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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 1-11656
GENERAL GROWTH PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 42-1283895
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 N. Wacker Dr., Chicago, IL 60606
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(Address of principal executive offices) (Zip Code)
(312) 960-5000
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.10 par value New York Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/40 of a share of 7.25% Preferred Income
Equity Redeemable Stock, Series A
Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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
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[X] Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 19, 1999, the aggregate market value of the 36,351,342 shares of
Common Stock held by non-affiliates of the registrant was $1,142,795,314 based
upon the closing price on the New York Stock Exchange composite tape on such
date. (For this computation, the registrant has excluded the market value of all
shares of its Common Stock reported as beneficially owned by executive officers
and directors of the registrant and certain other stockholders; such exclusion
shall not be deemed to constitute an admission that any such person is an
"affiliate" of the registrant). As of March 19, 1999, there were 39,052,095
shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held
on May 12, 1999 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
All references to numbered Notes are to specific footnotes to the Consolidated
Financial Statements of the Company (as defined below) included in this Annual
Report on Form 10-K, which descriptions are hereby incorporated herein by
reference. The following discussion should be read in conjunction with such
Consolidated Financial Statements and Notes thereto.
FORWARD LOOKING INFORMATION
Forward looking statements contained in this Annual Report on Form 10-K 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 General Growth
Properties, Inc. ("General Growth"), its Operating Partnership (as defined
below) and Subsidiaries (collectively, the "Company")and its management are
based on estimates, projections, beliefs and assumptions of management at the
time of such statements and are not guarantees of future performance. The
Company disclaims any obligation to update or revise any forward-looking
statement based on the occurrence of future events, the receipt of new
information or otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of these factors include (without limitation) general industry and
economic conditions, interest rate trends, cost of capital and capital
requirements, availability of real estate properties, competition from other
companies and venues for the sale/distribution of goods and services, shifts in
customer demands, tenant bankruptcies, changes in operating expenses, including
employee wages, benefits and training, governmental and public policy changes,
changes in applicable laws, rules and regulations (including changes in tax
laws), and the continued availability of financing in the amounts and at the
terms necessary to support the Company's future business.
GENERAL
General Growth Properties, Inc. was formed in 1986 by Martin Bucksbaum and
Matthew Bucksbaum (the "Original Stockholders"). On April 15, 1993, an initial
public offering (the "IPO") of the common stock (the "Common Stock") of General
Growth Properties, Inc. and certain related transactions were completed. In
connection with the IPO, General Growth Properties, Inc. (as general partner)
and the Original Stockholders (as limited partners) formed GGP Limited
Partnership (the "Operating Partnership"). As a result of the IPO
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and related transactions, the Company owned 100% of twenty-one enclosed mall
shopping centers. During May of 1995, General Growth completed a follow-on stock
offering of 4,500,000 shares of Common Stock. General Growth issued 3,451,783
shares of Common Stock during 1996 in connection with various acquisitions. In
the third quarter of 1997 General Growth sold an additional 4,927,680 shares of
Common Stock in two separate transactions. 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"), of General
Growth. During November 1998, General Growth adopted a shareholder's rights plan
as more fully described in Note 1.
As of December 31, 1998, the Company owned 100% of fifty-one enclosed mall
shopping centers (the "Wholly-Owned Centers"); 51% of the stock of GGP/Ivanhoe,
Inc. ("GGP/Ivanhoe"), 50% of each of two enclosed mall shopping centers, Quail
Springs Mall and Town East Mall, and 51% of the stock of GGP Ivanhoe III, Inc.
("GGP Ivanhoe III") (collectively the "Property Joint Ventures"); approximately
38.2% of the stock of GGP/Homart, Inc. ("GGP/Homart") and a non-voting preferred
stock interest in General Growth Management, Inc. ("GGMI"). The fifty-one 100%
owned enclosed mall shopping centers, the 51% ownership interest in the two
centers owned by GGP/Ivanhoe, the 51% ownership interest in the six centers
owned by GGP Ivanhoe III, and the 50% ownership interest in both Quail Springs
Mall and Town East Mall comprise the "GGP Centers". On December 31, 1998,
General Growth Properties, Inc. owned an approximate 66% general partnership
interest in the Operating Partnership, and various minority holders, including
the Original Stockholders and subsequent contributors of properties to the
Company, owned the remaining 34% limited partnership interest. See Item 7 and
the Consolidated Financial Statements and Notes included in Item 8 of this
Annual Report on Form 10-K for certain financial and other information required
by this Item 1.
On February 11, 1994, the Company acquired 40% of the outstanding stock of
CenterMark Properties, Inc. ("CenterMark") for approximately $182.0 million in
cash. CenterMark owned interests in sixteen enclosed mall shopping centers,
three power centers and certain other real estate. On December 19, 1995, the
Company sold a portion of its interest in CenterMark for $72.5 million and
granted the buyer an option to purchase its remaining interest. Pursuant to such
option, the Company's remaining interest was sold in two transactions with $87.0
million received on July 1, 1996 and $130.5 million received on January 2, 1997.
On December 22, 1995 the Company, jointly with four other investors, acquired
100% of the stock in GGP/Homart which owned substantially all of the regional
mall assets and liabilities of Homart Development Co., an indirect wholly-owned
subsidiary of Sears, Roebuck & Co. The Company acquired approximately 38.2% of
GGP/Homart for approximately $178 million including certain transaction costs.
All of the stockholders of GGP/Homart committed to contribute up to $80.0
million of additional capital and as of December 31, 1997 this commitment had
been fulfilled. At December 31, 1998 GGP/Homart owned interests in twenty-three
shopping centers (the "Homart Centers"). Together, the GGP Centers and the
Homart Centers comprise the "Company Portfolio" or the "Portfolio Centers".
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On December 22, 1995, GGP Management, Inc. ("GGP Management") was formed to
manage, lease, develop and operate enclosed malls. The Operating Partnership
owned 100% of the non-voting preferred stock ownership interest in GGP
Management representing 95% of the equity interest. Key employees of the Company
held the remaining 5% ownership interest therein in the form of common stock
entitled to all of the voting rights in GGP Management. In August of 1996, GGP
Management acquired GGMI through arm's length negotiations for approximately
$51.5 million, which was accounted for as a purchase, by completing the
following steps: GGP Management borrowed approximately $39.9 million from the
Operating Partnership, and used the loan proceeds to acquire 1,555,855
newly-issued shares of Common Stock from the Company. GGP Management then
exchanged the 1,555,855 shares of Common Stock and 453,791 Operating Partnership
Units (contributed by the Operating Partnership) for 100% of the outstanding
shares in GGMI. GGP Management was then merged into GGMI with GGMI as the
surviving entity.
The Operating Partnership currently holds all of the non-voting preferred stock
ownership interest in GGMI representing 95% of the equity interest. Certain key
employees of the Company hold the remaining 5% equity interest through ownership
of 100% of the common stock which is entitled to all voting rights in GGMI. GGMI
cannot distribute funds until its available cash flow exceeds all accumulated
preferred dividends owed to the preferred stockholder. As of December 31, 1998,
no such distributions by GGMI have been made. Any dividends in excess of the
preferred cumulative dividend are allocated 95% to the preferred stockholder and
5% to the common stockholders. The interest only loan from the Operating
Partnership to GGMI bears interest at 14% and matures in 2016. GGMI may make
principal payments on the loan if it has sufficient cash flow. GGMI manages,
leases, and performs various other services for the Portfolio Centers and other
properties owned by unaffiliated parties.
On September 17, 1997, GGP/Ivanhoe indirectly acquired both The Oaks Mall in
Gainesville, Florida and Westroads Mall in Omaha, Nebraska. The purchase price
for the two properties was approximately $206,000 of which $125,000 was financed
through property level indebtedness. The Company contributed approximately
$43,700 for its 51% ownership interest in GGP/Ivanhoe. Ivanhoe, Inc. of
Montreal, Canada ("Ivanhoe") owns the remaining 49% ownership interest in
GGP/Ivanhoe.
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
Ivanhoe. 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 as well as credits for tenant allowances, construction costs,
commissions, due diligence items and certain miscellaneous items). The
acquisition was financed with a $392,000 interim loan, which becomes due July 1,
1999, and capital contributions from the Company and the joint venture partner
in proportion to their respective stock ownership. The properties acquired
include Landmark Mall in Alexandria, Virginia; the Mayfair Mall and adjacent
office buildings in Wauwatosa (Milwaukee), Wisconsin; the Meadows Mall in Las
Vegas, Nevada; the Northgate
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Mall in Chattanooga, Tennessee; Oglethorpe Mall in Savannah, Georgia; and the
Park City Center in Lancaster, Pennsylvania. The properties acquired are
currently managed by GGMI.
BUSINESS OF THE COMPANY
The Company is primarily engaged in the ownership, operation, management,
leasing, acquisition, development, expansion and financing of enclosed mall
shopping centers in the United States. Most of the shopping centers in the
Company Portfolio are strategically located in major and middle markets where
they have strong competitive positions. A detailed listing on page 17 of this
report contains information on each enclosed mall shopping center in the Company
Portfolio including location, year opened, square footage, anchors, and anchor
vacancies. The Company Portfolio's geographic diversification should mitigate
the effects of regional economic conditions and local factors.
The Company makes all key strategic decisions for the Portfolio Centers.
However, in connection with the Homart Centers and the properties owned by the
Property Joint Ventures, such strategic decisions are made jointly with the
respective stockholders or joint venture partners. The Company is also the asset
manager of the Portfolio Centers, executing the strategic decisions and
overseeing the day-to-day activities performed by GGMI. GGMI performs day-to-day
property management functions including leasing, construction management, data
processing, maintenance, accounting, marketing, promotion and security pursuant
to the management agreements. As of December 31, 1998 GGMI was the property
manager for all of the GGP Centers and twenty of the Homart Centers. Certain
joint venture partners of GGP/Homart managed the other three Homart Centers.
The majority of the income from the Portfolio Centers is derived from rents
received through long term leases with retail tenants. The long-term leases
require the tenants to pay base rent which is a fixed amount specified in the
lease. The base rent is often subject to scheduled increases defined in the
lease. Another component of income is percentage rent. Percentage rent is paid
by the tenant if their sales exceed an agreed upon minimum annual amount.
Percentage rent is calculated by multiplying the sales in excess of the minimum
annual amount by a percentage defined in the lease. Long-term leases generally
contain a provision for the lessor to recover certain expenses incurred in the
day-to-day operations including common area maintenance and real estate taxes.
The recovery is generally related to the tenant's pro-rata share of space in the
property.
The evolution of the shopping center business necessitates the implementation of
new approaches to shopping center management and leasing. Management's
strategies to increase shareholder value and cash flow include the integration
of mass merchandise retailers with traditional department stores, specialty
leasing, entertainment-oriented tenants, proactive property management and
leasing, strategic expansions and acquisitions, and selective new shopping
center developments. These approaches should enable the Company to operate and
grow successfully in today's value-oriented environment. Following is a summary
of recent acquisition, development and expansion and redevelopment activity.
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ACQUISITIONS
The Company continues to seek properties for acquisition that make financial
sense. In 1998, the Company acquired 100% ownership interests in fifteen
regional malls and partial ownership interests in six additional regional malls
for an aggregate investment by the Company of approximately $1,709.9 million.
The following is a summary description of the acquisitions made by the Company
since December 31, 1997.
During the second quarter of 1998 the Company acquired a 100% ownership interest
in ten properties: Southwest Plaza in Denver, Colorado; Northbrook Court in
Northbrook (Chicago), Illinois; The Apache Mall in Rochester, Minnesota; the
Boulevard Mall in Las Vegas, Nevada; the Cumberland Mall in Atlanta, Georgia;
the McCreless Mall in San Antonio, Texas; the Northridge Fashion Center in
Northridge (Los Angeles), California; the Regency Square Mall in Jacksonville,
Florida; the Riverlands Shopping Center in LaPlace, Louisiana and the Valley
Plaza Mall in Bakersfield, California. The latter eight properties were acquired
in one transaction and previously comprised the U.S. retail portfolio of MEPC
plc, a United Kingdom based real estate company. The aggregate consideration
paid for the ten properties was approximately $1,132 million (subject to
prorations and certain adjustments). On July 23, 1998, effective as of June 30,
1998, GGP Ivanhoe III acquired through a merger of a wholly-owned subsidiary of
GGP Ivanhoe III with and into USPPI, the following six properties directly or
indirectly: the Landmark Mall in Alexandria, Virginia; the Mayfair Mall and
adjacent office buildings in Wauwatosa (Milwaukee), Wisconsin; the Meadows Mall
in Las Vegas, Nevada; the Northgate Mall in Chattanooga, Tennessee; Oglethorpe
Mall in Savannah, Georgia and the Park City Center in Lancaster, Pennsylvania.
The total consideration paid for these properties was approximately $625
million. The Company owns 51% of the ownership interest in GGP Ivanhoe III for
an investment of approximately $91.3 million.
During the third quarter of 1998, the Company acquired 100% ownership of the
following four properties: Coastland Center in Naples, Florida, Spring Hill Mall
in West Dundee (Chicago), Illinois, Pierre Bossier Mall in Bossier City
(Shreveport), Louisiana and Altamonte Mall in Orlando, Florida. The aggregate
consideration paid for the four properties was approximately $460.2 million
(subject to prorations and certain adjustments).
During the fourth quarter of 1998, the Company acquired a 100% ownership
interest in Mall St. Vincent located in Shreveport, Louisiana on October 21,
1998 for an aggregate consideration of approximately $26.4 million.
On January 11, 1999, the Company acquired a 100% ownership interest in the
Crossroads Mall in Kalamazoo, Michigan for an aggregate purchase price of
approximately $68 million.
The Company's management feels that it has a competitive advantage with respect
to the past and future acquisition of enclosed mall shopping centers for the
following reasons:
- The funds necessary for a cash acquisition of a shopping center can
be obtained by the Company from a combination of sources, including
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mortgage or unsecured financing or the issuance of public debt or
equity.
- The Company has the flexibility to pay for an acquisition with a
combination of cash, Preferred or Common Stock or common units of
limited partnership interest in the Operating Partnership (the
"Units"). This creates the opportunity for tax-advantaged transactions
for the seller.
- Management's expertise allows it to evaluate proposed acquisitions
for their increased profit potential. Additional profit can originate
from many sources including expansions, remodeling, re-merchandising,
and more efficient management of the property.
DEVELOPMENT
The Company intends to pursue development when warranted by the potential
financial returns. Coral Ridge Mall in Coralville (Iowa City), Iowa was
completed and opened in July of 1998. The Company is currently developing
enclosed shopping centers in Grandville (Grand Rapids), Michigan and Frisco
(Dallas), Texas.
Coral Ridge Mall is a 1,200,000 square foot enclosed regional mall that includes
five department store anchors, two big box retailers, a theater, an ice arena, a
children's museum and approximately 200,000 square feet of Mall Store space.
Coral Ridge was 100% leased at its grand opening.
Rivertown Crossings in Grandville, Michigan, will consist of approximately
1,100,000 square feet and is currently scheduled to open in November of 1999. As
of December 31, 1998 approximately $45 million has been spent of an estimated
total cost of $135 million. The funding for the development of this project
comes primarily from the Company's line of credit facility and retained cash
flow of the Company.
The Company broke ground on the construction of the Stonebriar Mall at the
Bridges in Frisco, Texas in October 1998. This 1,300,000 square foot enclosed
mall shopping center, upon its scheduled completion in July of 2000, will
initially feature five department store anchors, a 24 screen AMC theater,
approximately 350,000 square feet of Mall Stores and up to 150,000 square feet
of big box or large format retailers. Plans also include a possible second phase
expansion to include two additional department stores. As of December 31, 1998,
approximately $26 million of an estimated $145 - $175 million construction cost
has been spent, primarily funded by the Company's line of credit facility and
retained cash flow.
EXPANSIONS AND RENOVATIONS
Most of the Portfolio Centers were designed to allow for expansion and growth
through the addition of new Anchors or Mall and Freestanding Stores. During
1998, 41 major projects were announced or completed. The expansion and
renovation of a Portfolio Center often increases customer traffic, trade area
penetration and typically improves the competitive position of the property.
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Four of the larger renovation and expansion projects are the renovation and
expansion of, Chapel Hills Mall, Neshaminy Mall, Market Place Mall and Park Mall
as described below:
Chapel Hills Mall, a 1,159,187 square foot center, located in Colorado Springs,
Colorado completed an extensive renovation in the spring of 1998. The project
included adding a 203,000 square foot Dillards, an enlarged food court, a
renovation of the Sears store, an ice arena, a play area and other amenities.
Neshaminy Mall, located in Bensalem, Pennsylvania, a suburb of Philadelphia, and
previously a 945,779 square foot enclosed mall, completed an expansion project
in September 1998. The project consisted of a 24 screen AMC Theatre and
approximately 20,000 square feet of Mall Store space.
Market Place Mall is currently an 821,117 square foot enclosed mall anchored by
Sears, Bergner's and JCPenney. The mall, located in Champaign, Illinois, is in
the preliminary phase of a renovation and expansion project consisting of a new
150,000 square foot Famous-Barr department store, approximately 43,000 square
feet of additional Mall Store space, a new food court, a new service center and
other customer amenities. The renovation and expansion is projected to open in
late 1999.
Park Mall, an 848,325 square foot center located in Tucson, Arizona is
undergoing a remodel and expansion to 1,350,000 square feet. The mall will
initially add a completely retrofitted Dillards to the existing anchors of
Macy's and Sears. The project will add a food court, a multiplex theater and an
outdoor plaza for fine dining, and is expected to be completed during 2000.
THE PORTFOLIO CENTERS
As used herein, the term "GLA" refers to gross leaseable retail space, including
anchors and mall tenant areas; the term "Mall GLA" refers to gross retail space,
excluding anchors; the term "Anchor" refers to a department store or other large
retail store; the term "Mall Stores" refers to stores (other than anchors) that
are typically specialty retailers who lease space in shopping centers; and the
term "Freestanding GLA" means gross leaseable area of freestanding retail stores
in locations that are not attached to the primary complex of buildings that
comprise an enclosed mall shopping center.
All of the eighty-four Portfolio Centers are shopping centers with at least one
major department store as an Anchor and a wide variety of smaller Mall Stores.
Most of the Portfolio Centers have three or four Anchors and additional
Freestanding Stores. Each Portfolio Center provides ample parking for shoppers.
The Portfolio Centers:
- Range in size between approximately 190,000 and 1,510,000 square
feet of total GLA and between approximately 125,000 and 765,000 square
feet of Mall and Freestanding GLA. The smallest Portfolio Center has
approximately 20 stores, and the largest has over 160 stores;
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- Have approximately 334 Anchors, operating under approximately 59
trade names; and
- Have approximately 8,500 Mall and Freestanding Stores.
The average size of the eighty-four Portfolio Centers is approximately 855,000
square feet of GLA, including all Anchors, Mall Stores and Freestanding Stores.
The average Mall and Freestanding GLA per Portfolio Center is approximately
345,000 square feet.
As of December 31, 1998, the GGP Centers contain approximately 50.1 million
square feet of GLA consisting of Anchors (whether owned or leased), Mall Stores
and Freestanding Stores. The Homart Centers contain approximately 20.8 million
square feet of GLA.
The Company's share of total revenues from the Portfolio Centers and GGMI
increased to $627.9 million in 1998 from $448.3 million in 1997. No single
Portfolio Center generated more than 7% of the Company's total 1998 pro rata
revenues. In 1998, total Mall Store sales from the Portfolio Centers increased
by approximately 11.0% in comparison to the total Mall Store sales in 1997.
The table below shows tenants, by trade name, with more than .75% of annualized
effective rents as compared to consolidated effective rents on an annualized
basis in the Wholly-Owned Centers at December 31, 1998. In addition, management
believes that similar percentages existed in the Portfolio Centers as of
December 31, 1998.
% of Total
Tenant Name Annualized Rents
- ------------ ----------------
JCPenney 1.90%
Sears 1.79%
Gap 1.62%
Victoria's Secret(2) 1.33%
Lane Bryant(2) 1.18%
Footlocker(1) 1.08%
Express (2) 0.97%
Kay-Bee Toys 0.97%
B. Dalton Bookseller 0.87%
Champs Sports(1) 0.87%
Lerner New York(2) 0.86%
Macy's 0.83%
The Limited (2) 0.79%
(1) Under common ownership by Venator Group, Inc.
(2) Under common ownership by The Limited, Inc.
