nature and bear interest at a rate per annum equal to
LIBOR plus 90 to 190 basis points. The Company currently expects to retire or
refinance such obligations when due.
MEPC ACQUISITION FINANCING
In June, 1998 the Company obtained a loan of approximately $830,000 to acquire
the MEPC portfolio as described in Note 2. The Company repaid approximately
$217,000 of this loan on June 10, 1998 from the net proceeds of the public
offering of the Depositary Shares as described in Note 1. During most of 1998,
the Company fixed the annual interest rate with respect to a portion of such
loan at 6.7% per annum and the remainder bore interest at a rate per annum equal
to LIBOR plus 90 basis points. During the first quarter of 1999, the Company
reached agreements in principle with other lenders for full replacement
financing and notified the current lender that the loan would be fully repaid at
maturity. Such notification obligated the Company to pay $8,655 to the lender as
a loan prepayment fee (included in extraordinary items) which the Company funded
from the proceeds of the interim loan described below. As of June 30, 1999 the
entire remaining loan balance of $613,000 bears interest at a rate per annum
equal to LIBOR plus 115 basis points, which rate is adjusted monthly. The loan
is collateralized by the MEPC Portfolio and was scheduled to mature on July 1,
1999. On July 1, 1999, the Company obtained approximately $57,000 of permanent
long term mortgage financing to partially repay the amount maturing on that
date. The new mortgage loan, secured by the Apache Mall, bears interest at 7.0%
per annum and matures August 1, 2009. In addition, during July 1999,
approximately $15,000 of the amount due was repaid from a portion of the
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<PAGE> 16
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
proceeds of the 1999 Offering and approximately $100,000 was repaid from the new
mortgage loan secured by the Cumberland Mall as described above. The maturity
date of the remaining indebtedness was extended to October 1, 1999 as described
below.
EXTENSION OF THE MATURITY OF CERTAIN INDEBTEDNESS
On July 1, 1999, affiliates of the underwriter of the 1999 Offering extended the
maturity date of approximately $833,000 of indebtedness of the Company from its
scheduled maturity date on July 1, 1999 to October 1, 1999. The extended loan
bears interest at a rate per annum equal to LIBOR plus 185 basis points, which
rate is adjusted monthly. The Company expects to enter into one or more
transactions pursuant to which this debt will be refinanced in whole or in part
through the issuance of commercial mortgage backed securities or other debt or
equity securities. In connection with the extension, the Operating Partnership
guaranteed the repayment of $200,000 of the debt and certain
cross-collateralization provisions with respect to the MEPC and USPPI portfolios
were added to the terms of the indebtedness. The Company also agreed to issue up
to 5,000,000 shares of Common Stock to the lenders as additional collateral if
the indebtedness is not paid in full by October 1, 1999 and upon other events of
default. During July 1999, approximately $138,650 of such indebtedness was
temporarily repaid from a portion of the proceeds of the 1999 Offering and
subsequently re-borrowed to pay a portion of the acquisition price of the Ala
Moana Center.
CREDIT FACILITY
The Company's $200,000 unsecured revolving credit facility bears interest at a
rate per annum equal to LIBOR plus 80 to 120 basis points depending upon the
Company's leverage ratio and matures on July 31, 2000. The Credit Facility is
subject to financial performance covenants including debt-to-market
capitalization, minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA") ratios and minimum equity values. On June 30, 1999, the
Credit Facility had an outstanding balance of $192,000. During July 1999,
approximately $76,550 of the proceeds of the 1999 Offering were used to pay down
the Credit Facility. In conjunction with the Ala Moana acquisition (Note 2), all
of the amounts paid down were reborrowed.
INTERIM FINANCING
In January 1999, the Company obtained an additional $30,000 unsecured bank loan
(with a scheduled maturity of June 30, 1999) which bore interest at a floating
market rate (average rate equal to 6.46% per annum). The Company has obtained in
November 1998 a thirteen-month loan in the principal amount of $55,000 secured
by a negative pledge (i.e., the promise not to encumber) of Coastland Center.
These loans were repaid on May 21, 1999 with a ten-year 7.0% mortgage loan in
the principal amount of $87,000 secured by Coastland Center.
In January 1999, the Company obtained an additional $83,655 floating rate (7.49%
at June 30, 1999) interim loan (originally scheduled to mature June 1, 1999)
which was expected to be
16 of 33
<PAGE> 17
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
replaced or refinanced by the maturity date with new mortgage financing. During
May, 1999, the Company obtained a new $45,000 mortgage loan secured by The
Crossroads Mall. The loan, which bears interest at 7.40% and matures in June,
2009, partially repaid the interim loan and the maturity of the remaining
balance, approximately $38,655 at June 30, 1999, was extended to November 1,
1999.
In April 1999, the Company obtained an additional $25,000 bank loan, secured by
Park Mall in Tucson, Arizona. The loan matures September 1, 1999, bears interest
at a rate per annum of LIBOR plus 175 basis points and is expected to be
replaced by maturity with a $90,000 construction loan facility that will finance
an extensive renovation and expansion of Park Mall. The renovation and expansion
has already commenced with the entire project expected to be completed in 2001.
On July 30, 1999, the Company obtained a three month loan (with an additional
three-month extension option) in the principal amount of $25,000, secured by a
negative pledge (i.e., the promise not to encumber) of Eagle Ridge Mall in Lake
Wales, Florida. The proceeds of the loan were distributed to the Operating
Partnership to fund ongoing acquisition and development activity. The short-term
loan bears interest at a rate per annum of LIBOR plus 175 basis points. This
loan is currently expected to be fully refinanced by maturity by new long-term
non-recourse mortgage financing on this or other currently unencumbered
properties.
LETTERS OF CREDIT
As of June 30, 1999 and December 31, 1998, the Operating Partnership had
outstanding letters of credit of $10,732 and $9,956, respectively, primarily in
connection with special real estate assessments and insurance requirements.
CONSTRUCTION LOAN
During April, 1999 the Company obtained a $110,000 construction loan facility
secured by the RiverTown Crossings Mall development in Grandville (Grand
Rapids), Michigan. Concurrently with the closing, the Company made an initial
loan draw of $30,000. An additional $17,962 loan draw was received in July 1999.
The construction loan provides for periodic funding as construction and leasing
continues which bear interest at a rate per annum of LIBOR plus 175 basis
points. Interest is due monthly but may be added to the periodic loan draws. The
loan matures on June 29, 2001 and the Company currently intends to refinance
such loan at or prior to maturity with a non-recourse long-term mortgage loan.