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MALL AND FREESTANDING STORES
The Portfolio Centers have a total of approximately 8,500 Mall and Freestanding
Stores. The following table reflects the tenant representation by category in
the Wholly-Owned Centers as of December 31, 1998. In addition, management
believes that similar tenant representation by category existed in the Portfolio
Centers as of December 31, 1998.
% Of Sq. Ft. in
Tenant Categories Wholly-Owned Centers Types of Tenants/Products Sold
- ------------------ -------------------- -------------------------------------
Specialty 22% Photo studios and development, beauty
and nail salons, pharmacy and sundries,
variety stores, pet stores, newsstands,
jewelry repair, shoe repair, tailor,
video games, sporting goods, shops for
home/bath/ kitchen, rugs, fabric
stores, beds/ waterbeds, luggage,
perfume, tobacco, toys, arcades,
cameras, sunglasses, books
Women's Apparel 19% Women's apparel
Apparel 14% Unisex apparel, children's
apparel, lingerie, formalwear
Shoes 13% Shoes
Food 9% Restaurant, food court
Gifts 6% Cards, candles, engraving stores,
other gift or novelty
Music/Electronics 6% Music, electronics, computer and
software, video rental
Sporting Goods 4% Sports apparel, sports and
exercise equipment
Jewelry 3% Fine jewelry and costume jewelry
Men's Apparel 2% Men's apparel
Specialty Food 2% Candy, coffee, nuts, chocolate,
health food/vitamins
----
Total 100%
Specialty tenants include Mastercuts, One Hour Photo, California Nails,
Lechter's, Kay-Bee Toys, Dollar Tree, Lemstone Books and many others. Typical
tenants in the Women's Apparel category include the Limited, Casual Corner, Lane
Bryant and Victoria's Secret. The Apparel category typically includes Gap, Eddie
Bauer, American Eagle, Old Navy and Gymboree. The Shoes category often includes
tenants such as Footlocker and Payless Shoesource. The Food category typically
includes restaurants such as Ruby Tuesday, fast food restaurants such as Arby's,
and food court tenants such as Sbarro. Typical tenants in the Gifts Category
include Disney, Things Remembered, Kirlin's Hallmark and Spencer Gifts. The
Music/Electronics category includes tenants such as Camelot Music, Radio Shack,
Suncoast Pictures and Waldensoftware. Sporting Goods include tenants such as
Champs, Big 5 Sports and Scheel's Sports. Jewelry tenants typically include
Zales, Friedman's Jewelers and Kay Jewelers. The Men's Apparel category includes
tenants such as J. Riggins and
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Nicks for Men. Specialty Food tenants often include General Nutrition Center,
Mr. Bulky, and Barnie's Coffee and Tea Company.
COMPETITION
The Portfolio Centers compete with numerous shopping alternatives in seeking to
attract retailers to lease space as retailers themselves face increasing
competition from discount shopping centers, outlet malls, discount shopping
clubs, direct mail, internet sales and telemarketing. The nature and extent of
competition varies from property to property within the Company Portfolio. Below
is a description of the type of competition that three of the Portfolio Centers
face from other retail locations within their trade area.
Oakwood Mall is a 786,000 square foot enclosed regional shopping center located
in Eau Claire, Wisconsin. The mall is the region's dominant retail center in a
trade area that spans 13 counties. Eau Claire, the largest city in west central
Wisconsin, has a diverse economic base consisting of manufacturing, high-tech,
agriculture, higher education, and health care. The mall attracts many younger
shoppers because of its proximity to the large college population in the
community. The mall currently has five anchor tenants: Dayton's, JCPenney,
Scheel's Allsports, Sears, and Target. The mall has over 100 mall shops with
national retailers such as Gap, Eddie Bauer, The Disney Store, Victoria's
Secret, and Helzbergs. The mall's food court includes 10 restaurants and seating
capacity for 550 people. Carmike Cinemas expanded from 6 to 12 screens in
November of 1997. Oakwood Mall's shopping center competition within its trade
area is limited to London Square Mall, located one mile north of the center.
London Square Mall is a 550,000 square foot shopping center with two anchors:
Younkers and TJ Maxx. The third anchor space is vacant. London Square Mall
opened in 1971 and was renovated in 1992. Currently its non-anchor space is
approximately 10% leased. No plans have been announced for redevelopment.
Several retailers have closed and moved to Oakwood, including Sears, Kitchen
Collections, and Famous Footwear. The mall also faces competition from
discounters/category killers such as Kohl's, Wal-Mart, Sam's Club, Best Buy, and
Border's, all of which are located within one mile of the center.
Valley Plaza Mall is a single-level, 1,100,000 square foot shopping center
located in Bakersfield, California, approximately 110 miles north of Los
Angeles. The mall contains 147 mall shops, five anchor department stores and one
outparcel. It is the largest and most dominant mall in the San Joaquin Valley.
The mall is anchored by Macy's, Gottschalks, JCPenney, Sears and Robinson's-May.
A new 16-screen Pacific Theater is scheduled to open in May 1999 which will be
complemented by two new full-service restaurants, one of which, Pizzeria Uno,
opened in August 1998. Valley Plaza's only significant mall competition is East
Hills Mall, a single-level, 410,000 square foot, enclosed mall anchored by
Gottschalk's, Harris and Mervyn's. East Hills Mall, built in 1988, is struggling
due to Valley Plaza's stronger position in the market. East Hills is
approximately 7 miles northeast of Valley Plaza. The secondary competition for
Valley Plaza consists of discount retailers.
Coastland Mall is a 926,000 square foot, single-level, regional shopping center
located in Naples, Florida. Located just north of downtown Naples at the
southeast corner of the intersection of Tamiami Trail (US Route 41) and Golden
Gate Parkway (State Route 886), Coastland is anchored by Burdines, Dillard's,
Sears and JCPenney as well as over 149 mall shops. Coastland is the only
enclosed regional shopping center in Naples, is the only enclosed mall within 35
miles and is the largest retail venue in the area. Coastland's primary
competition is from a number of smaller centers that have an open-air format to
take advantage of the warm climate. These centers typically target
11 of 44
<PAGE> 12
tourists and do not offer a broad selection of merchandise or price points.
Examples of such centers in Coastland's trade area include: Waterside Shops at
Pelican Bay, Village on Venetian Bay, Coral Isle Factory Shops and Old Naples.
Waterside Shops at Pelican Bay is an open-air center located three miles north
of Coastland at the intersection of Tamiami Trail and Pine Ridge Road. The
center is anchored by two small (45,000 square foot) resort-format department
stores, Saks Fifth Avenue and Jacobsons. The single-level center, which opened
in 1992, contains 50 in-line tenants, most of which are upscale and offer high
price point merchandise. The center caters to tourists and high-end consumers
and is not considered directly competitive to Coastland Center. Village on
Venetian Bay is located on Gulf Shore Boulevard in Naples and has no anchor
stores. The center is built along the water and has extremely upscale boutiques
and restaurants. The center caters primarily to seasonal residents and tourists.
Coral Isle Factory Shops is a 105,000 square foot strip center located 15 miles
southeast of Coastland. Coral Isle offers discount merchandise and caters to a
value-oriented customer. Because of its distance and discount-orientation, it
does not pose a significant competitive threat to Coastland. Old Naples refers
to the boutiques and restaurants that line the streets of the historic district
in downtown Naples. The majority of these shops are located along Fifth Street
and Third Avenue. Old Naples is located three miles south of Coastland, but does
not compete effectively because of traffic congestion, lack of anchors, and the
lack of a coordinated marketing plan. This area also caters to tourists and
seasonal residents. Coastland's only notable regional mall competitor is Edison
Mall, a 637,000 square foot, enclosed, single level shopping center located 35
miles north in Fort Myers. Due to its distance, it provides only limited
competition within Coastland's trade area.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner of real
estate is liable for the costs of removal or remediation of certain hazardous or
toxic substances on such property. These laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. In connection with its ownership and operation of the
Portfolio Centers, General Growth, the Operating Partnership or the relevant
property venture through which the property is owned, may be potentially liable
for such costs.
All of the Portfolio Centers have been subject to Phase I environmental
assessments, which are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed and surrounding
properties. The Phase I assessments included a historical review, a public
records review, a preliminary investigation of the site and surrounding
properties, screening for the presence of asbestos, polychlorinated biphenyls
("PCBs") and underground storage tanks and the preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
Where the Phase I assessment so recommended, a Phase II assessment was conducted
to further investigate any issues raised by the Phase I assessment. In each case
where Phase I and/or Phase II assessments resulted in specific recommendations
for remedial actions, management has either taken or scheduled the recommended
action.
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<PAGE> 13
Neither the Phase I nor the Phase II assessments have revealed any environmental
liability that the Company believes would have a material effect on the
Company's business, assets or results of operations, nor is the Company aware of
any such liability. Nevertheless, it is possible that these assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, no assurances can be
given that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition of
the Portfolio Centers will not be affected by tenants and occupants of the
Portfolio Centers, by the condition of properties in the vicinity of the
Portfolio Centers (such as the presence of underground storage tanks) or by
third parties unrelated to the Company.
EMPLOYEES
As of March 19, 1999, the Company and GGMI had approximately 3,267 full-time
employees. Certain employees at three of the Portfolio Centers within the
Company Portfolio are subject to collective bargaining agreements and the
Company has not experienced a labor-related work stoppage at any of its Centers.
INSURANCE
The Company has comprehensive liability, fire, flood, earthquake, extended
coverage and rental loss insurance with respect to the Portfolio Centers. The
Company's management believes that all of the Portfolio Centers described herein
which are owned by the Company, in whole or in part, are adequately covered by
insurance.
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST AND TAXABILITY OF DISTRIBUTIONS
The Company currently qualifies as a real estate investment trust pursuant to
the requirements contained under Sections 856-858 of the Internal Revenue Code
of 1986, as amended (the "Code"). If, as the Company contemplates, such
qualification continues, the Company will not be taxed on its real estate
investment trust taxable income. During 1998, the Company distributed (or was
deemed to have distributed) 100% of its taxable income to stockholders. Cash
distributions in the amount of $1.86 per share were paid in 1998, of which $1.82
(98%) was ordinary income and $0.04 (2%) was long-term capital gain from sales
of property, based on the taxable income of the Company.
ITEM 2. PROPERTIES
The Company's investment in real estate as of December 31, 1998 consisted of its
interest in the Portfolio Centers, developments in progress and certain other
real estate. In most cases, the land underlying the Portfolio Centers is also
owned by the Company; however, at a few of the GGP Centers, all or
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<PAGE> 14
part of the underlying land is owned by a third party that leases the land
pursuant to a ground lease as described below.
LEASING
The Portfolio Centers average Mall Store rent per square foot from leases that
expired in 1998 was $23.90. As a result of market rents being higher than the
rents under many of the expiring leases, the average Mall Store rent per square
foot on new and renewal leases during 1998 was $27.26, or $3.36 per square foot
more than the above-indicated average for expiring leases. Below is a schedule
of the lease expirations over the next five years.
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<PAGE> 15
PORTFOLIO CENTERS
FIVE YEAR LEASE EXPIRATION SCHEDULE
All Expirations Expirations @ Share(1)
Base Rent Sq.Ft. Rent/Sq.Ft. Base Rent Sq.Ft. Rent/Sq.Ft.
GGP Centers
1999 $23,939,049 1,187,423 $20.16 $20,817,945 1,037,327 $20.07
2000 23,196,932 978,340 23.71 19,853,701 862,953 23.01
2001 25,619,764 1,121,864 22.84 22,527,000 993,266 22.68
2002 32,230,172 1,355,223 23.78 28,275,037 1,189,607 23.77
2003 31,016,239 1,386,620 22.37 27,516,518 1,249,433 22.02
------------ --------- ------- ------------ --------- ------
136,002,156 6,029,470 22.56 118,990,201 5,332,586 22.31
------------ --------- ------- ------------ --------- ------
Homart Centers
1999 9,199,009 489,184 18.80 2,526,923 139,940 18.06
2000 16,981,735 532,804 31.87 4,260,490 146,852 29.01
2001 10,939,530 383,924 28.49 3,086,783 113,912 27.10
2002 13,176,067 414,190 31.81 4,095,315 131,014 31.26
2003 20,281,142 689,202 29.43 5,946,559 205,726 28.91
------------ --------- ------- ------------ --------- ------
70,577,483 2,509,304 28.13 19,916,070 737,444 27.01
------------ --------- ------- ------------ --------- ------
Portfolio Centers
1999 33,138,058 1,676,607 19.76 23,344,868 1,177,267 19.83
2000 40,178,667 1,511,144 26.59 24,114,191 1,009,805 23.88
2001 36,559,294 1,505,788 24.28 25,613,783 1,107,178 23.13
2002 45,406,239 1,769,413 25.66 32,370,352 1,320,621 24.51
2003 51,297,381 2,075,822 24.71 33,463,077 1,455,159 23.00
------------ --------- ------- ------------ --------- ------
$206,579,639 8,538,774 $ 24.19 $138,906,271 6,070,030 22.88
============ ========= ======== ============ ========= ======
(1) Expirations at share reflect the Company's direct or indirect ownership
interest in a joint venture.
COMPANY PORTFOLIO DEBT
At December 31, 1998, the Company had direct or indirect ("pro rata") mortgage
debt of approximately $3,346,124,000. The ratio of consolidated pro rata
floating rate debt to total pro rata debt was 28.9% at December 31, 1998.
Although there was an increase in the percentage of floating rate debt, the
consolidated pro rata weighted average interest rate on the Company's debt was
reduced to 6.69% as of December 31, 1998 compared to 7.14% in the prior year.
The following table reflects the maturity dates of the Company's pro rata debt
and the related interest rates.
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<PAGE> 16
COMPANY PORTFOLIO DEBT
MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY(a)
AS OF DECEMBER 31, 1998
(Dollars in Thousands)
Wholly-Owned Unconsolidated Company
Centers Properties(b) Portfolio Debt
Current Current Current
Maturing Average Maturing Average Maturing Average
Year Amount(c) Rate Amount Rate Amount Rate
- ---- ---------- ------- --------- ------- ---------- -------
1999 $ 768,000 6.50% $ 324,654 6.24% $1,092,654 6.42%
2000 225,000 5.09% 67,135 6.60% 292,135 6.21%
2001 152,000 6.41% -- --% 152,000 6.41%
2002 183,000 6.00% 25,281 8.72% 208,281 6.33%
2003 0 -- 102,609 7.19% 102,609 7.19%
Subsequent $1,320,776 6.97% 177,669 7.51% 1,498,445 7.03%
---------- ---- --------- ---- ---------- ----
Totals $2,648,776 6.66% $ 697,348 6.83% $3,346,124 6.69%
========== ==== ========= ==== ========== ====
Floating $ 612,566 6.22% $ 354,312 6.20% $ 966,878 6.21%
Fixed Rate 2,036,210 6.79% 343,036 7.49% 2,379,246 6.89%
---------- ---- --------- ---- ---------- ----
Totals $2,648,776 6.66% $ 697,348 6.83% $3,346,124 6.69%
========== ==== ========= ==== ========== ====
(a) Excludes principal amortization.
(b) Unconsolidated properties debt reflects the Company's share of debt
relating to the properties owned by the Property Joint Ventures and
GGP/Homart.
(c) The maturing amount assumes the exercise of the Company's option to extend
to July 31, 2000 the maturity date of the $200,000 Credit Facility from
its current maturity of July 31, 1999.
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<PAGE> 17
PROPERTY DATA
The following tables set forth certain information regarding the GGP Centers and
the Homart Centers as of December 31, 1998. The first table depicts the GGP
Centers and the second table depicts the Homart Centers.