NOTE 5 DISTRIBUTIONS PAYABLE
On June 18, 1999 the Company declared a cash distribution of $.49 per share that
was paid on July 30, 1999 to stockholders of record on July 2, 1999, totaling
$19,651. In addition, a distribution of $9,712 was paid to the limited partners
of the Operating Partnership.
17 of 33
<PAGE> 18
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
Concurrently, the Company declared the second quarter 1999 preferred stock
dividend, for the period from April, 1999 through June 30, 1999, in the amount
of $0.4531 per share, payable to preferred stockholders of record on July 2,
1999 and paid on July 15, 1999. As described in Note 1, this preferred stock
dividend, and all other prior preferred stock dividends as discussed below, were
in the same amount as the Operating Partnership's distribution to General Growth
of the same date with respect to the Preferred Units held by General Growth.
On March 18, 1999 the Company declared a cash distribution of $.49 per share
that was paid on April 30, 1999 to stockholders of record on April 5, 1999,
totaling $19,136. In addition, a distribution of $9,712 was paid to the limited
partners of the Operating Partnership. Concurrently, the Company declared the
first quarter 1999 preferred stock dividend, for the period from January, 1999
through June 30, 1999, in the amount of $0.4531 per share, payable to preferred
stockholders of record on April 5, 1999 and paid on April 15, 1999.
On December 17, 1998, the Company declared a cash distribution of $.47 per share
that was paid on January 29, 1999, to stockholders of record on January 6, 1999,
totaling $18,330. In addition, a distribution of $9,309 was paid to the limited
partners of the Operating Partnership. Concurrently, the Company declared the
fourth quarter 1998 preferred stock dividend, for the period from October 1,
1998 through December 31, 1998, in the amount of $0.4531 per share, payable to
preferred stockholders of record on January 6, 1999 and paid on January 15,
1999.
On September 23, 1998 the Company declared a cash distribution of $.47 per share
that was paid on October 30, 1998 to stockholders of record on October 5, 1998,
totaling $16,874. In addition, a distribution of $10,725 was paid to the limited
partners of the Operating Partnership. Concurrently, the Company declared the
initial preferred stock dividend, for the period from June 10, 1998 through
September 30, 1998, in the amount of $0.5588 per share, payable to preferred
stockholders of record on October 5, 1998 and paid on October 15, 1998.
On June 23, 1998 the Company declared a cash distribution of $.47 per share that
was paid on July 31, 1998 to stockholders of record on July 15, 1998, totaling
$16,871. In addition, a distribution of $8,989 was paid to the limited partners
of the Operating Partnership.
On February 20, 1998, the Company declared a cash distribution of $.47 per share
that was paid on April 30, 1998 to stockholders of record on April 16, 1998,
totaling $16,864. In addition, a distribution of $8,756 was paid to the limited
partners of the Operating Partnership.
On December 16, 1997, the Company declared a cash distribution of $.45 per share
that was paid on January 30, 1998, to stockholders of record on December 30,
1997, totaling $16,029. In addition, a distribution of $8,392 was paid to the
limited partners of the Operating Partnership.
NOTE 6 MORTGAGE NOTE RECEIVABLE
During 1998, the Company advanced $50,000 to an unaffiliated developer in the
form of a mortgage loan (bearing interest at 10% per annum) collateralized by
such developer's ownership
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<PAGE> 19
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
interest in the Pierre Bossier Mall in Shreveport, Louisiana. In connection with
the acquisition of this mall on September 3, 1998, this mortgage note and
related interest due was collected.
NOTE 7 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 periodically enters 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 of the project.
NOTE 8 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") which is
effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires
that the net unamortized balance of all start up costs and organizational costs
be written off as a cumulative effect of a change in accounting principle and
all future start-up costs and organizational costs be expensed. The Company
adopted SOP 98-5 as of January 1, 1999 and the effect thereof was not material.
In May, 1998, the Emerging Issues Task Force of the FASB ("EITF") issued a
consensus opinion entitled "Accounting for Contingent Rent in Interim Financial
Periods" ("EITF 98-9"). EITF 98-9 was effective as of May 21, 1998 and provided
that rental income should be deferred in interim periods by the lessor if the
triggering events that create contingent rent have not yet occurred. The Company
has contingent rents as a majority of the tenant leases provide for additional
rent computed as a percentage of tenant sales revenues above certain annual
thresholds (predominately computed on a calendar year basis). The Company had
previously accrued, on an interim basis, such percentage rents based on the
prorated annual percentage rent estimated to be due from tenants. The Company,
as provided by EITF 98-9, prospectively adopted this consensus and did not
record additional percentage rent in the third and fourth quarters of 1998 above
amounts recognized in the six months ended June 30, 1998 ($5,013) until such
triggering events occurred. Accordingly, the Company recognized approximately
$1,300 of percentage rent in the fourth quarter of 1998, which would otherwise
have been recognized in previous periods. During the fourth quarter of 1998,
EITF 98-9 was withdrawn and, pursuant to the guidance issued by the EITF, the
Company has, effective January 1, 1999, reverted back to the original policy of
accruing percentage rents on an estimated basis. As of the date of this report,
no further accounting guidance has been issued on this subject. The Company
estimates that consolidated revenues for the three and six months ended June 30,
1999 would be reduced by approximately $2,263 and $4,523, respectively, if EITF
98-9 had not been withdrawn. It is possible that the
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<PAGE> 20
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
Securities and Exchange Commission or the EITF will, in the future, restrict the
accrual of such estimated percentage rent for interim periods. This would cause
a shift in the Company's recognition, including amounts from the operations of
GGP/Homart and the Property Joint Ventures, of portions of percentage rent from
interim quarters to the fourth quarter of 1999 and subsequent years.
On June 1, 1998 the FASB issued a Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities". The new standard is effective for fiscal
years beginning after June 15, 2000 as provided by FASB Statement No. 137 issued
in July, 1999. As the Company does not currently have any investments in
derivatives, the effect of adoption of the standard when effective is not
expected to have any significant impact on the Company's financial statements.
NOTE 9 PRO FORMA FINANCIAL INFORMATION
Due to the impact of the public offering of the Depositary Shares in 1998 and
the 1999 Offering as described in Note 1 and the acquisitions during 1998 and
1999 described in Notes 2 and 3, historical results of operations may not be
indicative of future results of operations. The pro forma condensed consolidated
statements of operations for the six months ended June 30, 1999 include
adjustments for the 1999 Offering, the acquisition of the Ala Moana Center and
The Crossroads Mall and the exchange of certain interests in GGP/Homart for
shares of Common Stock as if such transactions had occurred on January 1, 1999.
The pro forma condensed consolidated statements of operations for the six months
ended June 30, 1998 include adjustments for the 1999 Offering, the public
offering of the Depositary Shares in 1998 and the acquisition of Southwest
Plaza, Northbrook Court, Altamonte Mall, Pierre Bossier Mall, Spring Hill Mall,
Coastland Mall, Mall St. Vincent, the Ala Moana Center, The Crossroads Mall, the
eight operating properties in the MEPC Portfolio, a 51% interest in the six
operating properties owned by GGP Ivanhoe III and the exchange of the interests
in GGP/Homart as if such transactions occurred on January 1, 1998. The pro forma
information is based upon the historical consolidated statements of operations
excluding extraordinary items and gain on sale and does not purport to present
what actual results would have been had the offerings, acquisitions, and related
transactions, in fact, occurred at the previously mentioned dates, or to project
results for any future period.
20 of 33
<PAGE> 21
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
PRO FORMA FINANCIAL INFORMATION
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
---------- ----------
Total Revenues: $ 316,637 $ 293,686
========== ==========
Expenses:
Property operating 104,263 100,016
Management fees 4,217 4,227
Depreciation and amortization 59,852 54,314
---------- ----------
Total expenses 168,332 158,557
---------- ----------
Operating income 148,305 135,129
Interest expense, net (90,873) (91,936)
Equity in net income/(loss) of
unconsolidated affiliates
GGP/Homart 8,363 11,069
Property Joint Ventures 6,480 1,565
General Growth Management, Inc. (3,799) (5,996)
Minority interest in operating partnership (18,791) (12,279)
---------- ----------
Pro forma net income (a) 49,685 37,552
Pro forma preferred stock dividends (12,234) (12,234)
---------- ----------
Pro forma net income available to
common stockholders 37,451 25,318
========== ==========
Pro forma earnings per share - basic (b) $ 0.71 $ 0.53
========== ==========
Pro forma earnings per share - diluted (b) $ 0.71 $ 0.53
========== ==========
(a) The pro forma adjustments include management fee and depreciation
modifications and adjustments to give effect to the public offering and
acquisitions activity described above and does not include the 1999
extraordinary items or gain on sale.
(b) Pro forma basic earnings per share are based upon weighted average common
shares of 52,412,873 for 1999 and 47,334,385 for 1998. Pro forma diluted
per share amounts are based on the weighted average common shares and the
effect of dilutive securities (stock options) outstanding of 52,552,905 for
1999 and 47,547,513 for 1998.
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<PAGE> 22
GENERAL GROWTH PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All references to numbered Notes are to specific footnotes to the Consolidated
Financial Statements of the Company included in this quarterly report and which
descriptions are hereby incorporated herein by reference. The following
discussion should be read in conjunction with such Consolidated Financial
Statements and Notes thereto.
On June 30, 1999, the Company together with the Operating Partnership owned 100%
of the fifty-two Wholly-Owned Centers, 51% of the stock of GGP/Ivanhoe, 50% of
Quail Springs Mall and Town East Mall, 51% of the stock of GGP Ivanhoe III, 50%
of the stock of GGP/Homart, and a non-voting preferred stock ownership interest
(representing 95% of the equity interest) in GGMI. GGP/Homart owns interests in
twenty-three shopping centers, GGP/Ivanhoe owns interests in two shopping
centers, and GGP Ivanhoe III owns interests in six shopping centers.
The mall store and free standing store portions of the centers in the Company
Portfolio which were not undergoing redevelopment on June 30, 1998 had an
occupancy of approximately 86.7% as of such date. On June 30, 1999, the mall
store and freestanding store portions of the centers in the Company Portfolio
which were not undergoing redevelopment were approximately 87.4% occupied as of
such date, representing an increase of 0.7% over 1998.
Total annualized sales averaged $323 per square foot for the Company Portfolio
in the six months ended June 30, 1999. In the six months ended June 30, 1999,
total mall store sales for the Company Portfolio increased by 10.0% over the
same period in 1998. Comparable mall store sales are sales of those tenants that
were open the previous 12 months. Therefore, comparable mall store sales in the
six months ended June 30, 1999 are of those tenants that were operating in the
six months ended June 30, 1998. Comparable mall store sales in the six months
ended June 30, 1999 increased by 5.5% over the same period in 1998.
The average mall store rent per square foot from leases that expired in the six
months ended June 30, 1999 was $25.18. The Company Portfolio benefited from
increasing rents inasmuch as the average mall store rent per square foot on new
and renewal leases executed during this same period was $29.68, or $4.50 per
square foot above the average for expiring leases.
FORWARD-LOOKING INFORMATION
Forward looking statements contained in this Quarterly Report on Form 10-Q 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 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
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<PAGE> 23
GENERAL GROWTH PROPERTIES, INC.
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, costs of capital and capital
requirements, availability of real estate properties, competition from other
companies and venues for the sale/distribution of goods and services, changes in
retail rent rates in the Company's markets, shifts in customer demands, tenant
bankruptcies, changes in operating expenses, including employee wages, benefits
and training, governmental and public policy changes, changes in applicable
laws, rules and regulations (including changes in tax laws), the ability to
obtain suitable equity and/or debt financing, and the continued availability of
financing in the amounts and on the terms necessary to support the Company's
future business.
Company 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 GGP/Homart, GGP/Ivanhoe, GGP Ivanhoe III, GGMI, Quail
Springs Mall and Town East Mall, the discussion of results of operations below
relates primarily to the revenues and expenses of the Wholly-Owned Centers.
RESULTS OF OPERATIONS OF THE COMPANY
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Total revenues for the three months ended June 30, 1999 were $135.9 million,
which represents an increase of $47.3 million or approximately 53.4% from $88.6
million in the three months ended June 30, 1998. Substantially all of the
increase is from acquisitions completed during 1999 and 1998. Minimum rent for
the three months ended June 30, 1999 increased by $30.7 million or 54.8% from
$56.0 million in the comparable period in 1998 to $86.7 million. The acquisition
of properties in 1998 and 1999 generated the majority of such increase in
minimum rents. Expansion space, specialty leasing and occupancy increases at the
comparable centers (properties owned for the entire time during the three months
ended June 30, 1998 and 1999) accounted for the remaining increase in minimum
rents. Tenant recoveries increased by $13.5 million or 49.5% from $27.3 million
to $40.8 million for the three months ended June 30, 1999. Substantially all of
the increase was generated by properties which were acquired in 1998 and 1999.