<TABLE>
<CAPTION>
GGP CENTERS
TOTAL GLA/MALL
YEAR AND FREESTANDING
NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET)(3) ANCHORS VACANCIES
- -------------- ------------ ---------------- ------- ---------
<S> <C> <C> <C> <C>
Altamonte Mall 1974/ 1,093,521 Burdine's, Dillard's, None
Orlando, FL 1989 414,973 Sears, JCPenney
Apache Mall 1969/ 763,169 Dayton's, JCPenney, None
Rochester, MN 1990-1992 266,903 Montgomery Ward, Sears
Bayshore Mall 1987/ 620,447/ Gottschalks, JCPenney, None
Eureka, California 1989 345,466 Sears, Mervyn's
Bellis Fair Mall 1988/ 763,448/ The Bon Marche, JCPenney, None
Bellingham, N/A 350,285 Sears, Mervyn's, Target
Washington
Birchwood Mall 1990/ 713,449/ Younkers, JCPenney, None
Port Huron, 1991, 287,315 Sears, Target, Hudson's
Michigan 1997
The Boulevard Mall 1960/ 1,210,050 Dillard's, JCPenney, None
Las Vegas, NV 1992 451,027 Macy's, Sears
Capital Mall 1978/ 537,700/ Dillard's, JCPenney, None
Jefferson City, 1985,1992 308,815 Sears
Missouri
Century Mall 1975/ 726,240/ JCPenney, McRae's None
Birmingham, Alabama 1990,1994 237,764 Rich's, Sears
Chapel Hills Mall 1982/ 1,166,206/ Foley's, Sears, KMart, None
Colorado Springs, 1986/ 420,058 Dillard's, Mervyn's, JCPenney
Colorado 1998
Coastland Center 1977/ 925,954 Burdines, Dillard's, None
Naples, FL 1985/1996 335,564 Sears, JCPenney
Colony Square Mall 1981/ 547,418/ Lazarus, Elder-Beerman, None
Zanesville, Ohio 1987 289,409 JCPenney, Sears
Columbia Mall 1985/ 733,447/ Dillard's, JCPenney, None
Columbia, Missouri 1987 318,003 Sears, Target
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
GGP CENTERS
TOTAL GLA/MALL
YEAR AND FREESTANDING
NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET)(3) ANCHORS VACANCIES
- -------------- ------------ ---------------- ------- ---------
<S> <C> <C> <C> <C>
Coral Ridge Mall 1998/ 985,943/ Dillard's, Target, None
Iowa City, Iowa N/A 348,905 Younkers, Sears, JCPenney,
Scheel's
Cumberland Mall 1973/ 1,198,440 JCPenney, Macy's, Rich's, None
Atlanta, GA 1989 364,325 Sears
Eagle Ridge Mall 1996/ 629,900/ Dillard's, JCPenney, None
Winter Haven, N/A 317,648 Sears
Florida
Eden Prairie Mall 1976/ 861,410/ Sears, Target, Kohl's, None
Eden Prairie, 1994 325,602 Carson Pirie Scott
Minnesota
Fallbrook Mall 1966/ 1,018,265/ JCPenney, Target, None
West Hills, 1985 466,251 Kmart, Mervyn's,
(Los Angeles), California Burlington Coat Factory
Fox River Mall 1984/ 1,102,711/ Dayton's, Younkers, None
Appleton, 1991 537,797 JCPenney, Sears, Target
Wisconsin
Gateway Mall 1990/ 641,245/ The Emporium, Sears, None
Springfield/Eugene, 1990 357,980 Target
Oregon
Grand Traverse Mall 1992/ 578,215/ Hudson's, JCPenney, None
Traverse City, N/A 312,866 Target
Michigan
Greenwood Mall 1979/ 774,367/ Famous-Barr, JCPenney, None
Bowling Green, 1987 373,744 Sears, Dillard's
Kentucky
Knollwood Mall 1955/ 512,073/ Kohl's, Cub Foods(7) One
St. Louis Park, 1981 301,389 (7)
(Minneapolis), Minnesota
Lakeview Mall 1993/ 623,134/ Hudson's,JCPenney, None
Battle Creek, N/A 331,541 Sears
Michigan
Landmark Mall 1965/ 965,137 Hecht's,JCPenney,Sears None
Alexandria, VA 1991 334,131
</TABLE>
18 to 44
<PAGE> 19
<TABLE>
<CAPTION>
GGP CENTERS
TOTAL GLA/MALL
YEAR AND FREESTANDING
NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET)(3) ANCHORS VACANCIES
- -------------- ----------- ------------- ------- ---------
<S> <C> <C> <C> <C>
Lansing Mall 1969/ 834,610/ Hudson's, JCPenney, None
Lansing, Michigan N/A 391,208 Mervyn's, Montgomery Ward
Lockport Mall 1971/ 345,932/ Montgomery Ward, Hill, None
Lockport, New York 1984 125,535 The Bon Ton
Mall St. Vincent 1977/ 568,426 Sears, Dillard's None
Shreveport, LA 1991 220,426
Mall of the Bluffs 1986/ 666,264/ Dillard's, JCPenney, None
Council Bluffs, Iowa 1988 352,390 Target, Sears
(Omaha, Nebraska)
Market Place Mall 1975/ 821,135/ Sears, Bergner's, None
Champaign, Illinois N/A 357,984 JCPenney
Mayfair Mall 1958/ 1,265,236 Marshall Fields, None
Wauwatosa, WI 1986,1994 765,926 The Boston Store
McCreless Mall 1962/ 477,846 Beall's, Montgomery Ward None
San Antonio, TX 1997 291,988
Meadows Mall 1978/ 946,444 Dillard's, JCPenney, None
Las Vegas, NV 1987,1997 309,591 Macy's, Sears
Natick Mall 1966/ 1,154,701/ Sears, Filene's, None
Natick, 1994 428,039 Lord & Taylor, Macy's
Massachusetts
Northbrook Court 1976/ 915,862 Neiman Marcus, None
Northbrook, IL 1995,1996 379,585 Lord & Taylor,
Marshall Fields
Northgate Mall 1972/ 822,268 JCPenney, Proffitt's, None
Chattanooga, TN 1991 379,648 Sears
Northridge Fashion 1971/ 1,511,433 JCPenney, Macy's, None
Center 1995 737,005 Robinson's-May, Sears
Northridge, CA
Oaks Mall (2) 1978/ 907,595/ Dillard's, Burdines, None
Gainesville, N/A 349,728 Sears, JCPenney, Belk
Florida
Oakwood Mall 1986/ 786,326/ Dayton's, JCPenney, None
Eau Claire, 1991 321,250 Scheel's All Sports, Target,
Wisconsin Sears
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
GGP CENTERS
TOTAL GLA/MALL
YEAR AND FREESTANDING
NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET)(3) ANCHORS VACANCIES
- -------------- ------------ ---------------- ------- ---------
<S> <C> <C> <C> <C>
Oglethorpe Mall 1969/ 950,140 Belk, JCPenney, Rich's, None
Savannah, GA 1990,1992 413,556 Sears
Park City Center 1970/ 1,382,837 The Bon-Ton, Boscov's, None
Lancaster, PA 1985,1989 526,500 Kohl's, Sears, JCPenney
Park Mall 1974/ 857,638/ Sears, Dillards, None
Tucson, Arizona N/A 339,325 Macy's
Piedmont Mall 1984/ 659,935/ Belk, Hills, JCPenney, None
Danville, Virginia 1995 187,315 Sears, Belk Men's
Pierre Bossier Mall 1982/ 646,480 Dillard's, JCPenney, None
Bossier City, LA 1985,1992 264,576 Sears, Service Merchandise,
Stage
The Pines 1986/ 608,126/ Dillard's, JCPenney, None
Pine Bluff, 1990 268,417 Sears, Wal-Mart
Arkansas
Quail Springs (2) 1980/ 1,015,028/ Dillard's, Foley's, None
Oklahoma City, 1992 327,175 JCPenney, Sears
Oklahoma
Regency Square Mall 1967/ 1,347,751 Dillard's, Belk, JCPenney, None
Jacksonville, FL 1982,1992, 536,120 Montgomery Ward, Sears
1998
Rio West Mall 1981/ 383,429/ Beall's, JCPenney, KMart None
Gallup, New Mexico 1991 202,296
River Falls Mall 1990/ 744,897/ Bacon's, Wal-Mart, None
Clarksville, Indiana N/A 399,859 Toys "R" Us
(Louisville, Kentucky)
River Hills Mall 1991/ 647,262/ Herberger's, JCPenney, None
Mankato, Minnesota 1996 285,213 Target, Sears
Riverlands Shopping 1965/ 183,808 Winn-Dixie None
Center 1984 136,874 (4)
LaPlace, LA
Sooner Fashion 1976/ 504,864/ Dillard's, JCPenney, None
Square N/A 199,910 Sears, Stein Mart,
Norman, Oklahoma Service Merchandise
Southlake Mall 1976/ 1,024,019/ Sears, Rich's, JCPenney, None
Morrow, Georgia N/A 285,519 Macy's
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
GGP CENTERS
TOTAL GLA/MALL
YEAR AND FREESTANDING
NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET)(3) ANCHORS VACANCIES
- -------------- ----------- --------------- ------- ---------
<S> <S> <S> <S> <S>
SouthShore Mall 1981/ 340,321/ JCPenney, Sears, KMart None
Aberdeen, N/A 150,994
Washington
Southwest Plaza 1983/ 1,243,695 Joslin's, Foley's, Sears, None
Littleton, CO 1994,1995 606,518 JCPenney, Montgomery Ward
Spring Hill Mall 1980/ 1,023,990 Carson Pirie Scott, None
West Dundee, IL 1992,1996 342,410 Kohl's, JCPenney, Sears
Marshall Field's
Town East Mall (2) 1971/ 1,243,994/ Sears, Foley's, JCPenney, None
Mesquite, Texas 1986 434,608 Dillard's
Valley Hills Mall 1978/ 618,126/ Belk, JCPenney, Sears None
Hickory, 1986 205,830
North Carolina
Valley Plaza Mall 1967/ 1,094,253 Gottschalks, JCPenney, None
Bakersfield, CA 1986-1988 367,564 Macy's, Robinson's-May, Sears
West Valley Mall 1995/ 687,950/ Gottschalks, JCPenney, None
Tracy, California N/A 337,135 Target, Sears,
Ross Dress for Less
Westwood Mall 1972/ 465,570/ Elder-Beerman, JCPenney, None
Jackson, Michigan 1993 147,476 Montgomery Ward
Westroads Mall (2) 1968/ 1,079,280/ Von Maur, JCPenney, None
Omaha, Nebraska 1995 382,870 Younkers, The Jones Store
MALLS UNDER DEVELOPMENT
Rivertown Crossings 1999/ 1,239,842/ (5) (5)
Grand Rapids, N/A 604,798
Michigan
Stonebriar Mall 2000/ 1,341,728/
Frisco, Texas N/A 612,000 (6) (6)
</TABLE>
(1) In certain cases, where a Center's location is part of a larger
metropolitan area, the metropolitan area is identified in parentheses.
(2) The Company owns 50% of Quail Springs Mall and Town East Mall and 51% of
Landmark Mall, Mayfair Mall, Meadows Mall, Northgate Mall, Oaks Mall,
Oglethorpe Mall, Park City Center and Westroads Mall.
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<PAGE> 22
(3) Includes square footage added in redevelopment/expansion projects.
(4) Winn-Dixie does not occupy its space but is currently paying rent under a
lease which expires in October 2002.
(5) Upon completion, this mall will contain up to five major department
stores, currently expected to be JCPenney, Kohl's, Hudsons, Sears, and
Younkers.
(6) Upon completion, this mall will contain up to five major department
stores, currently expected to be Foley's, JCPenney, Sears, Macy's, and
Nordstrom.
(7) The Cubs Foods store has a signed lease and is currently under
construction with completion expected in the spring of 1999 which will
fill the current vacancy.
22 of 44
<PAGE> 23
<TABLE>
<CAPTION>
HOMART CENTERS
OWNERSHIP TOTAL GLA/MALL
YEAR OPENED/ INTEREST % AND FREESTANDING
NAME OF CENTER/ REMODELED OF GLA ANCHOR
LOCATION(1) OR EXPANDED GGP/HOMART SQUARE FEET(2) ANCHORS VACANCIES
- -------------- ----------- ---------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Arrowhead Towne
Center 1993/ 33.3 1,130,901/ Dillard's,Mervyn's
Glendale, Arizona 1996 392,954 JCPenney,
Montgomery Ward,
Robinson's-May None
Bay City Mall 1991/ 100 527,273/ Sears, Target,
Bay City, Michigan 1993 211,622 Younkers,
JCPenney None
Brass Mill
Center/Commons 1997/ 100 1,044,497/ Sears, Filene's,
Waterbury, N/A 528,884 JCPenney One
Chula Vista Center 1960/ 100 874,827/ Macy's, Sears,
Chula Vista, 1994 323,627 Mervyn's,
California JCPenney None
Columbiana Centre 1990/ 100 817,847/ Sears, Parisian,
Columbia 1992 258,870 Belk, Dillards None
South Carolina
Deerbrook Mall 1984/ 100 1,197,227/ Sears, Mervyn's,
Humble, Texas N/A 457,634 JCPenney, Macy's
(Houston, Texas) Foley's None
Lakeland Square 1988/ 50 904,993/ Sears, Belk,
Lakeland, Florida 1994 291,862 JCPenney, Burdines,
Dillard's, Mervyn's
None
Moreno Valley Mall 1992/ 100 1,035,508/ Sears, JCPenney,
Moreno Valley, N/A 429,974 Robinson's-May,
California Harris None
Neshaminy Mall 1968/ 50 975,469/ Sears, Boscov's,
Bensalem, 1998 371,874 Strawbridge One
Pennsylvania
Newgate Mall 1981/ 100 688,801/ Sears, Mervyn's,
Ogden, Utah 1994 278,637 Dillard's, Oshman's
None
New Park Mall 1980/ 100 1,131,329/ Sears, Mervyn's,
Newark, California 1993 387,865 JCPenney, Macy's,
Target None
</TABLE>
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<PAGE> 24
<TABLE>
<CAPTION>
HOMART CENTERS
OWNERSHIP TOTAL GLA/MALL
YEAR OPENED/ INTEREST % AND FREESTANDING
NAME OF CENTER/ REMODELED OF GLA ANCHOR
LOCATION(1) OR EXPANDED GGP/HOMART SQUARE FEET(2) ANCHORS VACANCIES
- -------------- ----------- ---------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
North Point Mall 1993/ 100 1,366,405/ Sears, JCPenney,
Alpharetta, N/A 396,344 Rich's, Dillard's,
(Atlanta), Georgia Parisian,
Lord & Taylor None
The Parks at
Arlington 1988/ N/A(3) 1,191,471/ Sears, Dillard's,
Arlington, Texas N/A 360,526 Foley's, JCPenney
Mervyn's None
The Pavilions at
Buckland Hills 1990/ N/A(3) 963,120/ Sears, Filene's,
Manchester, 1994 327,284 Lord & Taylor,
Connecticut Filene's Home Store,
Dick's Sporting
Goods, JCPenney None
Pembroke Lakes Mall 1992/ 100 1,063,860/ Sears, Burdine's,
Pembroke Pines, N/A 352,585 Dillard's, Dillard's
Florida (Men's & Home
Furnishings)
JCPenney None
Prince Kuhio Plaza 1985/ 100 464,893/ Sears, Liberty House,
Hilo, Hawaii N/A 268,097 JCPenney One
Steeplegate Mall 1990/ 100 393,787/ Sears, JCPenney,
Concord, N/A 170,237 Steinbach's One
New Hampshire
Superstition Springs 1990/ 33.3 1,073,726/ Sears, JCPenney,
East Mesa, Arizona 1994 367,032 Mervyn's, Dillard's
Robinson's-May None
Tysons Galleria 1988/ 100 809,225/ Macy's, Neiman Marcus,
McLean, Virginia 1997 297,292 Saks Fifth Avenue
None
Vista Ridge Mall 1989/ 80 1,052,419/ Sears, Dillard's,
Lewisville, Texas 1991 379,357 JCPenney, Foley's
None
Washington Park Mall 1984/ 100 351,483/ Sears, Dillard's,
Bartlesville, 1986 157,187 JCPenney None
Oklahoma
</TABLE>
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<PAGE> 25
<TABLE>
<CAPTION>
HOMART CENTERS
OWNERSHIP TOTAL GLA/MALL
YEAR OPENED/ INTEREST % AND FREESTANDING
NAME OF CENTER/ REMODELED OF GLA ANCHOR
LOCATION(1) OR EXPANDED GGP/HOMART SQUARE FEET(2) ANCHORS VACANCIES
- -------------- ----------- ---------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
West Oaks Mall 1996/ 100 1,074,223/ Dillard's, Sears,
Ocoee, N/A 430,741 Parisian,
(Orlando), Florida JCPenney None
The Woodlands Mall 1994/ 50 1,178,342/ Sears, Dillard's,
The Woodlands, N/A 350,377 Foley's, JCPenney
(Houston), Texas Mervyn's None
</TABLE>
(1) In certain cases where a Center's location is part of a larger
metropolitan area, the metropolitan area is identified in parenthesis.
(2) Includes square footage added in redevelopment/expansion projects.
(3) GGP/Homart's participation is subordinated to certain preferred returns to
its Joint Venture Partners.
ANCHORS
Anchors have traditionally been a major factor in the public's image of an
enclosed shopping center. Anchors are generally department stores whose
merchandise appeals to a broad range of shoppers. Anchors either own their
stores, the land under them and adjacent parking areas, or enter into long-term
leases at rates that are generally lower than the rents charged to Mall Store
tenants. Although the Portfolio Centers receive a smaller percentage of their
operating income from Anchors than from Mall Stores, strong Anchors play an
important part in maintaining customer traffic and making the Portfolio Centers
desirable locations for Mall Store tenants.
The following table indicates the parent company of each Anchor and sets forth
the number of stores and square feet owned or leased by each Anchor at the
Portfolio Centers as of December 31, 1998.
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<PAGE> 26
GENERAL GROWTH PROPERTIES, INC.
PORTFOLIO ANCHORS
AS OF DECEMBER 31, 1998
Total Square Feet
Name Stores (000's)
- --------------------------------- ------- -----------
Sears 69 9,804
JCPenney 68 7,771
Dillard's inc.
Dillard's 34 5,179
Bacon's 1 187
------ -------
Sub-Total Dillard's Inc. 35 5,366
------ -------
Dayton Hudson Corporation
Target 15 1,650
Mervyn's 14 1,115
Marshall Fields 3 692
Dayton's 3 432
Hudson's 4 405
------ -------
Sub-Total Dayton Hudson Corporation 39 4,294
------ -------
May Department Stores Company
Foley's 8 1,423
Robinson's-May 5 802
Filene's 3 520
Lord & Taylor 4 460
Strawbridge's 1 218
Hecht's 1 198
Famous-Barr 1 122
Filene's Home Store 1 36
------ -------
Sub-Total May Department Stores Company 24 3,779
------ -------
Federated Department Stores, Inc.
Macy's 12 2,190
Rich's 5 937
Burdines 5 676
The Bon Marche 1 101
Lazarus 1 50
------ -------
Sub-Total Federated Department Stores, Inc. 24 3,954
------ -------
Saks Incorporated
Younkers 5 525
Parisian 3 395
Carson Pirie Scott 2 268
Boston Store 1 211
Bergners 1 154
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<PAGE> 27
McRae,s 1 124
Saks Fifth Avenue 1 120
Profits 1 91
Herberger's 1 71
------ -------
Sub-Total Saks Incorporated 16 1,959
------ -------
Montgomery Ward & Co. 9 1,095
Belk
Belk 7 931
Belk Men's 1 34
------ -------
Sub-Total Belk 8 965
------ -------
Boscov 2 405
Kohl's 4 362
KMart 4 357
Gottschalks 3 273
Neiman-Marcus 2 262
The Bon Ton 2 224
Wal-Mart 2 196
Von Maur 1 179
Hills Department Store 2 176
Harris 1 150
Scheel's All Sports 2 154
Elder-Beerman 2 142
Burlington Coat Factory 1 101
Service Merchandise 2 93
Dick's Sporting Goods 1 80
Beall's 2 56
Steinbach's 1 55
Emporium 1 50
Liberty House 1 50
Winn-Dixie 1 47
Toys "R" Us 1 47
Stein Mart 1 39
Stage 1 35
Ross Dress for Less 1 28
GROUND LEASES
The Company currently leases the land under Rio West Mall, the Northridge
Fashion Center, a portion of the Fallbrook Mall land and a portion of the
SouthShore and Bayshore parking areas. In addition, Prince Kuhio Plaza, one of
the Homart Centers, and the office building owned by GGMI are subject to
long-term ground leases. The leases generally contain various purchase options
in favor of the Company and typically provide for a right of first refusal in
favor of the Company in the event of a proposed sale of the property by the
Landlord.
For other information concerning the Portfolio Centers see "Item 1 - Business -
Business of the Company" and for additional information concerning the
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<PAGE> 28
mortgage debt encumbering the GGP Centers, see Note 5. As stated in Item 1
above, management of the Company believes that each of the properties in the
Company Portfolio is adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation nor, to the
Company's knowledge, is any material litigation currently threatened against the
Company, the properties or GGP/Homart other than routine litigation arising in
the ordinary course of business, most of which is expected to be covered by
liability insurance. For information about certain environmental matters, see
"Item 1 - Business - Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the General Growth's stockholders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") and trades
under the symbol "GGP". As of March 19, 1999, the 39,052,095 outstanding shares
of Common Stock were held by approximately 1,107 stockholders of record. The
closing price per share of Common Stock on the NYSE on such date was $31.44 per
share.
Set forth below are the high and low sales prices per share of Common Stock as
reported on the composite tape, and the distributions per share of Common Stock
declared for each such period.
1998 Price Declared
Quarter Ending High Low Distribution
- ----------------- ---------- --------- --------------
March 31, 1998 $38.00 $34.88 $.47
June 30, 1998 $38.63 $34.44 $.47
September 30, 1998 $38.69 $33.19 $.47
December 31, 1998 $37.94 $32.88 $.47
1997 Price Declared
Quarter Ending High Low Distribution
- ----------------- ---------- --------- --------------
March 31, 1997 $32.13 $30.25 $.45
June 30, 1997 $33.75 $31.13 $.45
September 30, 1997 $37.00 $32.44 $.45
December 31, 1997 $38.25 $31.81 $.45
28 of 44
<PAGE> 29
1996 Price Declared
Quarter Ending High Low Distribution
---------------- ---------- --------- --------------
March 31, 1996 $24.00 $20.63 $.43
June 30, 1996 $24.63 $20.63 $.43
September 30, 1996 $26.00 $23.50 $.43
December 31, 1996 $32.75 $23.88 $.43
Set forth below is certain information about sales of securities made by the
Operating Partnership during the fourth quarter of 1998, which sales were not
registered under the Securities Act of 1933, as amended. The sales were all made
in connection with the acquisition of the malls and interests therein indicated
below, 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, and were not underwritten offerings.
Offering Price or
Date Issuer Security Amount Purchaser Consideration
======== ========== ========== ======= ============= ================
10/21/98 Operating Operating 200,052 Harry J. Butler, Mall St. Vincent
Partnership(1) Partnership Mark P. Seally
Units and various trusts
for the benefit
of Seally family members -
(seller of Mall St. Vincent)
(1) Holders of the units sold by the Operating Partnership have the right to
require that the Operating Partnership redeem such units for cash;
provided, however, that General Growth Properties, Inc. may assume the
Operating Partnership's obligations and redeem the units for cash or
shares of Common Stock on a one-for-one basis. Pursuant to such rights,
88,871 units were redeemed for cash immediately following the purchase of
the property.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in this Annual Report on Form 10-K.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
OPERATING DATA
Revenue $426,576 $291,147 $217,405 $167,396 $152,583
Operating Expenses 151,784 109,677 75,954 63,968 63,118
Depreciation 75,227 48,509 39,809 30,855 28,190
and Amortization
Interest Expense,Net 109,840 70,252 66,439 46,334 42,995
Equity in Net Income
of Unconsolidated
Affiliates 11,067 19,344 17,589 9,274 6,096
29 of 44
<PAGE> 30
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net gain on sales
including CenterMark
in 1997, 1996 and 1995 $ 196 $ 58,647 $ 43,821 $ 33,397 $ --
-------- ----------- ---------- ---------- ----------
Income Before Minority
Interest 100,988 140,700 96,613 68,910 24,376
Minority Interest (29,794) (49,997) (34,580) (25,856) (9,518)
-------- ----------- ---------- ---------- ----------
Income Before
Extraordinary Items 71,194 90,703 62,033 43,054 14,858
Extraordinary Item (4,749) (1,152) (2,291) -- (693)
-------- ----------- ---------- ---------- ----------
Net Income 66,445 89,551 59,742 43,054 14,165
-------- ----------- ---------- ---------- ----------
Convertible Preferred
Stock Dividends (13,433) -- -- -- --
Net Income available
to common stockholders $ 53,012 $ 89,551 $ 59,742 $ 43,054 $ 14,165
======== =========== ========== ========== ==========
Earnings Before
Extraordinary Item
Per Share - Basic 1.60 2.78 2.20 1.69 .65
Earnings Before
Extraordinary Item
Per Share - Diluted 1.59 2.76 2.20 1.69 .65
Net Earnings
Per Share - Basic 1.46 2.75 2.12 1.69 .62
Net Earnings
Per Share - Diluted 1.46 2.73 2.12 1.69 .62
Distributions Declared
Per Share 1.88 1.80 1.72 1.66 1.58
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
CASH FLOW DATA
Operating Activities $ 101,381 $ 85,716 $ 67,202 $ 60,660 $ 48,936
Investing Activities (1,491,475) (167,029) (29,285) (469,204) (145,253)
Financing Activities 1,383,826 91,264 (40,268) 421,225 96,380
FUNDS FROM OPERATIONS
Funds From Operations (1)
Operating Partnership $ 192,274 $ 147,625 $ 114,721 $ 85,138 $ 69,610
Minority Interest (69,182) (52,890) (42,115) (32,409) (27,927)
Funds From Operations
Company 123,092 94,735 72,606 52,729 41,683
BALANCE SHEET DATA
Investment in Real
Estate Assets-Cost $4,063,097 $2,157,251 $1,828,184 $1,547,621 $ 996,125
</TABLE>
30 of 44
<PAGE> 31
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Assets 4,027,474 2,097,719 1,757,717 1,455,982 906,533
Total Debt 2,648,776 1,275,785 1,168,522 1,027,932 607,561
Convertible Preferred
Stock 337,500 -- -- -- --
Stockholders' Equity 585,707 498,505 330,267 229,383 154,426
(1) Funds From Operations (as defined below) does not represent cash flow
from operations as defined by Generally Accepted Accounting Principles
("GAAP") and is not necessarily indicative of cash available to fund all
cash requirements.