For the three months ended June 30, 1999, percentage rents increased to $5.3
million from $2.6 million in 1998. Acquisitions contributed an increase of
approximately $2.5 million in percentage rent. As more fully described in Note
8, the accounting as originally contemplated by EITF Consensus 98-9 would have
reduced overage rents by approximately $2.3 million from the amount recognized
under the Company's current accounting policy for the three months ended June
30, 1999.
Total expenses, including depreciation and amortization, increased by
approximately $28.6 million, from $44.3 million in the three months ended June
30, 1998 to $72.9 million in the three months ended June 30, 1999. For the three
months ended June 30, 1999, property operating
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<PAGE> 24
GENERAL GROWTH PROPERTIES, INC.
expenses increased by $11.7 million or 58.8% from $19.9 million in 1998 to $31.6
million in the first quarter of 1999, substantially all of which is attributable
to new acquisitions. Depreciation and amortization increased by $10.6 million or
70.2% over the same period in 1998. Approximately $1.1 million of the increase
in depreciation and amortization was generated at comparable centers. The
remaining $9.6 million was from newly acquired properties. Management fees to
affiliates and general and administrative expenses together were approximately
$.9 million or 46.1% higher than in the three months ended June 30, 1998.
Net interest expense for the three months ended June 30, 1999 was $37.3 million,
an increase of $14.2 million or 61.5% from $23.1 million in the three months
ended June 30, 1998. Debt incurred in connection with the acquisition of new
properties in 1998 and 1999 was responsible for substantially all of such
increase.
Equity in net income of unconsolidated affiliates in the three months ended June
30, 1999 decreased by approximately $1.4 million to earnings of $4.5 million in
1999, from $5.9 million in the three months ended June 30, 1998. The Company's
equity in the earnings of GGP/Homart decreased approximately $2.4 million, due
to the gain recognized by GGP/Homart on its May, 1998 sale of its interest in
the Rolling Oaks Mall in San Antonio, Texas. This decrease is partially offset
by an increase in average property occupancy, an increase in the ownership
interest of GGP/Homart in The Parks at Arlington and an increase in the
Company's ownership interest in GGP/Homart in 1999 versus 1998. Property Joint
Ventures (see Note 1) accounted for an increase of approximately $2.3 million
due primarily to the acquisition of USPPI in June 1998 as described more fully
in Note 3.
Gain on sale in the three months ended June 30, 1999, represents the gain on the
sale of outparcel land to a major tenant at Park Mall.
RESULTS OF OPERATIONS OF THE COMPANY
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Total revenues for the six months ended June 30, 1999 were $270.2 million, which
represents an increase of $101.1 million or approximately 59.8% from $169.1
million in the six months ended June 30, 1998. Substantially all of the increase
is from acquisitions completed during 1999 and 1998. Minimum rent for the six
months ended June 30, 1999 increased by $64.0 million or 60.1% from $106.5
million in the comparable period in 1998 to $170.5 million. The acquisition of
properties in 1998 and 1999 generated the majority of such increase in minimum
rents. Expansion space, specialty leasing and occupancy increases at the
comparable centers (properties owned for the entire time during the six months
ended June 30, 1998 and 1999) accounted for the remaining increase in minimum
rents. Tenant recoveries increased by $30.0 million or 56.7% from $52.9 million
to $82.9 million for the six months ended June 30, 1999. Substantially all of
the increase was generated by properties which were acquired in 1998 and 1999.
For the six months ended June 30, 1999, percentage rents increased to $9.2
million from $5.0 million in 1998. Acquisitions contributed an increase of
approximately $4.1 million in percentage rent. As more fully described in Note
8, the accounting as originally contemplated by EITF Consensus 98-9 would have
reduced overage rents by approximately $4.5 million from the
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GENERAL GROWTH PROPERTIES, INC.
amount recognized under the Company's current accounting policy for the six
months ended June 30, 1999.
Total expenses, including depreciation and amortization, increased by
approximately $56.0 million, from $88.8 million in the six months ended June 30,
1998 to $144.8 million in the six months ended June 30, 1999. For the six months
ended June 30, 1999, property operating expenses increased by $20.7 million or
49.2% from $42.1 million in 1998 to $62.8 million in the first quarter of 1999,
substantially all of which is attributable to new acquisitions. Depreciation and
amortization increased by $21.7 million or 74.6% over the same period in 1998.
Approximately $1.6 million of the increase in depreciation and amortization was
generated at comparable centers. The remaining $20.1 million was from newly
acquired properties. Management fees to affiliates and general and
administrative expenses together were approximately $1.7 million or 42.3% higher
than in the six months ended June 30, 1998.
Net interest expense for the six months ended June 30, 1999 was $76.4 million,
an increase of $35.4 million or 86.3% from $41.0 million in the six months ended
June 30, 1998. Debt incurred in connection with the acquisition of new
properties in 1998 and 1999 was responsible for substantially all of such
increase.
Equity in net income of unconsolidated affiliates in the six months ended June
30, 1999 increased by approximately $8.0 million to earnings of $8.7 million in
1999, from $.7 million in the six months ended June 30, 1998. The Company's
equity in the earnings of GGP/Homart decreased approximately $.7 million,
primarily due to the gain recognized by GGP/Homart on its May, 1998 sale of its
interest in the Rolling Oaks Mall in San Antonio, Texas. This decrease is
partially offset by an increase in average property occupancy, an increase in
the ownership interest of GGP/Homart in The Parks at Arlington and an increase
in the Company's ownership interest in GGP/Homart in 1999 versus 1998. The
Company's ownership interest in GGMI resulted in an increase of approximately
$3.8 million, primarily due to the write-off of terminated third-party
management contracts in 1998. Property Joint Ventures (see Note 1) accounted for
an increase of approximately $4.8 million due primarily to the acquisition of
USPPI in June 1998 as described more fully in Note 3.
Gain on sale in the six months ended June 30, 1999, represents the gain on the
sale of outparcel land to a major tenant at Park Mall.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
As of June 30, 1999, the Company held approximately $18.6 million of
unrestricted cash and cash equivalents. The Company uses operating cash flow as
the principal short-term source of internal 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. External funding alternatives that represent
long-term sources of liquidity for acquisitions, new development, expansions and
major renovation programs at individual centers include construction loans,
mini-permanent loans, long-term project financing, joint venture financing with
institutional partners, additional Operating Partnership level or Company level
equity investments, unsecured Company level debt or secured loans collateralized
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<PAGE> 26
GENERAL GROWTH PROPERTIES, INC.
by individual shopping centers. In addition, as of June 30, 1999 the Company has
access to the public equity and debt markets through a currently effective shelf
registration statement under which up to $662.5 million in equity or debt
securities may be issued from time to time. The Company utilized this currently
effective shelf registration for the 1999 Offering (as more fully described in
Note 1) which raised approximately $331.7 million in July 1999. The Company also
has the $200 million Credit Facility which matures on July 31, 2000. On June 30,
1999, the Credit Facility had an outstanding balance of approximately $192
million.
As of June 30, 1999, the Company had consolidated dept of $2,808 million, of
which approximately $1,784 million is comprised of debt bearing interest at a
fixed rate, with the remaining approximately $1,024 million bearing interest at
floating rates. Reference is made to Note 4 and Item 3 below for additional
information regarding the Company's debt and the potential impact on the Company
of interest rate fluctuations. The Company has already identified replacement
financing for all loans scheduled to mature in the next 120 days and binding
commitments are currently being negotiated.
The following summarizes certain significant investment and financing
transactions currently planned or completed since December 31,1998:
In January 1999, the Company obtained an additional $30 million short-term
unsecured bank loan which bore interest at a floating market rate. The bank loan
was repaid on May 21,1999 in conjunction with the replacement of the $55 million
negative pledge (i.e., the promise not to encumber) of Coastland Mall with a
ten-year 7.0% mortgage loan in the principal amount of $87 million secured by
the Coastland Mall.
In January 1999, the Company obtained an additional $83.7 million floating rate
interim loan (scheduled to mature June 1, 1999 but partially repaid in May, 1999
with the remainder subsequently extended to November 1, 1999 as discussed
below). Such loan is expected to be replaced or refinanced by its maturity date
with new mortgage financing. Approximately $8.655 million of the interim loan
proceeds were paid to the MEPC acquisition-financing lender as a loan prepayment
fee as more fully described in Note 4.
On January 11, 1999, the Company acquired The Crossroads Mall in Kalamazoo,
Michigan. The aggregate purchase price was approximately $68 million, which was
funded from the Company's new short-term floating rate interim loan described
above. In May, 1999 the Company obtained a new $45 million mortgage loan secured
by The Crossroads Mall to replace a portion of the $83.7 million of interim
financing. The new mortgage loan bears interest at 7.40% and matures in June,
2009.
The Company is currently negotiating a $90 million construction loan facility to
finance the renovation currently underway at Park Mall in Tucson, Arizona (the
final phase of which is expected to be completed in 2001). In conjunction with
such negotiations, the Company obtained in April 1999, a $25 million short-term
bank loan maturing in September 1999. The Company is seeking a floating rate
construction loan, which is expected to be replaced at project completion with
permanent long-term mortgage non-recourse financing (see Note 4).
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GENERAL GROWTH PROPERTIES, INC.
On April 29, 1999, the Company finalized the terms of a new $110 million
construction loan facility that will be used to fund the remaining construction
costs for RiverTown Crossings Mall (a current development project in Grandville
(Grand Rapids), Michigan as more fully described in Note 2). Loan amounts drawn
on the facility (approximately $48 million as of the date of this report) bear
interest at a rate per annum equal to LIBOR plus 175 basis points and the
Company expects to refinance this loan facility by the scheduled maturity of
June 29, 2001 with permanent long-term financing secured by the then completed
mall (see Note 4).
On July 1, 1999, the Company obtained approximately $57 million of permanent
long term mortgage financing. The new mortgage loan, secured by the Apache Mall,
bears interest at 7.0% and is scheduled to mature August 1, 2009.
On July 1, 1999, the Company obtained an extension of the maturity date of
approximately $833 million of indebtedness from its scheduled maturity date on
July 1, 1999 to October 1, 1999. The Company expects to enter into one or more
transactions pursuant to which this debt will be refinanced in whole or in part
through the issuance of commercial mortgage-backed securities or other debt or
equity securities. In connection with the extension, the Operating Partnership
guaranteed the repayment of $200 million of the debt. The Company also agreed to
issue up to 5,000,000 shares of Common Stock to affiliates of the lender as
additional collateral if the indebtedness is not paid in full by October 1, 1999
and upon other events of default.
During July 1999, General Growth completed the 1999 Offering as more fully
described in Note 1. In addition, the underwriter of the 1999 Offering has an
over-allotment option (expiring August 13, 1999) to purchase an additional
1,000,000 shares of Common Stock. General Growth received net proceeds of
approximately $331,725 which were ultimately used to pay a portion of the
purchase price for the Ala Moana Center.
On July 26, 1999, the Company obtained a ten-year loan in the principal amount
of $100 million secured by a mortgage encumbering Cumberland Mall in Atlanta,
Georgia. The loan proceeds were used to repay a portion of the MEPC acquisition
financing which had been secured by a mortgage on the MEPC Portfolio (which
includes Cumberland Mall).
On July 30, 1999, the Company obtained a three month loan (with an additional
three-month extension option) in the principal amount of $25 million secured by
a negative pledge (i.e., the promise not to encumber) of Eagle Ridge Mall in
Lake Wales, Florida. This loan is currently expected to be fully refinanced by
maturity by new long-term non-recourse mortgage financing on this or other
currently unencumbered properties. The proceeds of the loan were distributed to
the Operating Partnership to fund ongoing acquisition and development activity.
During July 1999, the $100 million loan secured by Northbrook Court was extended
from its scheduled maturity of August 1, 1999 to November 1, 1999. On or before
maturity, the Company expects to fully refinance this loan with long-term
mortgage financing.
On July 30, 1999, the Company acquired 100% of the Ala Moana Center in Honolulu,
Hawaii, as more fully described in Note 2. The transaction was funded by a new
$438 million short-term first mortgage loan which matures on October 29, 1999
and approximately $294 million in
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GENERAL GROWTH PROPERTIES, INC.
cash including a portion of the net proceeds of the 1999 Offering as further
described in Note 1. The Company currently expects to fully refinance the
short-term mortgage loan before or on its maturity through the issuance of
commercial mortgage backed securities. The Company may discuss with
institutional investors the formation of a new joint venture to own the
property. The terms of any joint venture and the Company's interest in any joint
venture, have not been determined and the Company may not ultimately elect to
form any such joint venture.
The Company is actively seeking to refinance all outstanding indebtedness which
matures on or before December 31, 1999. Although agreements to refinance all of
such indebtedness have not yet been reached, the Company anticipates that all of
its debt will be repaid on a timely basis. Other than as described above or in
conjunction with possible future acquisitions, there are no current plans to
incur additional debt or equity capital. If additional capital is required, the
Company believes that it can obtain an interim bank loan, obtain mortgage
financing on unencumbered assets, enter into new joint venture partnership
arrangements or raise additional debt or equity capital. The Company will
continue to monitor its capital structure, investigate potential joint venture
arrangements and purchase additional properties if they can be acquired and
financed on terms that management of the Company reasonably believes will
enhance stockholder value.