FUNDS FROM OPERATIONS
Funds from Operations is used by the real estate industry and investment
community as a primary measure of the performance of real estate companies. The
National Association of Real Estate Investment Trusts ("NAREIT") defines Funds
from Operations as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of properties,
plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. In calculating its Funds from
Operations, the Company also excludes gains on land sales, if any. The NAREIT
definition of Funds from Operations does not exclude the aforementioned item.
The Company's Funds from Operations may not be directly comparable to similarly
titled measures reported by other real estate investment trusts. Funds from
Operations does not represent cash flow from operating activities in accordance
with GAAP and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
cash distributions.
RECONCILIATION OF NET INCOME DETERMINED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO FUNDS FROM OPERATIONS:
1998 1997 1996
---- ---- ----
Net Income available to common shareholders $ 53,012 $ 89,551 $ 59,742
Extraordinary item - charges related to
early retirement of debt 4,749 1,152 2,291
Allocations to Operating Partnership 29,794 49,997 34,580
Unit holders
Net gain on sales (196) (63,813) (43,975)
Depreciation and amortization 104,915 70,738 62,083
-------- -------- --------
Funds From Operations $192,274 $147,625 $114,721
======== ======== ========
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<PAGE> 32
GENERAL GROWTH PROPERTIES, INC.
ITEM 7. 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 Annual 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.
CERTAIN INFORMATION ABOUT THE COMPANY PORTFOLIO
As of December 31, 1998, the Company owned 100% of the fifty-one 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, approximately 38.2% of the stock
of GGP/Homart, and a non-voting preferred stock ownership interest (representing
95% of the equity interest) in GGMI. The Company is also in the process of
developing two additional centers as discussed below. Reference is made to Notes
3 and 4 for a further discussion of such entities owned by the Company.
GGP/Homart owned interests in twenty-three shopping centers, GGP/Ivanhoe owned
interests in two shopping centers, and GGP Ivanhoe III owned interests in six
shopping centers. During 1996, the Company owned an interest in CenterMark
Properties, Inc. ("CenterMark"). 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, and (in 1996) in
CenterMark, the discussion of results of operations below relates primarily to
the revenues and expenses of the Wholly-Owned Centers.
The Mall Store and Freestanding Store portions of the centers in the Company
Portfolio which were not undergoing redevelopment on December 31, 1997, had an
occupancy of approximately 85.7% as of such date. On December 31, 1998, the Mall
Store and Freestanding Store portions of the centers in the Company Portfolio
which were not undergoing redevelopment were approximately 88.6% occupied as of
such date, representing an increase of 2.9% over 1997.
Comparable Mall Store sales are sales of those tenants that were open the
previous 12 months. Therefore, Comparable Mall Store sales in the year ended
December 31, 1998, are of those tenants that were operating in the year ended
December 31, 1997. Comparable Mall Store annualized sales averaged $299 per
square foot for the Company Portfolio in the year ended December 31, 1998. In
the year ended December 31, 1998, total mall store sales for the Company
Portfolio increased by 11.0% over the same period in 1997, and Comparable Mall
Store sales increased by 4.4% over 1997.
The average Mall Store rent per square foot from leases that expired in the year
ended December 31, 1998, was $23.90. The Company Portfolio benefited from
increasing rents inasmuch as the average Mall Store rent per square foot on new
and renewal leases executed during 1998 was $27.26, or $3.36 per square foot
above the average for expiring leases.
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<PAGE> 33
GENERAL GROWTH PROPERTIES, INC.
RESULTS OF OPERATIONS OF THE COMPANY
COMPARISON OF YEAR ENDED DECEMBER 31, 1998
TO YEAR ENDED DECEMBER 31, 1997
Total revenues for 1998 were $426.6 million, which represents an increase of
$135.5 million or approximately 46.5% from $291.1 million in 1997. Approximately
$128.8 million or 95.1% of the increase was from properties acquired or
developed after January 1, 1997. Minimum rent during 1998 increased $93.2
million or 53.0% from $175.8 million in 1997 to $269.0 million. The acquisition
and development of properties after January 1, 1997, generated a $77.5 million
increase in minimum rents. Expansion space, specialty leasing and a combination
of occupancy, rental charges and allowance reserve adjustments at the comparable
centers (properties owned for the entire time during current and prior periods)
accounted for the remaining increase in minimum rents. Tenant recoveries
increased by $33.6 million or 34.5% from $97.3 million to $130.9 million in
1998. The increase in tenant recoveries was generated by a combination of new
acquisitions and increased recoverable operating costs at the comparable
centers. Percentage rents and other income increased $8.4 million or 61.8% from
$13.6 million in 1997 to $22.0 million in 1998. The acquisition of new
properties and improved performance at the comparable centers accounted for the
increase in percentage rents and other income. Fee income during 1998 was
comparable to the year ended December 31, 1997. The fee revenue was primarily
generated by asset management services performed for GGP/Homart.
Total expenses, including depreciation and amortization, increased by
approximately 43.5% or $68.8 million, from $158.2 million in 1997 to $227.0
million in 1998. Virtually all of the increase in total expenses was from
properties acquired and developed since January 1, 1997. The increase in total
expenses from the new properties consists of $13.4 million of real estate taxes,
$1.0 million of management fees, $32.3 million of property operating costs, $0.9
million of provision for doubtful accounts, and $21.1 million of depreciation
and amortization.
Net interest expense increased by $39.5 million or 56.2% from $70.3 million in
1997 to $109.8 million in 1998, substantially all due to indebtedness incurred
in connection with the acquisition of new properties in 1997 and 1998. The note
receivable from GGMI generated $10.7 million of interest income in 1998, an
increase of $4.3 million from $6.4 million in 1997. The change was due to the
increase in the outstanding balance of the note, which proceeds GGMI primarily
used to finance the cost of the new corporate headquarters building in downtown
Chicago.
Equity in net income of unconsolidated affiliates during 1998 decreased by $8.2
million to $11.1 million from $19.3 million in 1997. GGP/Homart and the Property
Joint Ventures accounted for increases of approximately $1.4 million and $6.8
million, respectively. The Company's ownership interest in GGMI resulted in a
decrease of $16.4 million, caused primarily by the write-off of terminated
third-party management contracts in 1998.
Net income decreased by approximately $23.2 million in 1998 to $66.4 million,
from $89.6 million in 1997. Net income in 1997 included a $58.6 million gain
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<PAGE> 34
GENERAL GROWTH PROPERTIES, INC.
on the January 1997 sale of the remaining investment in CenterMark. The 1997 net
income without the CenterMark gain (net of minority interest) would have been
$52.9 million and 1998 net income would have increased by $13.5 million compared
to this amount, primarily as a result of net income from newly acquired
properties and higher income on comparable centers.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997
TO YEAR ENDED DECEMBER 31, 1996
Total revenues for 1997 were $291.1 million, which represents an increase of
$73.7 million or approximately 33.9% from $217.4 million in 1996. Approximately
$55.8 million of the increase was from properties acquired or developed after
January 1, 1996. Minimum rent during 1997 increased $35.3 million or 25.1% from
$140.5 million in 1996 to $175.8 million. The $35.3 million increase in minimum
rent was primarily caused by the acquisition and development of properties after
January 1, 1996. Tenant recoveries increased by $34.3 million or 54.4% from
$63.0 million to $97.3 million in 1997. The increase in tenant recoveries was
generated by a combination of new acquisitions and increased recoverable
operating costs at the comparable centers. Percentage rents and other income
increased $4.3 million or 46.2% from $9.3 million in 1996 to $13.6 million in
1997. The acquisition of new properties and improved performance at the
comparable centers accounted for the increase in percentage rents and other
income. Fee income during 1997 was comparable to the year ended December 31,
1996. The fee revenue was primarily generated by asset management services
performed for GGP/Homart.
Total expenses, including depreciation and amortization, increased by
approximately 36.6% or $42.4 million, from $115.8 million in 1996 to $158.2
million in 1997. Approximately $28.5 million or 67.2% of the increase in total
expenses was from properties acquired and developed since January 1, 1996. The
increase in total expenses consists of $4.4 million of real estate taxes, $0.6
million of management fees, $27.7 million of property operating costs, $0.6
million of provision for doubtful accounts, $0.4 million of general and
administrative and $8.7 million of depreciation and amortization. The remaining
$13.9 million of the increase was primarily accounted for by increased
recoverable operating costs.
Net interest expense increased by $3.9 million or 5.8% from $66.4 million in
1996 to $70.3 million in 1997. Debt used to fund acquisitions generated an $18.5
million increase in 1997 compared to 1996. This increase was partially offset
with the use of the stock offering proceeds and CenterMark sale proceeds to
repay existing indebtedness. The note receivable from GGMI generated $6.4
million of interest income in 1997, an increase of $3.6 million from $2.8
million in 1996.
Equity in net income of unconsolidated affiliates during 1997 increased by $1.7
million to $19.3 million from $17.6 million in 1996. A $9.4 million decrease is
attributable to the sale of the Company's interest in CenterMark. GGP/Homart and
the Property Joint Ventures accounted for increases of approximately $7.1
million and $2.9 million, respectively. The Company's ownership interest in GGMI
resulted in an increase of $1.1 million. In addition the Company had a net gain
of $58.6 million on the sale of its
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<PAGE> 35
GENERAL GROWTH PROPERTIES, INC.
remaining interest in CenterMark on January 2, 1997. As of that date, the
Company no longer held an ownership interest in CenterMark.
Net income increased by approximately $29.8 million in 1997 to $89.5 million,
from $59.7 million in 1996. The increase resulted from a larger gain on the sale
of CenterMark in the amount of $9.9 million (net of minority interest share) and
a combination of the above items.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
As of December 31, 1998, the Company held approximately $19.6 million of
unrestricted cash and cash equivalents. The Company uses operating cash flow as
the principal 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 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 securities, unsecured Company level debt or
secured loans collateralized by individual shopping centers. In addition, the
Company has access to the public equity and debt markets through a currently
effective shelf registration statement under which up to $662.5 millon in equity
or debt securities may be issued from time to time. The Company also has a $200
million unsecured credit facility (the "Credit Facility") which matures on July
31, 2000, including a one-year extension option which the Company currently
expects to exercise. On December 31, 1998, the Credit Facility was fully drawn.
As of December 31, 1998, the Company had consolidated debt of $2,649 million, of
which $2,036 million is comprised of debt bearing interest at a fixed rate, with
the remaining $613 million bearing interest at floating rates. Reference is made
to Note 5 and Items 2 and 7A of the Company's Annual Report on Form 10-K for
additional information regarding the Company's debt and the potential impact on
the Company of interest rate fluctuations.
The following summarizes certain significant financing and refinancing
transactions completed since December 31,1997:
On March 31, 1998, the Operating Partnership obtained a short-term unsecured
loan in the principal amount of $20 million. The proceeds of the loan were
distributed to General Growth and used by General Growth for working capital
purposes. This loan was repaid in full in June 1998 with a portion of the net
proceeds of General Growth's equity offering, as described below.
On April 29, 1998, the Company obtained a one-year loan in the principal amount
of $195 million, secured by mortgages encumbering Coral Ridge Mall in Coralville
(Iowa City), Iowa and Northbrook Court in Northbrook (Chicago), Illinois. A
portion of the proceeds of the loan in the amount of $95 million was immediately
used to acquire Northbrook Court. The balance of the proceeds of the loan in the
amount of $100 million was used in May 1998 to pay certain of the costs of
constructing the capital improvements to Coral Ridge Mall in Coralville (Iowa
City), Iowa. The principal amount of $100 million was repaid on October 28,
1998, in connection with the refinancing of the Coral Ridge Mall indebtedness,
as described below.
On May 15, 1998, Dayjay Associates (in which the Company holds a 50% interest as
a general partner) obtained a ten-year loan in the principal amount of $45
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<PAGE> 36
GENERAL GROWTH PROPERTIES, INC.
million, secured by a mortgage encumbering Quail Springs Mall in Oklahoma City,
Oklahoma. A portion of the proceeds of the loan was used to repay outstanding
indebtedness of approximately $16.1 million, which had been secured by a
mortgage on Quail Springs Mall, and the balance was used for capital
improvements to Quail Springs Mall.
On June 2, 1998, in connection with the Company's acquisition of the U.S. retail
property portfolio (the "MEPC Portfolio") of MEPC plc, a United Kingdom based
real estate company, nine wholly-owned affiliates of the Company obtained, on a
joint and several basis, a one-year loan in the original principal amount of
$855 million. The loan was secured by mortgages encumbering the following eight
centers which comprise the MEPC Portfolio: 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. The principal amount of $25 million was immediately
repaid on June 2, 1998. The remaining $830 million proceeds of the loan was used
to acquire the malls which comprise the MEPC Portfolio. $217 million of this
loan was repaid on or about June 10, 1998, resulting in $613 million remaining
outstanding under this loan as of December 31, 1998.
During June 1998, General Growth completed a public offering of 13,500,000
Depositary Shares, each representing 1/40 of one share of General Growth's
PIERS. General Growth received proceeds of approximately $322.7 million, net of
approximately $14.8 million of issuance costs. The proceeds were used to fund
certain of the Company's acquisitions during 1998, to pay down short-term loans
and amounts drawn under the Credit Facility and for working capital purposes.
On July 23, 1998, effective as of June 30, 1998, GGP Ivanhoe III acquired the
U.S. Prime Property, Inc. ("USPPI") retail property portfolio through a merger
of a wholly-owned subsidiary of GGP Ivanhoe III with USPPI. In connection
therewith, four affiliates of the Company obtained a one-year loan in the
principal amount of $392 million. The loan was secured by mortgages encumbering
Landmark Mall in Alexandria, Virginia; the Mayfair Mall and adjacent office
buildings in Wauwatosa (Milwaukee), Wisconsin; the Meadows Mall in Las Vegas,
Nevada; the Northgate Mall in Chattanooga, Tennessee; Oglethorpe Mall in
Savannah, Georgia; and the Park City Center in Lancaster, Pennsylvania. The
proceeds of the loan were used to acquire the foregoing malls.
On August 28, 1998, Altamonte Mall Venture (a wholly-owned affiliate of the
Company) obtained a ten-year loan in the principal amount of $125 million,
secured by a mortgage encumbering Altamonte Springs Mall in Altamonte Springs,
Florida. The proceeds of the loan were used to acquire such mall.
On September 15, 1998, Spring Hill Mall L.L.C. (a wholly-owned affiliate of the
Company) obtained a ten-year loan in the principal amount of $92 million,
secured by a mortgage encumbering Spring Hill Mall in West Dundee, Illinois. The
proceeds of the loan were used to acquire such mall.
On September 15, 1998, Pierre Bossier Mall, L.P. (a wholly-owned affiliate of
the Company) obtained a ten-year loan in the principal amount of $42 million,
secured by a mortgage encumbering Pierre Bossier Mall in Bossier City,
Louisiana. The proceeds of the loan were used to acquire such mall.
On October 9, 1998, the Company obtained a ten-year loan in the principal amount
of $150 million. The loan was secured by mortgages encumbering Birchwood Mall in
Port Huron, Michigan, Oakwood Mall in Eau Claire, Wisconsin
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GENERAL GROWTH PROPERTIES, INC.
and Mall of the Bluffs in Council Bluffs, Iowa. Approximately $113.8 million of
the loan proceeds was used to repay outstanding indebtedness which had been
secured by mortgages on such properties, and the balance of the loan proceeds
was used primarily for ongoing development activity at Rivertown Crossings in
Grandville (Grand Rapids), Michigan and other expansions and renovations
currently in progress.
On October 21, 1998, the Company acquired Mall St. Vincent in Shreveport,
Louisiana. The aggregate consideration paid for Mall St. Vincent was
approximately $26.4 million (subject to prorations and certain adjustments), and
was paid by issuing 200,052 redeemable common units of limited partnership in
the Operating Partnership (of which 88,871 common units were immediately
redeemed for cash by the Operating Partnership upon demand of the holders of
such units) and by assuming $19.2 million of existing debt. The cash paid in
exchange for the redemption of such units was funded from the Credit Facility.
On October 28, 1998, the Company obtained an eleven-year loan in the principal
amount of $82 million, secured by a mortgage encumbering Coral Ridge Mall in
Iowa City, Iowa. The proceeds of the loan were used, together with a portion of
the proceeds of the loan described in the next paragraph, to repay $100 million
principal amount of outstanding indebtedness which had been secured by mortgages
on Coral Ridge Mall and Northbrook Court, as described above.
Also on October 28, 1998, the Company obtained a ten-year loan in the principal
amount of $86 million, secured by a mortgage encumbering Southwest Plaza in
Littleton, Colorado. Approximately $51 million of the loan proceeds was used to
repay outstanding indebtedness which had been secured by a mortgage on Southwest
Plaza. Approximately $13.8 million was distributed to the Operating Partnership
and used, together with a portion of the proceeds of the loan described in the
preceding paragraph, to repay $100 million principal amount of outstanding
indebtedness which had been secured by mortgages on Coral Ridge Mall and
Northbrook Court, as described above.
On November 30, 1998, the Company obtained a thirteen month loan in the
principal amount of $55 million, secured by a negative pledge (i.e., the promise
not to encumber) of Coastland Center in Naples, Florida. This loan is expected
to be replaced in mid 1999 by approximately $80 - $90 million of new long-term
non-recourse mortgage financing. The proceeds of the loan were distributed to
the Operating Partnership to fund ongoing expansion and development activity,
including Stonebriar Mall in Frisco (Dallas), Texas.
In January 1999, the Company obtained an additional $30 million unsecured
six-month bank loan bearing interest at a floating market rate and an additional
$75 million short-term floating rate loan, which is expected to be replaced
within the next six months with two new fixed rate, non-recourse mortgage loans,
$50 million to be secured by The Crossroads Mall and $25 million to be secured
by Century Mall and West Valley Mall.
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 $75 million short-term floating rate interim loan
described above.
Other than a new $200 million construction loan for Rivertown Crossings and Park
Mall or as described above, there are no current plans for additional debt or
equity capital. However, if additional capital is required, the Company believes
that it can obtain an interim bank loan, obtain mortgage financing on
unencumbered assets or raise additional debt or equity capital. The Company will
continue to monitor its capital structure and plans to purchase properties if
they can be acquired and financed in a manner that management of the Company
reasonably believes will enhance stockholder value.
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GENERAL GROWTH PROPERTIES, INC.
Net cash provided by operating activities was $101.4 million in 1998, an
increase of $15.7 million from $85.7 million in the same period in 1997. Net
income before allocations to the minority interest decreased $39.7 million,
which was primarily due to the $58.6 million gain on the sale of the Company's
remaining interest in CenterMark recognized in 1997. The other significant
change in cash provided by operating activities was a $26.7 million net change
in cash flows from operating activities in 1998 as compared to 1997 related to
depreciation and amortization.
SUMMARY OF INVESTING ACTIVITIES
Net cash used by investing activities was $1,491.5 million in 1998 compared to
$167.0 million of cash used in 1997. Cash flow from investing activities was
impacted by acquisitions, development and improvements to real estate
properties, which utilized cash of approximately $1,360.1 million in 1998. The
proceeds from the sale of CenterMark provided funds of $130.5 million in 1997.
Net cash used by investing activities in 1997 was $167.0 million, compared to a
use of $29.3 million in 1996. Cash flow from investing activities was affected
by the timing of acquisitions, development and improvements to real estate
properties, requiring a use of cash of approximately $200.6 million in 1997
compared to $121.1 in 1996. Market Place Shopping Center and Century Plaza were
acquired in 1997 for approximately $101.8 million. The sale of portions of the
Company's interest in CenterMark provided cash flow of $130.5 million in 1997
and $87.0 million in 1996. Investments in GGP/Homart and the Property Joint
Ventures used $86.2 million of cash flow in 1997 compared to $33.5 million in
1996. During 1996 distributions of $21.5 million were received from CenterMark.
Distributions received from GGP/Homart in 1997 were $20.4 million compared to
$13.8 million in 1996. The change in notes receivable from affiliates used $24.0
million of cash flow compared to the receipt of $12.5 million in 1996.
SUMMARY OF FINANCING ACTIVITIES
Financing activities contributed cash of $1,383.8 million in 1998, compared to a
source of cash of $91.3 million in 1997. As described in Note 1, the Company
completed a public offering of preferred stock in June, 1998. This public
offering resulted in net proceeds of approximately $322.7 million, which was
primarily used to reduce acquisition-related financing and amounts drawn on the
Company's line of credit. Such payments are reflected in the increase in the use
of cash for financing activities for principal payments on mortgage notes and
other debt in 1998 as compared to 1997. An additional significant contribution
of cash from financing activity is financing from mortgages and acquisition
debt, which had a positive impact of $2,093 million in 1998 versus approximately
$832.5 million in 1997. The additional financing was used to fund the
acquisitions and redevelopment of real estate that was discussed above. The
remaining use of cash was primarily accounted for by increased distributions
(including amounts to the new preferred stockholders paid during 1998).
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GENERAL GROWTH PROPERTIES, INC.
Financing activities in 1997 provided $91.3 million of cash compared to a $40.3
million use of cash flow in 1996. Distributions to common stockholders and the
minority interest in the Operating Partnership were $88.9 million in 1997
compared to $75.5 million in 1996. The increase is due to the increased
distribution rate and additional shares and Operating Partnership Units
outstanding during 1997 compared to 1996. Net proceeds from the issuance of
common stock during 1997 provided $165.8 million of cash flow. Net borrowing
activity provided $29.6 million of cash flow in 1997 compared to $37.7 million
in 1996. The purchase of treasury stock used $5.7 million of cash flow during
1997. The payment of deferred financing costs used $9.3 million of cash flow in
1997 compared to $2.4 million in 1996.
REIT REQUIREMENTS
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 (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 were incurred to finance Company acquisitions. 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 12, certain accounting pronouncements have been
issued in 1998, which are effective for the current or subsequent year. The
Company does not expect the application of such new pronouncements to have a
significant impact on its annual reported operations.
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
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GENERAL GROWTH PROPERTIES, INC.
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, as of the date of this report,
were fully operational and are all Year 2000 compliant. These upgrades 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 is continuing its process of evaluating 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 is expected to
be completed by early 1999. If these non-IT systems are found to be not Year
2000 compliant, the appropriate upgrades or replacements will be purchased. The
cost of any upgrades that may be required is expected to be 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 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 IT systems 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. Costs to specifically
remediate non-IT systems that are non Year 2000 compliant are not expected to be
material.
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
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<PAGE> 41
GENERAL GROWTH PROPERTIES, INC.
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 likely
would 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.
ECONOMIC CONDITIONS
Inflation has been relatively low and has not had a significant detrimental
impact on the Company. Should inflation rates increase in the future,
substantially all of the tenants' leases contain provisions designed to mitigate
the negative impact of inflation. Such provisions include clauses enabling the
Company to receive percentage rents based on tenants' gross sales, which
generally increase as prices rise, and/or escalation clauses, which generally
increase rental rates during the terms of the leases. In addition, many of the
leases are for terms of less than 10 years which may enable the Company to
replace or renew expiring leases with new leases at higher base and/or
percentage rents, if rents of the existing leases are below the then-existing
market rates. Finally, most of the leases require the tenants to pay their share
of certain operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to increases in
costs and operating expenses resulting from inflation.
A number of local, regional and national retailers filed for bankruptcy
protection during the last few years. Most of the bankrupt retailers reorganized
their operations and/or sold stores to stronger operators. Although some leases
were terminated by virtue of the lease cancellation rights afforded by the
bankruptcy laws, the impact on Company earnings was negligible. Over the last
three years, the provision for doubtful accounts has averaged only $2.6 million
per year, which represents less than 1% of average total revenues of $312
million.
The Company and its affiliates currently have an interest in 84 shopping
centers. The Portfolio Centers are diversified both geographically and by
property type (both major and middle market properties) and this may mitigate
the impact of a potential downturn at a particular property or in a particular
region of the country.
The shopping center business is seasonal in nature. Mall stores typically
achieve higher sales levels during the fourth quarter because of the holiday
selling season. Although the Company has a year-long temporary leasing program,
a significant portion of the rents received from short-term tenants are
collected during the months of November and December. Thus, occupancy
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<PAGE> 42
GENERAL GROWTH PROPERTIES, INC.
levels and revenue production are generally highest in the fourth quarter of
each year and lower during the first and second quarters of each year.
ITEM 7A. 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 $612.6 million of debt of the Company outstanding at
December 31, 1998 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 $1.5 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 5 for additional debt information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 to Financial Statements and Financial
Statement Schedules for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
There is hereby incorporated by reference the information which appears under
the captions "Proposal No. 1 - Election of Directors" and "Executive Officers"
in the Company's definitive proxy statement for its 1999 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information which appears under
the caption "Executive Compensation" in the Company's definitive proxy statement
for its 1999 Annual Meeting of Stockholders; provided, however, that neither the
Report of the Compensation Committee of the Board of Directors on Executive
Compensation nor the Performance Graph set forth therein shall be incorporated
by reference herein, in any of the Company's previous filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, or in any of the Company's future filings.
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GENERAL GROWTH PROPERTIES, INC.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information which appears under
the captions "Certain Relationships and Related Transactions" and "Common Stock
Ownership of Management" in the Company's definitive proxy statement for its
1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information which appears under
the caption "Compensation Committee Interlocks and Insider Participation" in the
Company's definitive proxy statement for its 1999 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules.
The financial statements and schedules listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedules are filed as
part of this Annual Report on Form 10-K.
(b) The following reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this report.
1) Current report on Form 8-K dated October 1, 1998, concerning the
acquisition of Pierre Bossier Mall. No financial statements were
filed therewith.
2) Current report Form 8-K dated October 5, 1998, as amended by
Form 8-K/A dated November 9, 1998, concerning the acquisition of
Coastland Center. Financial statements relating to the Coastland
Center were filed therewith.
3) Current report on Form 8-K dated November 10, 1998, concerning the
acquisition of Mall St. Vincent. No financial statements were filed
therewith.
4) Current report on Form 8-K dated November 18, 1998, concerning the
adoption of the Shareholders Rights Plan. No financial statements
were filed therewith.
(c) Exhibits.
See Exhibit Index on page S-1
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GENERAL GROWTH PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Matthew Bucksbaum
-------------------------------------
Matthew Bucksbaum, Chairman of the Board
and Chief Executive Officer
Date: March 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert Michaels
- -------------------------------------
Robert Michaels President and Director March 19, 1999
/s/ John Bucksbaum
- -------------------------------------
John Bucksbaum Executive Vice President - Director March 19, 1999
/s/ Bernard Freibaum
- -------------------------------------
Bernard Freibaum Executive Vice President, Chief Financial
Officer and Principal Accounting Officer March 19, 1999
/s/ Anthony Downs
- -------------------------------------
Anthony Downs Director March 19, 1999
/s/ Morris Mark
- -------------------------------------
Morris Mark Director March 19, 1999
/s/ Beth Stewart
- -------------------------------------
Beth Stewart Director March 19, 1999
/s/ Lorne Weil
- -------------------------------------
A. Lorne Weil Director March 19, 1999
44 of 44
<PAGE> 45
GENERAL GROWTH PROPERTIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE
The following financial statements and financial statement schedule are included
in Item 8 of this Annual Report on Form 10-K:
General Growth Properties, Inc.
Financial Statements Page(s)
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-8
Notes to Consolidated Financial Statements F-9 to F-35
Financial Statement Schedule
Report of Independent Accountants F-36
Schedule III - Real Estate and Accumulated Depreciation F-37
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements and related notes.
F-1
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
General Growth Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the consolidated financial position of
General Growth Properties, Inc. as of December 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and the
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion expressed above.
Chicago, Illinois PricewaterhouseCoopers LLP
February 8, 1999
F-2
<PAGE> 47
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in thousands, except for per share amounts)
ASSETS December 31,
------------
1998 1997
---- ----
Investment in Real Estate:
Land $ 364,699 $ 194,131
Buildings and equipment 3,222,237 1,601,351
Less accumulated depreciation (301,789) (233,295)
Developments in progress 89,860 68,003
---------- ----------
Net property and equipment 3,375,007 1,630,190
Investment in Unconsolidated Real Estate
Affiliates 386,301 293,766
---------- ----------
Net Investment in Real Estate 3,761,308 1,923,956
Cash and cash equivalents 19,630 25,898
Tenant accounts receivable, net 74,585 34,849
Deferred expenses, net 71,593 42,343
Investment in and note receivable from
General Growth Management, Inc. 84,716 61,588
Prepaid expenses and other assets 15,642 9,085
---------- ----------
$4,027,474 $2,097,719
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes and other debts payable $2,648,776 $1,275,785
Distributions payable 33,757 24,421
Accounts payable and accrued expenses 122,303 36,540
---------- ----------
2,804,836 1,336,746
---------- ----------
Minority interest in Operating Partnership 299,431 262,468
---------- ----------
Commitments and contingencies
Convertible Preferred Stock: $100 par value; 5,000,000
shares authorized; 345,000 designated as PIERS (Note 1)
with a $1,000 liquidation value, 337,500 and none
of which were issued and outstanding at
December 31, 1998 and December 31, 1997 337,500 ---
---------- ----------
Stockholders' Equity:
Common stock: $0.10 par value; 210,000,000 shares
authorized; 39,000,972 shares issued and outstanding
at December 31, 1998 and 35,769,454 shares issued
and 35,634,977 outstanding at December 31, 1997 3,900 3,577
Additional paid-in capital 843,238 738,630
Retained earnings (deficit) (258,267) (239,139)
Treasury stock, at cost; none and 134,477 shares
held at December 31, 1998 and 1997 --- (4,563)
Notes receivable - common stock purchase (3,164) ---
---------- ----------
Total Stockholders' Equity 585,707 498,505
---------- ----------
$4,027,474 $2,097,719
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 48
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share amounts)
Years ended December 31,
1998 1997 1996
-------- -------- --------
Revenues:
Minimum rents $268,976 $175,830 $140,468
Tenant recoveries 130,903 97,291 63,040
Percentage rents 16,226 7,976 5,412
Other 5,796 5,577 3,925
Fee Income 4,675 4,473 4,560
-------- -------- --------
Total Revenues 426,576 291,147 217,405
-------- -------- --------
Expenses:
Real estate taxes 33,548 20,761 16,332
Management fee to affiliate 4,288 3,308 2,713
Property operating 106,986 79,175 51,466
Provision for doubtful accounts 2,451 3,025 2,421
General and administrative 4,511 3,408 3,022
Depreciation and amortization 75,227 48,509 39,809
-------- -------- --------
Total Expenses 227,011 158,186 115,763
-------- -------- --------
Operating Income 199,565 132,961 101,642
Interest income 16,011 8,523 3,833
Interest expense (125,851) (78,775) (70,272)
Equity in net income (loss) of
unconsolidated affiliates:
GGP/Homart 17,865 16,505 9,355
Property Joint Ventures 9,837 3,033 9,507
General Growth Management, Inc. (16,635) (194) (1,273)
Net gain on sales 196 58,647 43,821
-------- -------- --------
Income before extraordinary item &
allocation to minority interest 100,988 140,700 96,613
Income allocated to minority interest (29,794) (49,997) (34,580)
-------- -------- --------
Income before extraordinary item 71,194 90,703 62,033
Extraordinary Items (4,749) (1,152) (2,291)
-------- -------- --------
Net Income 66,445 89,551 59,742
Convertible Preferred Stock Dividends (13,433) -- --
-------- -------- --------
Net income available to common
stockholders $ 53,012 $ 89,551 $ 59,742
======== ======== ========
Earnings before extraordinary item per
share-basic $ 1.60 $ 2.78 $ 2.20
======== ======== ========
Earnings before extraordinary item per
share-diluted $ 1.59 $ 2.76 $ 2.20
======== ======== ========
Net earnings per share - basic $ 1.46 $ 2.75 $ 2.12
======== ======== ========
Net earnings per share - diluted $ 1.46 $ 2.73 $ 2.12
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 49
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except for Per Share Amounts)
<TABLE>
<CAPTION>
Additional Retained Total
Common Stock Paid-in Earnings Treasury Employee Stock-
Shares Amount Capital (Deficit) Stock Stock holders'
Loans Equity
------ ------ ------- --------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1995 27,272,560 $2,727 $506,107 $(279,451) $ -- $ -- $229,383
Net income 59,742 59,742
Cash distributions
declared
($1.72 per share) (48,731) (48,731)
Acquisitions:
General Growth
Management, Inc.
less $38 of
issuance costs 1,555,855 156 39,675 39,831
Real estate
investments 1,895,928 190 49,511 49,701
Exercise of
stock options 66,667 7 1,381 1,388
Purchase and
retirement of
common stock (66,667) (7) (1,443) (1,450)
Conversion of
operating partnership
units to
common stock 64,842 6 1,315 1,321
Adjustment for
minority interest
in operating partnership (918) (918)
Balance,
December 31, ---------- ------ -------- --------- ----- ----- --------
1996 30,789,185 3,079 595,628 (268,440) -- -- 330,267
Net income 89,551 89,551
Cash distributions
declared
($1.80 per share) (59,779) (59,779)
Issuance of common
stock, less $533
of offering
costs 4,927,680 493 165,270 165,763
Issuance of
common stock
for services 2,000 50 50
Exercise of
stock options 44,500 147 (471) 1,185 861
</TABLE>
F-5
<PAGE> 50
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except for Per Share Amounts)
- continued -
<TABLE>
<CAPTION>
Additional Retained Total
Common Stock Paid-in Earnings Treasury Employee Stock-
Shares Amount Capital (Deficit) Stock Stock holders'
Loans Equity
------ ------ ------- --------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase treasury
stock (171,213) $ -- $ -- $ -- $(5,748) $ -- $(5,748)
Conversion of
operating
partnership
units to
common stock 42,825 5 776 781
Adjustment for
minority interest in
operating partnership (23,241) (23,241)
Balance,
December 31, ---------- ----- ------- --------- ------- ----- -------
1997 35,634,977 3,577 738,630 (239,139) (4,563) -- 498,505
Net income 66,445 66,445
Cash distributions declared
($1.88 per share) (68,940) (68,940)
PIERS Dividends (13,433) (13,433)
Cost of issuance
of preferred stock (14,814) (14,814)
Exercise of
stock options,
net of employee
stock loans 166,000 14 2,526 (530) 1,154 (3,164) --
Purchase treasury
stock (32,350) (1,136) (1,136)
Conversion of
operating
partnership
units to
common stock 3,232,345 309 47,932 (2,670) 4,545 50,116
Adjustment for
minority interest
in operating
partnership 68,964 68,964
Balance,
December 31, ---------- ------ -------- --------- ----- ------ --------
1998 39,000,972 $3,900 $843,238 $(258,267) $ -- $(3,164) $585,707
========== ====== ======== ========== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 51
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except for per share amounts)
Years ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net Income $ 66,445 $ 89,551 $ 59,742
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest 29,794 49,997 34,580
Net gain on sales (196) (58,647) (43,821)
Extraordinary items 4,749 1,152 2,291
Equity in net income of unconsolidated
affiliates (11,067) (19,344) (17,589)
Provision for doubtful accounts 2,451 3,025 2,421
Depreciation 68,494 44,551 35,469
Amortization 6,733 3,957 4,340
Net Changes:
Tenant accounts receivable (42,187) (12,490) (12,974)
Prepaid expenses and other assets (6,557) 46 (5,744)
Accounts payable and accrued expenses (17,278) (16,082) 8,487
----------- ---------- ---------
Net cash provided by (used in)
operating activities 101,381 85,716 67,202
----------- ---------- ---------
Cash flows from investing activities:
Acquisition/development of real estate
and additions to properties (1,360,071) (200,564) (121,138)
Increase in investments in property joint
ventures (92,990) (72,514) (14,397)
Investment in GGP/Homart -- (13,719) (19,058)
Change in notes receivable from General
Growth Management, Inc. (33,031) (24,045) 12,532
Proceeds received from sale of CenterMark
stock -- 130,500 87,000
Distributions received from CenterMark -- -- 21,531
Distributions received from GGP/Homart 21,865 20,352 13,791
Distributions received from property joint
ventures 6,292 -- --
Increase in deferred expenses (33,540) (7,039) (9,546)
----------- --------- ----------
Net cash provided by (used in) investing
activities (1,491,475) (167,029) (29,285)
----------- --------- ---------
Cash flows from financing activities:
Cash distributions paid to common
stockholders (66,639) (56,989) (47,604)
Cash distributions paid to minority
interest (36,467) (31,884) (27,861)
Proceeds from exercised options -- 861 1,388
Retirement of Common Stock -- -- (1,450)
Proceeds of preferred stock issuance,
net of issuance costs of $14,814 322,686 -- --
Capital contribution from minority interest 119 -- --
F-7
<PAGE> 52
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except for per share amounts)
- continued -
Years ended December 31,
1998 1997 1996
---- ---- ----
Payment of dividends on PIERS (Note 1) $ (7,316) $ -- $ --
Proceeds of common stock issuance, net of
issuance costs of $533 in 1997 and $38 in
1996 -- 165,763 (38)
Proceeds from issuance of mortgage / other
notes payable 2,093,000 832,525 705,815
Principal payments on mortgage notes and
other debts payable (913,229) (802,929) (668,107)
Purchase of treasury stock (1,136) (5,748) --
Prepayment penalty on early retirement of
debt (4,749) (1,073) --
Increase in deferred financing costs (2,443) (9,262) (2,411)
---------- --------- ---------
Net cash provided by (used in) financing
activities 1,383,826 91,264 (40,268)
---------- --------- ---------
Net change in cash and cash equivalents (6,268) 9,951 (2,351)
Cash and cash equivalents at beginning of
year 25,898 15,947 18,298
---------- --------- ---------
Cash and cash equivalents at end of year $ 19,630 $ 25,898 $ 15,947
========== ========= =========
Supplemental disclosure of cash flow
information:
Interest paid $ 128,987 $ 79,787 $ 73,386
Interest capitalized 12,028 4,753 5,947
========== ========= =========
Non-cash investing and financing activities:
Debt and other liabilities assumed as
consideration to seller for purchase of
real estate and General Growth Management,
Inc. (1996) $ 289,530 $ 185,298 $ 348,639
Operating partnership units exchanged for
treasury stock 1,875 -- --
Operating partnership units exchanged for
common stock 48,241 781 1,321
Notes receivable issued for exercised stock
options 3,164 -- --
Partnership units and common stock issued as
consideration for purchase of real estate 163,514 30,408 140,935
Distributions declared 33,757 24,421 20,744
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 53
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
NOTE 1 ORGANIZATION
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. On April 15, 1993, General Growth completed its initial
public offering and a business combination involving entities under varying
common ownership. Proceeds from the initial public offering were used to acquire
a majority interest in GGP Limited Partnership (the "Operating Partnership")
which was formed to succeed to substantially all of the interests in 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.
REDEEMABLE PREFERRED STOCK
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 proceeds of approximately $322,686 net
of approximately $14,814 of issuance costs, which were utilized to fund certain
of the acquisitions described in Note 3 and for other working capital needs.
Each owner of a Depositary Share is entitled to its pro rata share of all the
rights and preferences of the PIERS represented thereby. The PIERS are
convertible at any time, at the option of the holder, into shares of common
stock of General Growth ("Common Stock") at the conversion price of $39.70 per
share of Common Stock. In addition, the PIERS have a preference on liquidation
of General Growth equal to $1,000 per PIERS (equivalent to $25.00 per Depositary
Share), plus accrued and unpaid dividends, if any, to the liquidation date. 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.