Net cash provided by operating activities was $94.7 million in the first six
months of 1999, an increase of $27.8 million from $66.9 million in the same
period in 1998. Net income increased $12.5 million, which was represented
primarily by the earnings contributed by acquisitions completed in 1998 and
1999.
Net cash used by investing activities was $177.6 million in the first six months
of 1999 compared to $1,022 million of cash used in the first six months of 1998.
Cash flow from investing activities was impacted by acquisitions (including
liabilities assumed at acquisition), development and improvements to real estate
properties, which caused a decrease in cash of approximately $165.5 million in
the first six months of 1999. Significant uses of cash in the first six months
of 1998 were the higher level of acquisition activity in 1998 (including
Southwest Plaza, Northbrook Court, the MEPC portfolio, the USPPI portfolio and
the funding of the Pierre Bossier $50 million mortgage note receivable in 1998)
versus the same period in 1999 as more fully described in Notes 2 and 6.
Financing activities contributed cash of $81.8 million in the first six months
of 1999, compared to a source of cash of $959.4 million in 1998. A major
contributing factor of cash from financing activity is financing from mortgages
and other debt, which had a positive impact of $292 million in the first six
months of 1999 versus approximately $1,141 million in the first six months of
1998. The additional financing in 1998 was used to fund the higher level of
acquisitions, developments and redevelopment of real estate discussed above and
in Note 2.
In order to remain qualified as a real estate investment trust for federal
income tax purposes, the Company must distribute 100% of capital gains and at
least 95% of its ordinary taxable income to stockholders. 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
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GENERAL GROWTH PROPERTIES, INC.
(iv) the Company's share of operating cash flow generated by GGMI, the Property
Joint Ventures, GGP/Homart and distributions therefrom, less oversight costs and
debt service on additional loans that have been or will be incurred. 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
preferred and common 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As more fully described in Note 8, the FASB, EITF and the AICPA have issued
certain statements, which are effective for the current or subsequent year. The
Company does not expect a significant impact on its annual reported operations
due to the application of such new statements.
YEAR 2000 READINESS DISCLOSURES
The Year 2000 problem results from the use of a two digit year date instead of a
four digit date in the programs that operate computers (information technology
or "IT" systems) and other devices (i.e. "non-IT" systems such as elevators,
utility monitoring systems and time clocks that use computer chips). Systems
with a Year 2000 problem have programs that were written to assume that the
first two digits for any date used in the program would always be "19". Unless
corrected, this assumption may result in problems when the century date occurs.
On that date, these computer programs likely will misinterpret the date January
1, 2000 as January 1, 1900. This could cause systems to incorrectly process
critical financial and operational information, generate erroneous information
or fail altogether. The Year 2000 issue affects almost all companies and
organizations.
THE COMPANY'S STATE OF READINESS:
The Company recently upgraded its major information systems including its
databases and primary accounting software which are all Year 2000 compliant.
These were performed primarily for the purpose of routine improvements to the
Company's information systems. These upgrades were initiated in advance of any
concern for the Year 2000 issue. The Company has also evaluated several other
smaller non-IT systems (i.e. time keeping systems, elevators, etc.) to verify
that they are Year 2000 compliant. In addition, the Company has formed a Year
2000 Committee that includes senior personnel from most areas of the Company.
These people are charged with the duty of determining the extent of the
Company's exposure and taking the appropriate action to minimize any impact on
the Company's operations. The non-IT systems evaluation process was recently
completed and substantially all of the appropriate upgrades or replacements have
been purchased. The cost of the required upgrades was less than $1 million. In
addition, the Company is communicating with its customers, tenants, suppliers
and service providers to determine whether they are actively involved in
projects to ensure that their products
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GENERAL GROWTH PROPERTIES, INC.
and business systems will be Year 2000 compliant. The Company's exposure is
widely spread, with no known major direct exposure.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUE:
As the Company's Year 2000 compliance issues have already been addressed, the
Company does not expect to incur any significant additional costs regarding its
IT systems due to the Year 2000 issue.
RISKS RELATING TO THE YEAR 2000 ISSUE AND CONTINGENCY PLANS:
Although the Company is not currently aware of any specific significant Year
2000 issues involving third-parties, the Company believes that its most
significant potential risk relating to the Year 2000 issue is in regard to such
third parties. For example, the Company believes there could be failure in the
information systems of certain service providers that the Company relies upon
for electrical, telephone and data transmission and banking services. The
Company believes that any service disruption with respect to these providers due
to a Year 2000 issue would be of a short-term nature. The Company has existing
back-up systems and procedures, developed primarily for natural disasters, that
could be utilized on a short-term basis to address any service interruptions. In
addition, with respect to tenants, a failure of their information systems could
delay the payment of rents or even impair their ability to operate. These tenant
problems are likely to be isolated and would likely not impact the operations of
any particular mall or the Company as a whole. While it is not possible at this
time to determine the likely impact of any of these potential problems, the
Company will continue to evaluate these areas and develop additional contingency
plans, as appropriate. However, although the Company believes that its Year 2000
issues have been addressed and that suitable remediation and/or contingency
procedures will be in place by December 31, 1999, there can be no assurance that
Year 2000 issues will not have a material adverse effect on the Company's
results of operations or financial condition or liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments. The Company is subject to
market risk associated with changes in interest rates. Interest rate exposure is
principally limited to the $1,024 million of debt of the Company outstanding at
June 30, 1999 that is priced at interest rates that float with the market. A 25
basis point movement in the interest rate on the floating rate debt would result
in an approximate $2.6 million annualized increase or decrease in interest
expense and cash flows. The remaining debt is fixed rate debt. The Company has
an ongoing program of refinancing its floating and fixed rate debt and believes
that this program allows it to vary its ratio of fixed to floating rate debt to
respond to changing market rate conditions. Reference is made to Item 2 above
and Note 4 for additional debt information.
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GENERAL GROWTH PROPERTIES, INC.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Set forth below is certain information about sales of securities made by General
Growth during the second quarter of 1999, which sales were not registered under
the Securities Act of 1933, as amended. The sales were made in connection with
the exercise by the purchasers named below of exchange rights as described in
Note 3 and were effected in reliance upon the exemption contained in Section 4
(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated
thereunder.
<TABLE>
<CAPTION>
EFFECTIVE NUMBER OFFERING PRICE OR
DATE ISSUER SECURITY OF SHARES PURCHASER CONSIDERATION
---- ------ -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
4/01/99 General Growth Common 1,240,887 USG Annuity & Life 1,200 shares of common
Properties, Inc. Stock Company stock of GGP/Homart, Inc.
(representing an
approximate 5.7% interest
in GGP/Homart, Inc.)
4/01/99 General Growth Common 310,222 Equitable Life Insurance 300 shares of common stock
Properties, Inc. Stock Company of Iowa of GGP/Homart, Inc.
(representing an
approximate 1.4% interest
in GGP/Homart, Inc.)
</TABLE>
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<PAGE> 32
GENERAL GROWTH PROPERTIES, INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting of Stockholders held on May 12, 1999, the stockholders
voted upon the re-election of Matthew Bucksbaum and Beth Stewart as Directors,
an amendment to the Certificate of Incorporation with respect to the cumulative
dividends paid to holders of PIERS, an amendment to the Certificate of
Incorporation to remove the IBM Retirement Plan as an exception to the ownership
limit contained therein and the ratification of the reappointment of
Pricewaterhouse Coopers LLP as Independent Auditors. A total of 39,052,095
shares were eligible to vote on each matter presented at the Annual Meeting,
which were approved by the following votes of stockholders:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
MATTER FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. (a) Re-elect Matthew Bucksbaum 30,896,218 10,887 1,099,707
(b) Re-elect Beth Stewart 30,896,218 10,887 1,099,707
2. Approve an Amendment to the Certificate of
Incorporation with respect to 31,483,546 241,489 281,777
Cumulative Dividends paid on PIERS
3. Approve an Amendment to the Certificate of
Incorporation regarding the IBM Retirement 31,853,744 91,379 61,689
Plan exception
4. Re-appointment of Pricewaterhouse
Coopers LLP as Independent Auditors 31,941,696 34,716 30,400
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the quarter covered
by this report:
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<PAGE> 33
GENERAL GROWTH PROPERTIES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL GROWTH PROPERTIES, INC.
(Registrant)
Date: August 12, 1999 by: /s/ Bernard Freibaum
---------------------------------------
Bernard Freibaum
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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<PAGE> 34
EXHIBIT INDEX
2(a) Amended and Restated Stock Purchase Agreement, dated as of October 16,
1995, by and among Sears, Roebuck and Co., Homart Development Co., Homart Newco
One, Inc. and GGP/Homart, Inc.(1)
2(b) Amendment No. 1 to Amended and Restated Stock Purchase Agreement,
dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart
Development Co., Homart Newco One, Inc. and GGP/Homart, Inc.(1)
2(c) Real Estate Purchase Agreement, dated as of July 31, 1995, by and
among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc.(1)
2(d) Amendment No. 1 to Real Estate Purchase Agreement, dated as of October
16, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and
GGP/Homart, Inc.(1)
2(e) Amendment No. 2 to Real Estate Purchase Agreement, dated as of
December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co.
and GGP/Homart, Inc.(1)
2(f) Mall Purchase Agreement, dated as of December 22, 1995, by and among
Sears, Roebuck and Co., Homart Development Co. and General Growth
Properties-Natick Limited Partnership.(1)
2(g) Contribution Agreement dated December 6, 1996, between Forbes/Cohen
Properties, a Michigan general partnership, and GGP Limited Partnership, a
Delaware limited partnership.(2)
2(h) Contribution Agreement dated December 6, 1996, between Lakeview Square
Associates, a Michigan general partnership, and GGP Limited Partnership, a
Delaware limited partnership.(2)
2(i) Contribution Agreement dated December 6, 1996, between Jackson
Properties, a Michigan general partnership, and GGP limited Partnership, a
Delaware limited partnership.(2)
2(j) Sale and Contribution Agreement dated June 19, 1997, between CA
Southlake Investors, Ltd., a Georgia limited partnership, and GGP Limited
Partnership, a Delaware limited partnership.(10)
2(k) Contribution Agreement dated June 10, 1997, among Atlantic Freeholds
II, a Nevada general partnership, Town East Mall, L.P., a Delaware limited
partnership, and Town East Mall Partnership, a Texas general partnership.(10)
2(l) Purchase and Sale Agreement dated as of March 22, 1997, between
Century Plaza Co., an Alabama general partnership, and Century Plaza L.L.C., a
Delaware limited liability company. (10)
S-1
<PAGE> 35
2(m) Real Estate Purchase Agreement dated March 12, 1997, between Champaign
Venture, an Illinois general partnership, and Champaign Market Place L.L.C., a
Delaware limited liability company. (10)
2(n) Stock Purchase Agreement dated as of April 17, 1998 and amended June
2, 1998, among MEPC PLC, MEPC North American Properties Limited, U.K.-American
Holdings Limited and GGP Limited Partnership. (16)
2(o) Purchase and Sale Agreement dated May 8, 1998, among Grosvenor
International Limited, P.I.C. Investments, Northbrook Court I L.L.C. and
Northbrook Court II L.L.C. (17)
2(p) Merger Agreement dated May 14, 1998, among GGP Limited Partnership,
GGP Acquisition L.L.C. and U.S. Prime Property, Inc. (17)
2(q) Sale and Contribution Agreement dated April 2, 1998, between Southwest
Properties Venture and GGP Limited Partnership. (18)
2(r). Contribution and Exchange Agreement dated as of July 10, 1998 (the
"Contribution Agreement") among Nashland Associates, HRE Altamonte, Inc.,
Altamonte Springs Mall L.P., and GGP Limited Partnership. (21)
2(s). Purchase and Sale Agreement and Joint Escrow Instructions dated as of
August 21, 1998 by and between Spring Hill Mall Partnership (seller) and Spring
Hill Mall L.L.C., (purchaser). (22)
2(t).Purchase and Sale Agreement dated as of the 18th day of September,
1998 by and between Coastland Center Joint Venture (seller) and Coastland
Center, L.P. (purchaser). (23)
2(u) Purchase and Sale Agreement dated as of May 3, 1999, among D/E Hawaii
Joint Venture, GGP Limited Partnership and General Growth Properties, Inc. (27)
3(a) Amended and Restated Certificate of Incorporation of the Company. (3)
3(b) Amendment to Amended and Restated Certificate of Incorporation of the
Company.(5)
3(c) Amendment to Amended and Restated Certificate of Incorporation of the
Company filed on December 21, 1995.(11)
3(d) Amendment to Amended and Restated Certificate of Incorporation of the
Company filed on May 20, 1997.(15)
3(e) Amendment to Second Amendment and Restated Certificate of
Incorporation of the Company filed on May 17, 1999. (27)
3(f) Bylaws of the Company.(5)
3(g) Amendment to Bylaws of the Company.(5)
S-2
<PAGE> 36
4(a) Redemption Rights Agreement, dated July 13, 1995, by and among GGP
Limited Partnership, General Growth Properties, Inc. and the persons listed on
the signature pages thereof.(8)
4(b) Redemption Rights Agreement dated December 6, 1996, among GGP Limited
Partnership, a Delaware corporation, Forbes/Cohen Properties, a Michigan general
partnership, Lakeview Square Associates, a Michigan general partnership, and
Jackson Properties, a Michigan general partnership.(2)
4(c) Redemption Rights Agreement, dated June 19, 1997, among GGP Limited
Partnership, a Delaware limited partnership, General Growth Properties, Inc., a
Delaware corporation, and CA Southlake Investors, Ltd., a Georgia limited
partnership.(13)
4(d) Redemption Rights Agreement dated October 23, 1997, among GGPI, GGPLP
and Peter Leibowits.(15)
4(e) Form of Indenture.(12)
4(f) Certificate of Designations, Preferences and Rights of 7.25% Preferred
Income Equity Redeemable Stock, Series A. (20)
4(g) Amendment to Certificate of Designations, Preferences and Rights of
7.25% Preferred Income Equity Redeemable Stock, Series A of General Growth
Properties, Inc. filed on May 17, 1999. (27)
4(h) Redemption Rights Agreement dated April 2, 1998, among GGP Limited
Partnership, General Growth Properties, Inc. and Southwest Properties Venture.