SHAREHOLDER RIGHTS PLAN
In November 1998, General Growth adopted a shareholder rights plan (the "Plan"),
pursuant to which General Growth declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of General Growth's Common
Stock outstanding on December 10, 1998 to the shareholders of record on that
date. Prior to becoming exercisable, the Rights trade together with the Common
Stock. The Rights will become exercisable if a person or group acquires or
commences or announces a tender or exchange offer for 15% or more of the Common
Stock (or, in the case of certain grandfathered
F-9
<PAGE> 54
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
stockholders described in the Plan, more than the applicable grandfathered limit
described therein). Each Right will initially entitle the holder to purchase
from General Growth one one-thousandth of a share of newly-created Series A
Junior Participating Preferred Stock, par value $100 per share (the "Preferred
Stock"), at an exercise price of $148 per one one-thousandth of a share, subject
to adjustment. In the event that a person or group acquires 15% or more of the
Common Stock, each Right will entitle the holder (other than the acquirer) to
purchase shares of Common Stock (or, in certain circumstances cash or other
securities) having a market value of twice the exercise price of a Right at such
time. Under certain circumstances, each Right will entitle the holder (other
than the acquirer) to purchase common stock of the acquirer having a market
value of twice the exercise price of a Right at such time. In addition, under
certain circumstances, the Board of Directors of General Growth (the "Board")
may exchange each Right (other than those held by the acquirer) for one share of
Common Stock, subject to adjustment. The Rights expire on November 18, 2008,
unless earlier redeemed by the Board for $0.01 per Right or such expiration date
is extended.
OPERATING PARTNERSHIP
The Operating Partnership commenced operations on April 15, 1993 and as of
December 31, 1998, the Company owned 100% of fifty-one 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"); approximately 38.2% 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. During 1996, the Company owned an interest in CenterMark.
As of December 31, 1998, the Company owned an approximate 66% general
partnership interest in the Operating Partnership (excluding its preferred units
of partnership interest as discussed below). The remaining approximate 34%
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; provided however, that General
Growth may assume the Operating Partnership's obligations and redeem the Units
for cash or shares of Common Stock on a one-for-one basis. Certain Units owned
by or for the benefit of certain officers and directors of General Growth and
their families can be exchanged for cash or shares of Common Stock, at General
Growth's election, if such persons own, in the aggregate, 25% or more of the
outstanding Common Stock at the time of the exchange. The holders of the Units
also share equally with General Growth's stockholders on a per share basis in
any distributions by the Operating Partnership.
F-10
<PAGE> 55
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
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 Agreement was amended to provide for the issuance to
General Growth of preferred units of limited partnership interest (the
"Preferred Units") in the Operating Partnership 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 December 31, 1998, 100% of the Preferred Units of the Operating Partnership
(337,500) were owned by General Growth.
Changes in Operating Partnership Units (excluding the Preferred Units) for the
three years ending December 31, 1998, are as follows:
Units
-----
December 31, 1995 16,100,461
Acquisition of General Growth
Management, Inc. (issued to the original stockholders) 453,791
Acquisition of Lakeview Square, Lansing and Westwood Malls 1,445,000
Conversion to common stock (64,842)
----------
December 31, 1996 17,934,410
Acquisition of Southlake Mall 353,537
Acquisition of Valley Hills Mall 518,833
Conversion to common stock (42,825)
----------
December 31, 1997 18,763,955
Acquisition of Southwest Plaza 505,420
Acquisition of Altamonte Mall 3,683,143
Acquisition of Mall St. Vincent 111,181
Conversion to common stock (3,232,345)
----------
December 31, 1998 19,831,354
==========
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 the owning and operation of shopping centers. General Growth
evaluates operating results and allocates resources on a property-by-property
basis. General Growth does not distinguish or group its
F-11
<PAGE> 56
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
operations on a geographic basis. Accordingly, General Growth has concluded 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 required.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company consisting of the fifty-one centers and the unconsolidated investments
in GGP/Homart, GGMI, GGP/Ivanhoe, Quail Springs Mall, Town East Mall and GGP
Ivanhoe III. All significant intercompany balances and transactions have been
eliminated.
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 12). 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 which is estimated to be uncollectible. Such allowances are
reviewed periodically based upon the recovery experience of the Company.
Accounts receivable in the accompanying consolidated balance sheets are shown
net of an allowance for doubtful accounts of $7,737 and $5,011 as of December
31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The cash and cash
equivalents of the Company are held at two financial institutions. The carrying
amount approximates fair value due to the short maturity of these investments.
DEFERRED EXPENSES
Deferred expenses consist principally of financing fees and leasing commissions,
which are amortized over the terms of the respective agreements. Deferred
expenses in the accompanying consolidated balance sheets are shown at cost, net
of accumulated amortization of $30,685 and $25,235 as of December 31, 1998 and
1997, respectively.
F-12
<PAGE> 57
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
PROPERTIES
Real estate assets are stated at cost. Interest and real estate taxes incurred
during construction periods are capitalized and amortized on the same basis as
the related assets. The real estate assets of the Company are periodically
reviewed for impairment. Based principally on a review of cash flows, management
has determined that the fair value of its real estate assets exceeds their
carrying value. Depreciation expense is computed using the straight-line method
based upon the following estimated useful lives:
YEARS
-----
Buildings and Improvements 40
Equipment and fixtures 10
Construction allowances paid to tenants are capitalized and depreciated over the
average lease term. Maintenance and repairs are charged to expense when
incurred. Expenditures for improvements are capitalized.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company accounts for its investments in affiliates using the equity method
whereby the cost of an investment is adjusted for the Company's share of equity
in net income or loss from the date of acquisition and reduced by distributions
received. The Company generally shares in the profit and losses, cash flows and
other matters relating to its unconsolidated affiliates in accordance with its
respective ownership percentages. However, due to currently unpaid and accrued
preferences as described in Note 4 on the preferred stock, the Company was
entitled to 100% of the earnings (loss) and cash flows generated by GGMI in
1998, 1997 and 1996. Subsequent to the sale in July 1996 of a portion of the
Company's investment in CenterMark, the remaining investment in CenterMark was
accounted for using the cost method whereby distributions received were included
in income instead of its share of equity in net income or loss.
INCOME TAXES
The Company elected to be taxed as a real estate investment trust under sections
856-860 of the Internal Revenue Code of 1986, commencing with its taxable year
beginning January 1, 1993. In order to qualify as a real estate investment
trust, the Company is required to distribute at least 95% of its ordinary
taxable income and 100% of capital gains to stockholders and to meet certain
asset and income tests as well as certain other requirements. As a real estate
investment trust, the Company will generally not be liable for Federal income
taxes, provided it satisfies the necessary requirements. As a result, Federal
income taxes related to the distribution in the form of dividends of
substantially all of the net taxable income of the Company as described above
are payable by the stockholders of the Company. Accordingly, the consolidated
statements of operations do not reflect a provision for income taxes. State
income taxes are not significant.
F-13
<PAGE> 58
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
One of the Company's affiliates, GGMI, is a taxable corporation and accordingly,
state and Federal income taxes on its net taxable income are payable by GGMI.
EARNINGS PER SHARE
Basic per share amounts are based on the weighted average of common shares
outstanding of 36,190,367 for 1998, 32,622,665 for 1997, and 28,145,091 for
1996. Diluted per share amounts are based on the total number of weighted
average common shares and dilutive securities (stock options) outstanding of
36,381,914 for 1998, 32,839,637 for 1997, and 28,220,707 for 1996. 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 year ended December 31, 1998
and therefore has been excluded from the diluted earnings per share calculation.
The outstanding Units have been excluded from the diluted earnings per share
calculation as there would be no effect on the amounts since the minority
interests' share of income would also be added back to net income.
The following are the reconciliations of the numerators and denominators of the
basic and diluted EPS:
Year ended
December 31,
---------------------------------
1998 1997 1996
Numerators:
Income before extraordinary items $ 71,194 $90,703 $62,033
Dividends on PIERS (13,433) -- --
Extraordinary items (4,749) (1,152) (2,291)
-------- ------- -------
Net income available to common
shareholders for basic and diluted EPS $ 53,012 $89,551 $59,742
======== ======= =======
Denominators (in thousands):
Weighted average common shares
outstanding for basic EPS 36,190 32,623 28,145
Effect of dilutive securities - options 192 217 76
======== ======= =======
Weighted average common shares outstanding
for diluted EPS 36,382 32,840 28,221
======== ======= =======
MINORITY INTEREST
Income before minority interest is allocated to the limited partners (the
"Minority Interest") based on their ownership percentage of the Operating
Partnership. The ownership percentage is determined by dividing the numbers of
Operating Partnership Units held by the Minority Interest by the total Operating
Partnership Units (excluding Preferred Units) outstanding. The issuance of
additional shares of common stock or Operating Partnership Units changes the
percentage ownership of both the Minority Interest and the
F-14
<PAGE> 59
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
Company. Since a Unit is generally redeemable for cash or Common Stock at the
option of the Company, it may be deemed to be equivalent to a common share.
Therefore, such transactions are treated as capital transactions and result in
an allocation between stockholders' equity and Minority Interest in the
accompanying balance sheets to account for the change in the ownership of the
underlying equity in the Operating Partnership.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
The consolidated financial statements of prior periods have been reclassified to
conform with current classifications with no effect on results of operations.
NOTE 3 PROPERTY ACQUISITIONS AND DEVELOPMENTS
WHOLLY-OWNED PROPERTIES
1998
- ----
On April 2, 1998, the Company acquired Southwest Plaza located in Denver,
Colorado. On May 8, 1998, the Company completed the acquisition of 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 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 ("MEPC U.S. Subsidiaries") 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 5. 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.
F-15
<PAGE> 60
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 prorations 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 line of credit facility 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 prorations and certain adjustments)
which was paid in the form of approximately $10,000 in cash (funded from the
Company's line of 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 prorations and certain adjustments) which was
paid in the form of approximately $32,000 in cash (through the Company's line of
credit facility) and a new ten 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 prorations and certain
adjustments). The aggregate consideration paid was borrowed under the Company's
line of 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 prorations 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 line of credit facility]
upon demand of the holders of such Units) and by assuming approximately $19,200
of debt.
1997
- ----
On March 31, 1997, the Company acquired Market Place Mall for a cash purchase
price of approximately $70,000. Market Place Mall is located in Champaign,
Illinois.
During the second quarter of 1997, the Company acquired three properties,
Century Plaza, Southlake Mall and Eden Prairie Center. Century Plaza located in
Birmingham, Alabama, was acquired on May 1, 1997, for $31,800 in cash. Southlake
Mall was acquired on June 18, 1997, for a purchase price of $67,000 which
consisted of $45,100 of mortgage debt assumption, $11,500 of Operating
Partnership Units (353,537 units), and $10,400 in cash. Southlake Mall is
located in Atlanta, Georgia. The aggregate consideration paid for Eden Prairie
Center located in Eden Prairie (Minneapolis), Minnesota was $19,900. It
F-16
<PAGE> 61
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
included the assumption of a $16,800 mortgage, the payment of $1,100 in cash and
the assumption of $2,000 of short-term liabilities.
The Company acquired Valley Hills Mall located in Hickory, North Carolina, on
October 23, 1997, for a purchase price of approximately $34,500. The purchase
price consisted of approximately $18,900 of Operating Partnership Units (518,833
units) and the assumption of approximately $15,600 of mortgage debt.
1996
- ----
On October 4, 1996, Park Mall in Tucson, Arizona, was acquired for one million
shares of newly issued common stock and the payment of $23,995 in cash. Sooner
Fashion Mall and 50% of Quail Springs Mall, in Norman and Oklahoma City,
Oklahoma, respectively, were acquired on November 27, 1996, for 895,928 newly
issued common shares, the assumption of $8,636 of mortgage debt and the payment
of $16,695 in cash. On December 6, 1996, the Company acquired Lakeview Square,
Lansing Mall and Westwood Mall, all located in south central Michigan for an
aggregate purchase price of $132,148. The purchase price consisted of $92,411 of
mortgage debt assumption, of which $4,436 was retired at closing, and the
issuance of $39,737 (1,445,000 units) of Operating Partnership Units.
GENERAL
The acquisitions 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 13). Subsequent to year-end, on January 11, 1999 the Company acquired The
Crossroads Mall in Kalamazoo, Michigan. The aggregate purchase price was
approximately $68,000 (subject to prorations and certain adjustments), which was
funded from a new $75,000 short-term floating rate interim loan. Such interim
loan is expected to be replaced within the next six months with two new fixed
rate, non-recourse mortgage loans, $50,000 to be secured by The Crossroads Mall
and $25,000 to be secured by the Century and West Valley Malls.
DEVELOPMENTS
The Company owns three development sites in the following locations: Coralville
(Iowa City), Iowa; Grandville (Grand Rapids), Michigan and Frisco (Dallas),
Texas. Coral Ridge Mall, located in Coralville (Iowa City), Iowa was completed
and opened as scheduled in July of 1998. Construction of the Grandville (Grand
Rapids) mall (RiverTown Crossings) commenced in December, 1997, and is scheduled
to open in the fall of 1999. Construction of Stonebriar Mall at the Bridges,
located in Frisco (Dallas), Texas commenced in October of 1998 with an
anticipated completion date in the summer of 2000.
F-17
<PAGE> 62
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
NOTE 4 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
GGP/HOMART
The Company owns approximately 38.2% of GGP/Homart with the remaining ownership
interests held by four institutional investors. The co-investors in GGP/Homart
are allowed to exercise an exchange right according to the GGP/Homart
Stockholders Agreement. The exchange right is designed to allow a GGP/Homart
stockholder to convert their ownership interest in GGP/Homart to a common stock
ownership interest in the Company. However, if such a right is exercised by a
stockholder, the Company may elect to satisfy such conversion in cash.
GGP/Homart currently owns interests in twenty-three regional shopping malls.
GGP/Homart has elected real estate investment trust status for income tax
purposes.
PROPERTY JOINT VENTURES
1998
- ----
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 as well as credits for tenant allowances, construction
costs, commissions, due diligence items and certain miscellaneous items). The
acquisition was financed with a $392,000 interim loan, which becomes due July 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
line of 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 properties acquired are currently managed
by GGMI.
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,
Inc. 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.
Additionally, the stockholders' agreement of GGP Ivanhoe III contains provisions
regarding buy-sell rights of the Company and Ivanhoe. This
F-18
<PAGE> 63
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
stockholders' agreement further provides that Ivanhoe has the right (exercisable
on certain specified future dates) to require the Company to acquire Ivanhoe's
interest in GGP Ivanhoe III for a purchase price determined by reference to the
then value of GGP Ivanhoe III. In the alternative, the Company has the right to
market the assets to third parties rather than acquire Ivanhoe's interest. If
the Company acquires Ivanhoe's interest, the consideration can be paid in cash,
common stock of the Company, or a combination thereof as unilaterally determined
by the Company.
1997
- ----
On September 17, 1997, GGP/Ivanhoe indirectly acquired both The Oaks Mall in
Gainesville, Florida and Westroads Mall in Omaha, Nebraska. The purchase price
for the two properties was approximately $206,000 of which $125,000 was financed
through property level indebtedness. The Company contributed approximately
$43,700 for its 51% ownership interest in GGP/Ivanhoe. Ivanhoe owns the
remaining 49% ownership interest in GGP/Ivanhoe. The terms of the stockholder's
agreement are similar to those of GGP/Ivanhoe III.
On June 11, 1997, the Company acquired a 50% interest in Town East Mall, located
in Mesquite, Texas, for $56,500. The consideration included approximately
$27,500 in cash, the assumption of approximately $27,900 of mortgage
indebtedness and the assumption of $1,100 in net current liabilities.
1996
- ----
On November 27, 1996, the Company acquired a 50% interest in Quail Springs Mall
in Oklahoma City, Oklahoma. The Company's interest was acquired concurrently
with a 100% interest in Sooner Fashion Mall in Norman, Oklahoma, which joint
acquisition is described in Note 3 above.
CENTERMARK
On February 11, 1994, the Company acquired 40% of the outstanding stock of
CenterMark for approximately $182,000 in cash. CenterMark owned interests in
sixteen enclosed regional shopping centers, three power centers and certain
other real estate. On December 19, 1995, the Company sold a portion of its
interest in CenterMark for $72,500 and granted the buyer an option to purchase
its remaining interest. Pursuant to such option, the Company's remaining
interest was sold in two transactions with $87,000 received on July 1, 1996 and
$130,500 received on January 2, 1997. The Company's equity in the operations of
CenterMark of $9,397 in 1996 has been included in the caption "Property Joint
Ventures".
GGMI
On December 22, 1995, GGP Management, Inc. was formed to manage, lease, develop
and operate enclosed malls. The Operating Partnership owned 100% of the
non-voting preferred stock ownership interest in GGP Management, Inc.
representing 95% of the equity interest. Key employees of the Company held
F-19
<PAGE> 64
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
the remaining 5% ownership interest therein in the form of common stock, which
was entitled to all of the voting rights in GGP Management, Inc. In August 1996,
GGP Management, Inc., acquired GGMI for approximately $51,500 by exchanging
1,555,855 newly issued shares of common stock of the Company and 453,791
Operating Partnership Units (contributed by the Operating Partnership) for 100%
of the outstanding shares in GGMI. A loan of approximately $39,900 from the
Operating Partnership to GGP Management, Inc. was used to purchase the Company's
common stock used to acquire GGMI. The interest-only loan bears interest at 14%
and matures in 2016. Upon acquisition of GGMI, GGP Management, Inc. was merged
into GGMI with GGMI as the surviving entity. The Operating Partnership currently
holds all of the non-voting preferred stock ownership interest in GGMI
representing 95% of the equity interest. Five key employees of the Company hold
the remaining 5% equity interest through ownership of 100% of the common stock,
which is entitled to all voting rights in GGMI. GGMI cannot distribute funds to
its stockholders until its available cash flow exceeds all accumulated preferred
dividends owed to the preferred stockholder. Any dividends in excess of the
preferred cumulative dividend are allocated 95% to the preferred stockholder and
5% to the common stockholders. GGMI may make principal payments on the Operating
Partnership loan if it has sufficient cash flow. GGMI manages, leases, and
performs various other services for the Wholly-Owned Centers, the Property Joint
Ventures, GGP/Homart and other properties owned by unaffiliated parties.
On June 16, 1997, GGMI acquired an office building in downtown Chicago, Illinois
to be used as the new corporate headquarters for the Company. GGMI and Company
personnel took occupancy of the building in April of 1998.
F-20
<PAGE> 65
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
SUMMARIZED FINANCIAL INFORMATION OF INVESTMENT IN UNCONSOLIDATED AFFILIATES
Following is summarized financial information for the Company's unconsolidated
affiliates as of December 31, 1998 and 1997 and for the years ended December 31,
1998, 1997 and 1996.
CONDENSED BALANCE SHEETS
December 31,1998
GGP/Homart GGMI PJVs
---------- ------ -------
Assets:
Net investment in real estate $1,102,907 $ 39,711 $972,024
Investment in real estate
joint ventures 124,668 - -
Other assets 123,739 80,901 66,531
--------- ------- -------
$1,351,314 $120,612 $1,038,555
========== ======== ==========
Liabilities and Owners' Equity:
Mortgage and other notes payable $ 814,738 $ 1,500 $674,627
Accounts payable and accrued expenses 39,881 125,997 30,394
Owners' equity 496,695 (6,885) 333,534
---------- ------- -------
$1,351,314 120,612 $1,038,555
========== ======= ==========
December 31,1997
GGP/Homart GGMI PJVs
---------- ------ -------
Assets:
Net investment in real estate $1,088,310 $ 13,302 $329,080
Investment in real estate
joint ventures 154,109 - -
Other assets 64,558 88,771 17,170
--------- ------- -------
$1,306,977 $102,073 $346,250
========== ======== ========
Liabilities and Owners' Equity:
Mortgage and other notes payable $ 742,362 $ 1,500 $191,531
Accounts payable and accrued expenses 54,806 89,942 11,369
Owners' equity 509,809 10,631 143,350
---------- ------- -------
$1,306,977 $102,073 $346,250
========== ======= =======
F-21
<PAGE> 66
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
GGP/Homart GGMI PJVs
---------- ------ -------
Revenues:
Tenant rents $ 184,783 $ - $103,803
Fees and other revenues - 63,771 -
------- ------- -------
Total Revenues 184,783 63,771 103,803
Operating expenses (1) 107,717 70,407 54,530
------- ------ -------
Operating Income (loss) 77,066 (6,636) 49,273
Interest expense, net (2) (47,799) (9,999) (29,882)
Equity in net income of unconsolidated
real estate affiliates 5,011 - -
Gain on property sales 13,182 - -
Income allocated to minority interest (705) - -
------- ------- -------
Net Income (loss) $ 46,755 $(16,635) $19,391
======== ======== ======
Year Ended December 31, 1997
GGP/Homart GGMI PJVs
---------- ------ -------
Revenues:
Tenant rents $ 159,280 $ - $28,540
Fees and other revenues - 62,867 -
------- ------- -------
Total Revenues 159,280 62,867 28,540
Operating expenses (1) 92,498 57,166 15,724
------- ------ -------
Operating Income (loss) 66,782 5,701 12,816
Interest expense, net (2) (42,980) (5,895) (6,787)
Equity in net income of unconsolidated
real estate affiliates 5,999 - -
Gain on property sales 13,767 - -
Income allocated to minority interest (372) - -
------- ------- -------
Net Income (loss) $ 43,196 $ (194) $ 6,029
========= ======== =======
Year Ended December 31, 1996
GGP/Homart GGMI PJVs
---------- ------ -------
Revenues:
Tenant rents $142,611 $ - $ 842
F-22
<PAGE> 67
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
Fees and other revenues - 39,343 -
------- ------- -------
Total Revenues 142,611 39,343 842
Operating expenses (1) 82,826 37,793 500
------- ------ -------
Operating Income (loss) 59,785 1,550 342
Interest expense, net (2) (37,497) (2,823) (121)
Equity in net income of unconsolidated
real estate affiliates 2,434 - -
Gain on property sales - - -
Income allocated to minority interest (239) - -
------- ------- -------
Net Income (loss) $ 24,483 $(1,273) $ 221
======== ======== ======
Significant accounting policies used by GGP/Homart, GGMI, and the PJVs are the
same as those used by the Company.
(1) Includes depreciation and amortization.
(2) Includes extraordinary items for the PJVs.
NOTE 5 MORTGAGE NOTES AND OTHER DEBTS PAYABLE
Mortgage notes and other debts payable at December 31, 1998 and 1997 consisted
of the following:
December 31,
1998 1997
-------- --------
Fixed-Rate debt
Mortgage notes payable $2,036,210 $1,173,042
Variable-Rate debt
Mortgage notes payable 412,566 16,743
Line of credit facility 200,000 86,000
---------- ----------
Total Variable-Rate debt 612,566 102,743
---------- ----------
Total mortgage notes and other debts payable $2,648,776 $1,275,785
========== ==========
FIXED RATE DEBT
Mortgage Notes Payable
The fixed-rate mortgage notes bear interest ranging from 6.00% to 10.00% per
annum (weighted average of 6.79% per annum), require monthly payments of
principal and/or interest and have various maturity dates through 2020 (weighted
average remaining term of 6.7 years). Certain properties are pledged as
collateral for the related mortgage note(s). The mortgage notes payable as of
December 31, 1998 are non-recourse to the Company (except to the
F-23
<PAGE> 68
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
extent of supplemental guarantees executed by the Company). Certain loans are
cross-defaulted and cross-collateralized as part of a group of properties. Under
certain cross-default provisions, a default under any mortgage included in a
cross-defaulted package may constitute a default under all such mortgages and
may lead to acceleration of the indebtedness due on each property within the
collateral package. GGP/Ivanhoe debt totaling $125,000 is cross-defaulted and
cross-collateralized with eleven wholly owned centers. Certain properties are
subject to financial performance convenants, primarily minimum earnings before
interest, taxes, depreciation and amortization ("EBITDA") ratios.
VARIABLE RATE DEBT
Mortgage Notes Payable
Variable rate mortgage notes payable consist primarily of a $100,000 loan
collateralized by Northbrook Court (due August 1, 1999), and the $233,000
portion of the MEPC acquisition financing as described below. The remaining
loans are generally short term in nature and bear interest at a rate per annum
equal to the sum of LIBOR (5.064% at December 31, 1998) plus 90 to 120 basis
points. The Company 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. The Company repaid approximately $217,000 of this loan on
June 10, 1998 from the net proceeds of the public offering of the PIERS.
Subsequently, the Company fixed the annual interest rate with respect to
approximately $380,000 of such loan at 6.7% per annum and the remainder
(approximately $233,000) bears interest at a rate per annum equal to the sum of
LIBOR plus 90 basis points, which rate is adjusted monthly. The loan is
collateralized by the MEPC Portfolio and matures on July 1, 1999. The Company
expects to refinance such obligations when due.
LINE OF CREDIT FACILITY
The Company's $200,000 unsecured revolving line of credit facility bears
interest at a rate per annum equal to the sum of LIBOR plus 80 to 120 basis
points depending upon the Company's leverage ratio and matures on July 31, 2000
including a one-year extension option which can be unilaterally exercised by the
Company. The line of 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 December 31, 1998, the line of credit facility had an
outstanding balance of $200,000.
CONSTRUCTION LOANS AND LETTERS OF CREDIT
Two construction loans were arranged in connection with the development of two
regional malls. These recourse loans were repaid in 1997.
F-24
<PAGE> 69
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
As of December 31, 1998 and 1997, the Company had outstanding letters of credit
of $9,956 and $7,717 respectively, primarily in connection with special real
estate assessments and insurance requirements.
Principal amounts due under mortgage notes and other debts payable mature as
follows (assuming the extension of the Credit Facility described above):
Year Pending Amount of Maturing
------------ ------------------
1999 $ 776,648
2000 234,290
2001 161,998
2002 193,741
2003 11,535
Subsequent 1,270,564
----------
Total $2,648,776
==========
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.
Land, buildings and equipment related to the mortgage notes payable with an
aggregate cost of $3,162,990 at December 31, 1998 have been pledged as
collateral. In addition, loans totaling approximately $231,796 (collateralized
by assets with a total carrying value of approximately $165,289) were
supplementally guaranteed by the Company. Based on borrowing rates available to
the Company at the end of 1998 for mortgage loans with similar terms and
maturities, the fair value of the mortgage notes and other debts payable
approximates carrying value at December 31, 1998 and 1997.
NOTE 6 EXTRAORDINARY ITEMS
The extraordinary items resulted from prepayment costs and unamortized deferred
financing costs related to the early extinguishment, primarily through
refinancings, of mortgage notes payable. The basic per share impact of the
extraordinary items in 1998 was $.14, and the diluted per share impact was $.13.
The basic and diluted per share impact of the extraordinary items was $.03 in
1997 and $.08 in 1996.
NOTE 7 RENTALS UNDER OPERATING LEASES
The Company receives rental income from the leasing of retail shopping center
space under operating leases. The minimum future rentals based on operating
leases held as of December 31, 1998, are as follows:
F-25
<PAGE> 70
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
Year Amount
---- ------
1999 $ 277,720
2000 271,691
2001 253,591
2002 232,640
2003 204,910
Thereafter 838,546
Minimum future rentals do not include amounts which may be received from certain
tenants based upon a percentage of their gross sales or as reimbursement of
shopping center operating expenses.
The tenant base includes national and regional retail chains and local
retailers, and consequently, the Company's credit risk is concentrated in the
retail industry.
NOTE 8 TRANSACTIONS WITH AFFILIATES
GGMI
GGMI has been contracted to provide management, leasing, development and
construction management services for the owned properties. In addition, certain
shopping center advertising and payroll costs of the properties are paid by GGMI
and reimbursed by the Company. Total costs included in the consolidated
financial statements related to agreements with GGMI are as follows:
Year Ended December 31,
1998 1997 1996
------ ------ ------
Management and Leasing Fees $15,074 $ 8,285 $ 7,956
Cost Reimbursements 41,594 28,099 23,641
Development Costs 7,801 2,015 1,529
In December 1996, the Operating Partnership acquired a development site located
in Grandville (Grand Rapids), Michigan from a related partnership for $11,441.
This site is now the location of the RiverTown Crossings expected to open in the
fall of 1999 (see Note 3).
NOTES RECEIVABLE
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 such officers'
exercise of options to purchase an aggregate of 166,000 shares of the Company's
common stock. The notes, which bear interest at a rate (5.61% per annum at
December 31, 1998) computed as a formula of 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.
F-26
<PAGE> 71
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
NOTE 9 STOCK PLANS
STOCK INCENTIVE PLAN
The Company's Stock Incentive Plan provides incentives to attract and retain
officers and key employees. The Stock Incentive Plan originally consisted of
1,000,000 shares of common stock available for grant, which was increased, by
1,000,000 shares in both 1996 and 1997. As of December 31, 1998, the number of
shares of common stock authorized for issuance under the plan was 3,000,000.
Options are granted by the Compensation Committee of the Board of Directors at
an exercise price of not less than 100% of the fair market value of the Common
Stock on the date of grant. The term of the option is fixed by the Compensation
Committee, but no option shall be exercisable more than 10 years after the date
of the grant. Options granted to officers and key employees are for 10-year
terms and are generally exercisable in either 33 1/3% or 20% annual increments
from the date of the grants. Options granted to non-employee directors are
exercisable in full commencing on the date of grant and expire on the tenth
anniversary of the date of the grant.
1998 INCENTIVE PLAN
General Growth and its stockholders approved a new incentive stock plan entitled
the 1998 Incentive Stock Plan (the "1998 Incentive Plan"). Under the 1998
Incentive Plan, the Compensation Committee of the Board of Directors of General
Growth is authorized to grant to employees of the Company and GGMI stock
incentive awards in the form of threshold-vesting stock options ("TSOs"). The
exercise price of the TSOs to be granted to a participant will be the Fair
Market Value ("FMV") of a share of Common Stock on the date the TSO is granted.
The threshold price (the "Threshold Price") which must be achieved in order for
the TSO to vest will be determined by multiplying the FMV on the date of grant
by the Estimated Annual Growth Rate (currently set at 7% in the 1998 Incentive
Plan) and compounding the product over a five year period. Shares of the
Company's Common Stock must achieve and sustain the Threshold Price for at least
20 consecutive trading days at any time over the five years following the date
of grant in order for the TSO to vest. All TSOs granted will have a term of 10
years but must vest within 5 years of the grant date in order to avoid
forfeiture.
The purpose of the 1998 Incentive Plan is to give the Company an advantage in
attracting, retaining and motivating management employees and to provide the
Company with the ability to provide competitive incentives which are directly
linked to the profitability of the Company's business and increases in
stockholder value. Grants under the 1998 Incentive Plan are intended to
reinforce the attainment of annual performance goals while encouraging sustained
profitable long-term growth.
The aggregate number of shares of Common Stock which may be subject to TSOs
issued pursuant to the 1998 Incentive Plan will not exceed 1,000,000 subject to
certain customary adjustment to prevent dilution. No options under the 1998
Incentive Plan were granted in 1998.
F-27
<PAGE> 72
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997 and 1996 and changes during the year ended on those dates is
presented below.
1998 1997 1996
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning
of year 785,000 $ 24.79 827,500 $24.48 425,500 $19.50
Granted 229,500 $ 36.19 2,000 $31.75 502,000 $27.97
Exercised (166,000) $ 19.06 (44,500) $19.35 (66,667) $20.81
Forfeited (33,333) $20.81
-------- ------- -------
Outstanding at
end of year 848,500 $ 28.99 785,000 $24.79 827,500 $24.48
======== ======= =======
Exercisable at
end of year 414,500 $ 27.57 379,000 $23.85 267,500 $22.46
Options available
for future
grants 2,874,333 2,103,833 1,105,833
Weighted average per share
fair value of options
granted during the year $ 3.18 $ 2.74 $ 2.28
The fair value of each option grant for 1998, 1997 and 1996 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
1998 1997 1996
------ ------ ------
Risk free interest rate 5.48% 6.23% 5.78%
Dividend yield 7.28% 7.77% 7.75%
Expected life 4.2 years 4.75 years 4.00 years
Expected volatility 19.4% 18.8% 18.8%
F-28
<PAGE> 73
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Options Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Life Price at 12/31/98 Price
$19.00 - $36.19 848,500 8.36 years $28.99 414,500 $27.57
The Company has applied Accounting Principles Board Opinion 25 and selected
interpretations in accounting for its plan. Accordingly, no compensation costs
have been recognized. Had compensation costs for the Company's Plan been
determined based on the fair value at the grant date for options granted in
1998, 1997 and 1996 in accordance with the method required by Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", the Company's net income and net income per share would have been
reduced to the pro forma amounts as follows:
Year Ended December 31,
1998 1997 1996
Net Income
As Reported $53,012 $89,551 $59,742
Pro Forma $52,709 $89,341 $59,536
Net earnings per share -
basic
As Reported $ 1.46 $ 2.75 $ 2.12
Pro Forma $ 1.46 $ 2.74 $ 2.12
Net earnings per share -
diluted
As Reported $ 1.46 $ 2.73 $ 2.12
Pro Forma $ 1.45 $ 2.72 $ 2.11
NOTE 10 DISTRIBUTIONS PAYABLE
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 (1,106 owners 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. As described in Note 1, such
preferred stock dividend was in the same amount as the Operating Partnership's
distribution to the Company of the same date with respect to the Preferred Units
held by the Company.
F-29
<PAGE> 74
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
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.
On December 17, 1996, the Company declared a cash distribution of $.43 per share
that was paid on December 31, 1996 to stockholders of record on December 29,
1996, totaling $13,239. In addition, a distribution of $7,505 was paid to the
limited partners of the Operating Partnership.
F-30
<PAGE> 75
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
The allocations of the distributions declared and paid for income tax purposes
are as follows:
Year Ended December 31,
1998 1997 1996
---- ---- ----
Ordinary Income 98.0% 29.8% 47.0%
Capital Gain 2.0% 70.2% 53.0%
------ ------ ------
100.0% 100.0% 100.0%
NOTE 11 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 leases land at certain properties from third parties. Rental expense
including participation rent related to these leases was $292, $595, and $590
for the years ended December 31, 1998, 1997, and 1996 respectively. The leases
provide for a right of first refusal in favor of the Company in the event of a
proposed sale of the property by the landlord.
The Company has entered into contingent agreements for the acquisition of
properties. Each acquisition is subject to satisfactory completion of due
diligence and, in the case of developments, completion and occupancy of the
project.
NOTE 12 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Emerging Issues Task Force of the FASB ("EITF") issued a
consensus opinion entitled "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11 was effective as of
March 19, 1998 and provides that the internal costs of identifying and acquiring
operating property should be expensed as incurred. This has caused a nominal
increase in expenses during 1998 for such expenditures that were previously
capitalized and reflected as property costs to be depreciated over the useful
life of the property acquired.
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
F-31
<PAGE> 76
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
accounting principle and all future start-up costs and organizational costs be
expensed. As the Company does not have a significant amount of such unamortized
costs, the effect of adopting this statement in 1999 is not expected to be
material.
In May, 1998, the 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 will, effective January 1, 1999, revert
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. It is possible that the SEC 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", effective for fiscal years beginning after
June 15, 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 13 PRO FORMA FINANCIAL INFORMATION (unaudited)
Due to the impact of the public offering of the PIERS in 1998 and the
acquisitions during 1996, 1997 and 1998, historical results of operations may
not be indicative of future results of operations. The pro forma condensed
consolidated statements of operations for the year ended December 31, 1998
include adjustments for the public offering of the PIERS in 1998 and the
acquisition of 100% of Southwest Plaza, Northbrook Court, Altamonte Mall, Pierre
Bossier Mall, Spring Hill Mall, Coastland Mall, and Mall St. Vincent, the eight
operating properties in the MEPC Portfolio, and a 51% interest in the six
operating properties owned by GGP Ivanhoe III as if such transactions occurred
on January 1, 1998. The pro forma condensed consolidated statements of
operations for the year ended December 31, 1997 include adjustments for the
public offering of the PIERS in 1998 and the acquisition of 100% of the
F-32
<PAGE> 77
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
fifteen operating properties in 1998 and 51% of GGP Ivanhoe III and adjustments
for the acquisitions of Market Place Shopping Center, Century Plaza, Southlake
Mall, Eden Prairie, Valley Hills, a 51% interest in GGP/Ivanhoe, and a 50%
interest in Town East as if such transactions had occurred on January 1, 1997.
The pro forma condensed consolidated statements of operations for 1996 include
adjustments for the acquisition of 100% of the five operating properties in
1997, 50% of Town East, 100% of the five operating properties in 1996, 50% of
Quail Springs Mall and the disposition of CenterMark Properties as if they had
occurred on January 1, 1996. The pro forma information is based upon the
historical consolidated statements of operations excluding extraordinary items
and non-recurring gains on sales, including the gain in 1997 on the sale of a
portion of the CenterMark stock 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.
PRO FORMA FINANCIAL INFORMATION
Years Ended
1998 1997 1996
-------- -------- --------
Total Revenues: $514,101 $482,248 $280,939
Expenses:
Property operating 179,200 179,091 96,512
Management fees 5,027 5,014 3,630
Depreciation and amortization 92,407 87,009 48,705
-------- -------- --------
Total expenses 276,634 271,114 148,847
-------- -------- --------
Operating income 237,467 211,134 132,092
Interest expense, net (148,606) (160,120) (83,061)
Equity in net income/(loss) of
unconsolidated affiliates
GGP/Homart 17,865 16,506 9,355
Property Joint Ventures 9,768 4,350 2,758
General Growth Management, Inc. (14,938) 3,211 (1,273)
-------- -------- --------
101,556 75,081 59,871
Minority interest in operating
partnership
(29,630) (20,981) (23,005)
-------- -------- --------
Pro forma net income (a) 71,926 54,100 36,866
Pro forma preferred stock dividends (24,469) (24,469) --
-------- -------- --------
Pro forma net income available to
common stockholders
$ 47,457 $ 29,631 $ 36,866
======== ======== ========
Pro forma earnings per share -
basic (b) $ 1.31 $ 0.91 $ 1.24
Pro forma earnings per share - $ 1.30 $ 0.90 $ 1.24
diluted (b)
F-33
<PAGE> 78
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
(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.
(b) Pro forma basic earnings per share are based upon weighted average common
shares of 36,190,367 for 1998, 32,622,665 for 1997 and 29,717,353 for 1996. Pro
forma diluted per share amounts are based on the weighted average common shares
and the effect of dilutive securities (stock options) outstanding of 36,381,914
for 1998, 32,839,637 for 1997 and 29,792,969 for 1996.
NOTE 14 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended First Second Third Fourth
December 31, 1998 Quarter Quarter Quarter(b) Quarter(b) Total
<S> <C> <C> <C> <C> <C>
Total Revenues $80,447 $88,618 $113,055 $144,456 $426,576
Income before
minority interest 12,882 27,133 25,395 35,578 100,988
Income before
extraordinary item 8,455 18,141 18,040 26,558 71,194
Net income applicable
to common shares 8,455 16,942 11,923 15,692 53,012
Earnings before
extraordinary item $ 0.24 $ 0.47 $ 0.33 $ 0.56 $ 1.60
per share-basic (a)
Earnings before
extraordinary item 0.24 0.47 0.33 0.55 1.59
per share-diluted (a)
Net earnings per
share-basic (a) 0.24 0.47 0.33 0.42 1.46
Net earnings per
share-diluted (a) 0.24 0.47 0.33 0.42 1.46
Distributions
declared per share $ 0.47 $ 0.47 $ 0.47 $ 0.47 $ 1.88
Weighted
average shares 35,689 35,877 35,899 37,283 36,190
outstanding (in thousands)
-basic
Weighted
average shares 35,936 36,047 35,990 37,450 36,382
outstanding (in thousands)
- diluted
</TABLE>
(a) Earnings per share for the four quarters do not add up to the annual
earnings per share due to the issuance of additional stock during the
year.
(b) Application of EITF 98-9 resulted in the recognition of approximately
$1,300 of percentage rental revenue in the fourth quarter, which would
have otherwise been recognized in the third quarter.