(17)
4(i) Indenture and Servicing Agreement dated as of November 25, 1997, among
the Issuers named therein, LaSalle National Bank, as Trustee, and Midland Loan
Services, L.P., as Servicer (the "Indenture Agreement"). (18)
4(j) Form of Note pursuant to the Indenture Agreement. (18)
4(k) Mortgage, Deed of Trust, Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, date and effective as of November
25, 1997, among the Issuers, the Trustee and the Deed Trustees named therein.
(18)
4(l) Rights Agreement, dated November 18, 1998, between General Growth
Properties, Inc. and Norwest Bank Minnesota, N.A., as Rights Agent (including
the Form of Certificate of Designation of Series A Junior Participating
Preferred Stock attached thereto as Exhibit A, the Form of Right Certificate
attached Preferred Stock attached thereto as Exhibit C). (24)
4(m) Form of Common Stock Certificate. (25)
10(a) Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership. (19)
S-3
<PAGE> 37
10(b) Rights Agreement between the Company and the Limited Partners of the
Operating Partnership.(6)
10(c) Real Estate Management Agreement dated July 1, 1996, between General
Growth Management, Inc. and GGP Limited Partnership.(13)
10(d)* General Growth Properties, Inc. 1993 Stock Incentive Plan, as
amended.(14)
10(e) Form of Amended and Restated Agreement of Partnership for each of the
Property Partnerships.(3)
10(f) Sale-Purchase Agreement dated as of December 30, 1992, by and between
Equitable and the Company.(3)
10(g) Form of Indemnification Agreement between the Operating Partnership,
Martin Bucksbaum, Matthew Bucksbaum, Mall Investment L.P. and M. Bucksbaum
Company. (3)
10(h) Form of Registration Rights Agreement between the Company and the
Bucksbaums. (3)
10(i) Form of Registration Rights Agreement between the Company and certain
trustees for the IBM Retirement Plan. (3)
10(j) Form of Incidental Registration Rights Agreement between the Company,
Equitable, Frank Russell and Wells Fargo.(3)
10(k) Form of Letter Agreements restricting sale of certain shares of
Common Stock.(3)
10(l)* Letter Agreement dated October 14, 1993, between the Company and
Bernard Freibaum.(6)
10(m)* Form of Option Agreement between the Company and certain Executive
Officers.(13)
10(n)* General Growth Properties, Inc. 1998 Incentive Stock Plan.(26)
27 Financial Data Schedule.
(*) A compensatory plan or arrangement required to be filed.
===============================================================================
(1) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated January 5, 1996, incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated January 3, 1996, incorporated herein by reference.
S-4
<PAGE> 38
(3) Previously filed as an exhibit to the Company's Registration Statement
on Form S-11 (No. 33-56640), incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated July 16, 1996, incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1994, incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated February 25, 1994, incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated July 17, 1996, incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (No. 33-23035), incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated June 19, 1997, incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (No. 333-37247) dated October 6, 1997, incorporated herein by
reference.
(13) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, incorporated herein by reference.
(14) Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (No. 333-28449) dated June 3, 1997, incorporated herein by
reference.
(15) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated June 17, 1998, incorporated herein by reference.
(17) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated May 26, 1998, incorporated herein by reference.
(18) Previously filed as an exhibit to the Company's Current Report on Form
8-K/A dated June 2, 1998, incorporated herein by reference.
S-5
<PAGE> 39
(19) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q dated May 14, 1998, as amended May 21, 1998, incorporated herein by
reference.
(20) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated August 7, 1998, incorporated herein by reference.
(21) Previously filed as an exhibit to the Company's Current Report on
Form 8-K dated August 5, 1998, incorporated herein by reference.
(22) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 30, 1998, incorporated herein by reference.
(23) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated October 5, 1998, incorporated herein by reference.
(24) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated November 18, 1998, incorporated herein by reference.
(25) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, incorporated herein by reference.
(26) Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (No. 333-74461) dated March 12, 1999, incorporated herein by
reference.
(27) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated July 12, 1999, incorporated herein by reference.
S-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS INCLUDED IN ITS REPORT ON FORM 10-Q FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000895648
<NAME> GENERAL GROWTH PROPERTIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,650
<SECURITIES> 0
<RECEIVABLES> 75,907
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,313,156
<DEPRECIATION> 350,062
<TOTAL-ASSETS> 4,260,247
<CURRENT-LIABILITIES> 0
<BONDS> 2,808,297
337,500
0
<COMMON> 4,166
<OTHER-SE> 957,951
<TOTAL-LIABILITY-AND-EQUITY> 4,260,247
<SALES> 270,176
<TOTAL-REVENUES> 270,176
<CGS> 0
<TOTAL-COSTS> 142,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,198
<INTEREST-EXPENSE> 76,357
<INCOME-PRETAX> 60,752
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,752
<DISCONTINUED> 0
<EXTRAORDINARY> 8,693
<CHANGES> 0
<NET-INCOME> 39,048
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.65
</TABLE>