F-34
<PAGE> 79
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Year Ended First Second Third Fourth
December 31, 1997 Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Total Revenues $65,328 $69,694 $74,199 $81,926 $291,147
Income before
minority interest 75,495 17,823 24,440 22,942 140,700
Income before
extraordinary item 47,953 11,127 15,982 15,641 90,703
Net income applicable
to common shares 47,576 11,127 15,287 15,561 89,551
Earnings before
extraordinary item $ 1.56 $ 0.36 $ 0.48 $ 0.44 $ 2.78
per share-basic (a)
Earnings before
extraordinary item 1.55 0.36 0.48 0.44 2.76
per share-diluted (a)
Net earnings
per share-basic (a) 1.55 0.36 0.46 0.44 2.75
Net earnings
per share-diluted (a) 1.54 0.36 0.46 0.44 2.73
Distributions
declared per share $ 0.45 $ 0.45 $ 0.45 $ 0.45 $ 1.80
Weighted
average shares 30,789 30,781 33,219 35,640 32,623
outstanding
(in thousands)-basic
Weighted
average shares 30,835 30,831 33,279 35,701 32,840
outstanding (in thousands)
- diluted
</TABLE>
(a) Earnings per share for the four quarters do not add up to the annual
earnings per share due to the issuance of additional stock during the year and
the gain on the sale of a portion of CenterMark stock in the first quarter.
F-35
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
General Growth Properties, Inc.
Our report on the consolidated financial statements of General Growth
Properties, Inc. is included as page F-2 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the Index to Consolidated Financial
Statements on page F-1 of this Form 10-K. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Chicago, Illinois PricewaterhouseCoopers LLP
February 8, 1999
F-36
<PAGE> 81
GENERAL GROWTH PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1998
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Costs Capitalized
Subsequent Gross Amounts at Which
Initial Cost(b) To Acquisition Carried at Close of Period
------------------------- ------------------------ ---------------------------------------
Buildings Buildings
Encumbrances and Carrying and
Description (a) Land Improvements Improvements Costs (c) Land Improvements Total (d)
- --------------------- ------------ ----------- ------------ ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Altamonte Mall
Altamonte Springs, FL $124,662,440 $16,900,000 $152,100,750 $ 2,124,775 $ 0 $16,900,000 $154,225,525 $171,125,525
Apache Mall
Rochester, MN 57,079,323 8,110,292 72,992,628 440,548 0 8,110,292 73,433,176 81,543,468
Bayshore Mall,
Eureka, CA 37,250,000 3,004,345 27,398,907 20,827,325 2,887,090 3,005,040 51,113,322 54,118,362
Bellis Fair Mall,
Bellingham, WA 73,000,000 7,616,458 47,040,131 7,101,524 6,122,020 7,485,224 60,263,675 67,748,899
Birchwood Mall,
Port Huron, MI 44,960,875 1,768,935 34,574,635 8,927,430 1,967,320 3,045,616 45,469,385 48,515,001
Boulevard Mall
Las Vegas, NV 116,057,178 16,490,343 148,413,086 972,961 0 16,490,343 149,386,047 165,876,390
Capital Mall
Jefferson City, MO 16,500,000 4,200,000 14,201,000 4,270,275 0 3,912,935 18,471,275 22,384,210
Century Mall
Birmingham, AL 0 3,164,000 28,513,908 1,114,199 187,268 3,164,000 29,815,375 32,979,375
Chapel Hills
Colorado Springs,CO 36,750,000 4,300,000 34,017,000 51,497,364 87,441 4,300,000 85,601,805 89,901,805
Coastland Center
Naples, FL 0 11,450,000 103,050,200 1,599,934 0 11,450,000 104,650,134 116,100,134
Colony Square Mall
Zanesville, OH 25,600,000 1,000,000 24,500,000 10,004,627 0 1,243,184 34,504,627 35,747,811
Columbia Mall
Columbia, MO 56,100,000 5,383,208 19,663,231 8,837,494 1,368,803 5,383,208 29,869,528 35,252,736
Coral Ridge Mall
Coralville, IA 81,926,159 3,363,602 64,217,772 0 3,604,651 3,363,602 67,822,423 71,186,025
Cumberland Mall
Atlanta, GA 106,965,809 15,198,568 136,787,110 271,249 0 15,198,568 137,058,359 152,256,927
Development in
Progress 0 45,797,971 44,062,986 0 0 45,797,971 44,062,986 89,860,957
Eagle Ridge Mall
Lake Wales, FL 0 7,619,865 49,560,538 1,434,368 5,678,662 7,621,768 56,673,568 64,295,336
<CAPTION>
Col. A Col. F Col. G Col. H Col. I
------ ------ ------ ------ ------
Life Upon Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
- ---------------------- ------------ ----------- -------- ---------------
<S> <C> <C> <C> <C>
Altamonte Mall
Altamonte Springs, FL $ 1,903,994 1998 (f)
Apache Mall
Rochester, MN 943,222 1998 (f)
Bayshore Mall,
Eureka, CA 14,554,987 1986-1987 (f)
Bellis Fair Mall,
Bellingham, WA 19,781,018 1987-1988 (f)
Birchwood Mall,
Port Huron, MI 11,790,313 1989-1990 (f)
Boulevard Mall
Las Vegas, NV 1,881,625 1998 (f)
Capital Mall
Jefferson City, MO 2,766,680 1993 (f)
Century Mall
Birmingham, AL 1,188,866 1997 (f)
Chapel Hills
Colorado Springs,CO 7,426,611 1993 (f)
Coastland Center
Naples, FL 440,021 1998 (f)
Colony Square Mall
Zanesville, OH 10,916,015 1986 (f)
Columbia Mall
Columbia, MO 11,638,883 1984-1985 (f)
Coral Ridge Mall
Coralville, IA 1,040,658 1998-1999 (f)
Cumberland Mall
Atlanta, GA 1,731,651 1998 (f)
Development in
Progress 0
Eagle Ridge Mall
Lake Wales, FL 3,916,327 1995-1996 (f)
</TABLE>
F-37
<PAGE> 82
GENERAL GROWTH PROPERTIES, INC
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Costs Capitalized
Subsequent Gross Amounts at Which
Initial Cost(b) To Acquisition Carried at Close of Period
------------------------- ------------------------ ---------------------------------------
Buildings Buildings
Encumbrances and Carrying and
Description (a) Land Improvements Improvements Costs (c) Land Improvements Total
- --------------------- ------------ ----------- ------------ ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eden Prairie Mall
Eden Prairie, MN $ 0 $ 465,063 $ 19,024,047 $ 1,918,094 $ 0 $ 465,063 $ 20,942,141 $ 21,407,204
Fallbrook Mall,
West Hills, CA 46,900,000 6,117,338 10,076,520 55,900,398 2,286,195 6,127,138 68,263,113 74,390,251
Fox River Mall
Appleton, WI 93,200,000 2,700,566 18,291,067 31,321,167 1,820,253 2,700,566 51,432,487 54,133,053
Gateway Mall,
Springfield, OR 30,750,000 8,728,263 34,707,170 13,120,683 7,520,779 8,749,088 55,348,632 64,097,720
GGPLP Corp.
Chicago, IL 255,000,000 0 556,740 0 0 0 556,740 556,740
Grand Traverse Mall,
Grand Traverse, MI 51,500,000 3,529,966 20,775,772 19,561,103 3,643,793 3,533,745 43,980,668 47,514,413
Greenwood Mall
Bowling Green, KY 39,500,000 3,200,000 40,202,000 13,294,944 0 3,202,734 53,496,944 56,699,678
Knollwood Mall,
St. Louis Park, MN 0 0 9,748,047 23,322,630 1,767,267 7,025,606 34,837,944 41,863,550
Lakeview Square Mall
Battle Creek, MI 26,544,687 3,578,619 32,209,980 3,956,032 0 3,578,619 36,166,012 39,744,631
Lansing Mall
Lansing, MI 43,702,305 6,977,798 62,800,179 2,485,290 0 6,977,798 65,285,469 72,263,267
Lockport Mall,
Lockport, NY 9,300,000 800,000 10,000,000 4,152,161 23,656 800,000 14,175,817 14,975,817
Mall of the Bluffs,
Council Bluffs, IA 44,960,875 1,860,116 24,016,343 9,166,342 2,641,492 1,866,392 35,824,177 37,690,569
Mall St. Vincent
Shreveport, LA 19,164,975 2,640,000 23,760,000 441,162 0 2,640,000 24,201,162 26,841,162
Marketplace
Champaign, IL 47,000,000 7,000,000 63,972,357 2,794,353 495,252 7,000,000 67,261,962 74,261,962
McCreless Mall
San Antonio, TX 7,037,887 1,000,000 9,000,002 583,123 0 1,000,000 9,583,125 10,583,125
MEPC Acquisition
Financing 25,000,000 0 0 0 0 0 0 0
Natick Mall
Natick, MA 183,000,000 65,744,891 198,358,969 1,380,188 0 65,751,628 199,739,157 265,490,785
<CAPTION>
Col. A Col. F Col. G Col. H Col. I
------ ------ ------ ------ ------
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
- ------------------------ ------------ ----------- -------- ---------------
<S> <C> <C> <C> <C>
Eden Prairie Mall
Eden Prairie, MN $ 761,780 1997 (f)
Fallbrook Mall,
West Hills, CA 21,753,539 1984 (f)
Fox River Mall
Appleton, WI 14,892,886 1983-1984 (f)
Gateway Mall,
Springfield, OR 13,926,406 1989-1990 (f)
GGPLP Corp.
Chicago, IL 82,711
Grand Traverse Mall,
Grand Traverse, MI 10,159,031 1990-1991 (f)
Greenwood Mall
Bowling Green, KY 8,126,489 1993 (f)
Knollwood Mall,
St. Louis Park, MN 12,413,439 1978 (f)
Lakeview Square Mall
Battle Creek, MI 1,856,637 1996 (f)
Lansing Mall
Lansing, MI 3,418,766 1996 (f)
Lockport Mall,
Lockport, NY 4,193,250 1986 (f)
Mall of the Bluffs,
Council Bluffs, IA 12,011,676 1985-1986 (f)
Mall St. Vincent
Shreveport, LA 199,101 1998 (f)
Marketplace
Champaign, IL 2,307,279 1997 (f)
McCreless Mall
San Antonio, TX 131,006 1998 (f)
MEPC Acquisition
Financing 0
Natick Mall
Natick, MA 15,152,514 1995 (f)
</TABLE>
F-38
<PAGE> 83
GENERAL GROWTH PROPERTIES, INC.
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Costs Capitalized
Subsequent Gross Amounts at Which
Initial Cost(b) To Acquisition Carried at Close of Period
------------------------- ----------------------- ---------------------------------------
Buildings Buildings
Encumbrances and Carrying and
Description (a) Land Improvements Improvements Costs (c) Land Improvements Total (d)
- --------------------- ------------ ---------- ------------ ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Northbrook Court
Northbrook, IL $100,000,000 $14,532,953 $133,572,961 $ 4,425,208 $ 0 $14,749,796 $137,998,169 $152,747,965
Northridge Fashion Center
Northridge, CA 116,956,281 16,618,095 149,562,583 7,357,606 692,972 16,618,095 157,613,161 174,231,256
Oakwood Mall,
Eau Claire, WI 59,947,833 3,266,669 18,281,160 13,256,740 1,711,573 3,266,669 33,249,473 36,516,142
Park Mall
Tucson, AZ 0 4,996,024 44,993,177 5,062,951 237,323 4,996,024 50,293,451 55,289,475
Piedmont Mall,
Danville, VA 16,950,000 2,000,000 38,000,000 2,087,648 20,787 2,000,000 40,108,435 42,108,435
Pierre Bossier Mall
Bossier City, LA 41,924,299 5,280,707 47,558,468 1,548,737 0 5,283,970 49,107,205 54,391,175
The Pines,
Pine Bluff, AR 26,750,000 1,488,928 17,627,258 7,106,669 1,365,091 1,259,284 26,099,018 27,358,302
Regency Square Mall
Jacksonville, FL 116,107,915 16,497,552 148,477,968 4,657,064 0 16,506,853 153,135,032 169,641,885
Rio West Mall,
Gallup, NM 13,500,000 0 19,500,000 3,801,489 0 0 23,301,489 23,301,489
River Falls Mall,
Clarksville, IN 28,000,000 3,177,688 54,610,421 3,673,523 5,281,892 3,182,305 63,565,836 66,748,141
River Hills Mall,
Mankato, MN 51,200,000 3,713,529 29,013,757 16,030,858 2,584,241 3,792,109 47,628,856 51,420,965
Riverlands Shopping Center
LaPlace, LA 3,518,944 500,000 4,500,000 98,273 0 500,000 4,598,273 5,098,273
Sooner Fashion Mall,
Norman, OK 20,000,000 2,700,000 24,300,000 2,995,220 0 2,700,000 27,295,220 29,995,220
Southlake Mall,
Morrow, GA 51,300,000 6,700,000 60,406,902 1,256,242 0 6,700,000 61,663,144 68,363,144
SouthShore Mall,
Aberdeen, WA 0 650,000 15,350,000 4,335,166 0 650,000 19,685,166 20,335,166
Southwest Plaza
Littleton , CO 85,922,707 9,000,000 103,983,673 2,450,988 0 9,000,000 106,434,661 115,434,661
Spring Hill
West Dundee, IL 91,836,419 12,400,000 111,643,525 1,574,896 0 12,400,000 113,218,421 125,618,421
<CAPTION>
Col. A Col. F Col. G Col. H Col. I
------ ------ ------ ------ ------
Life Upon Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Consruction Acquired Computed
- ----------------- ------------ ----------- -------- ---------------
<S> <C> <C> <C> <C>
Northbrook Court
Northbrook, IL 1,764,705 1998 (f)
Northridge Fashion Center
Northridge, CA 1,891,071 1998 (f)
Oakwood Mall,
Eau Claire, WI 11,333,722 1985-1986 (f)
Park Mall
Tucson, AZ 2,554,176 1996 (f)
Piedmont Mall,
Danville, VA 3,430,563 1995 (f)
Pierre Bossier Mall
Bossier City, LA 210,990 1998 (f)
The Pines,
Pine Bluff, AR 8,822,049 1985-1986 (f)
Regency Square Mall
Jacksonville, FL 1,880,131 1998 (f)
Rio West Mall,
Gallup, NM 6,724,218 1986 (f)
River Falls Mall,
Clarksville, IN 18,284,543 1989-1990 (f)
River Hills Mall,
Mankato, MN 10,682,616 1990-1991 (f)
Riverlands Shopping Center
LaPlace, LA 74,355 1998 (f)
Sooner Fashion Mall,
Norman, OK 1,368,189 1996 (f)
Southlake Mall,
Morrow, GA 1,998,535 1997 (f)
SouthShore Mall,
Aberdeen, WA 6,169,159 1986 (f)
Southwest Plaza
Littleton , CO 1,025,156 1998 (f)
Spring Hill
West Dundee, IL 1,419,674 1998 (f)
</TABLE>
F-39
<PAGE> 84
GENERAL GROWTH PROPERTIES, INC
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
------ ------ ------ ------
Costs Capitalized
Subsequent
Initial Cost(b) To Acquisition
---------------------------- --------------------------------
Buildings
Encumbrances and Carrying
Description (a) Land Improvements Improvements Costs (c)
- -------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Valley Hills,
Harrisonburg, VA $ 15,272,172 $ 3,443,594 $ 31,025,471 $ 1,059,911 $ 0
Valley Plaza
Shopping Center
Bakersfield, CA 89,276,663 12,685,151 114,166,356 (6,837,554) 0
West Valley Mall,
Tracy, CA 0 9,295,045 47,789,310 7,344,250 7,686,293
Westwood Mall
Jackson, MI 20,900,000 2,658,208 23,923,869 1,628,554 0
-------------- -------------- -------------- -------------- --------------
Grand Totals $2,648,775,746 $ 401,314,350 $2,816,879,934 $ 387,736,182 $ 61,682,114
============== ============== ============== ============== ==============
<CAPTION>
Col. A Col. E Col. F Col. G. Col. H Col. I
------ ------ ------ ------- ------ ------
Gross Amounts at Which
Carried at Close of Period Life Upon Which
----------------------------------------------- Depreciation In
Buildings Latest Income
and Accumulated Date of Date Statement is
Description Land Improvements Total(d) Depreciation Construction Acquired Computed
- ---------------- -------------- -------------- -------------- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Valley Hills,
Harrisonburg, VA $ 3,450,665 $ 32,085,382 $ 35,536,047 $ 931,290 1997 (f)
Valley Plaza
Shopping Center
Bakersfield, CA 12,685,151 107,328,802 120,013,953 1,365,161 1998 (f)
West Valley Mall,
Tracy, CA 9,295,045 62,819,853 72,114,898 5,225,881 1995 (f)
Westwood Mall
Jackson, MI 3,571,208 25,552,423 29,123,631 1,325,901 1996 (f)
-------------- -------------- -------------- -------------
Grand Totals $ 410,497,302 $3,266,298,230 $3,676,795,532 $ 301,789,466
============== ============== ============== =============
</TABLE>
F-40
<PAGE> 85
GENERAL GROWTH PROPERTIES, INC.
General Growth Properties, Inc.
Notes to Schedule III
(Dollars in Thousands)
(a) See description of mortgage notes payable in Note 5 of Notes to Consolidated
Financial Statements.
(b) Initial cost for constructed malls is cost at end of first complete calendar
year subsequent to opening.
(c) Carrying costs consists of capitalized construction-period interest and
taxes.
(d) The aggregate cost of land, buildings and equipment for federal income tax
purposes is approximately $2,779,000.
<TABLE>
<CAPTION>
Reconciliation of Real Estate
------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $1,248,892 $1,555,068 $1,863,485
Additions: 306,176 308,417 1,813,311
---------- ---------- ----------
Balance at close of year $1,555,068 $1,863,485 $3,676,796
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation
------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $153,275 $188,744 $233,295
Depreciation Expense 35,469 44,551 68,494
-------- -------- --------
Balance at close of year $188,744 $233,295 $301,789
======== ======== ========
</TABLE>
(f) Depreciation is computed based upon the following estimated lives:
Buildings, improvements and carrying costs 40 years
Tenant allowances 10 - 40 years
Equipment and fixtures 10 years
F-41
<PAGE> 86
GENERAL GROWTH PROPERTIES, INC.
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)
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)
S-1
<PAGE> 87
GENERAL GROWTH PROPERTIES, INC.
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)
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) Bylaws of the Company.(5)
3(f) Amendment to Bylaws of the Company.(5)
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.,
S-2
<PAGE> 88
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
Equity Redeemable Stock, Series A. (20)
4(g) Redemption Rights Agreement dated April 2, 1998, among GGP Limited
Partnership, General Growth Properties, Inc. and Southwest Properties Venture.
(17)
4(h) 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(i) Form of Note pursuant to the Indenture Agreement. (18)
4(j) 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(k) 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(l) Form of Common Stock Certificate.
10(a) Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership. (19)
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)
S-3
<PAGE> 89
GENERAL GROWTH PROPERTIES, INC.
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.(25)
23 Consent of PricewaterhouseCoopers LLP - Independent Accountants.
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.
(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.
S-4
<PAGE> 90
GENERAL GROWTH PROPERTIES, INC.
(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
8K dated June 17, 1998, incorporated herein by reference.
(17) Previously filed as an exhibit to the Company's current report on Form
8K dated May 26, 1998, incorporated herein by reference.
(18) Previously filed as an exhibit to the Company's current report on Form
8K/A dated June 2, 1998, incorporated herein by reference.
(19) Previously filed as an exhibit to the Company's current 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
8K 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.
S-5
<PAGE> 91
GENERAL GROWTH PROPERTIES, INC.
(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 current Registration
Statement on Form S-8 (No.333-74461), incorporated herein by reference.
S-6
<PAGE> 1
EXHIBIT 4(1)
COMMON STOCK COMMON STOCK
PAR VALUE $.10 PAR VALUE $.10
THIS CERTIFICATE IS TRANSFERABLE CUSIP 370021 10 7
IN THE CITIES OF MINNEAPOLIS, MN See Reverse for Certain Definitions
AND NEW YORK, N.Y.
GENERAL GROWTH PROPERTIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- -----------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- -----------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
General Growth Properties, Inc. transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon surrender of
this certificate property enclosed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
COUTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A. ------------------------------------
TRANSFER AGENT CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AND REGISTRAR,
BY
------------------------------------
AUTHORIZED SIGNATURE SECRETARY
<PAGE> 2
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between General Growth Properties,
Inc. and Norwest Bank Minnesota, N.A., as Rights Agent, dated as of November
18, 1998 (the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal executive
offices of General Growth Properties, Inc. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. General
Growth Properties, Inc. will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, Rights that are or were acquired or
beneficially owned by Acquiring Persons (as defined in the Rights Agreement)
may become null and void.
GENERAL GROWTH PROPERTIES, INC.
The shares of Equity Stock represented by this certificate are
subject to restrictions on transfer for the purpose of the
Corporation's maintenance of its status as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code").
No Person may (1) Beneficially Own or Constructively Own shares of
Equity Stock in excess of 7.5% (or such other percentage as may be
determined by the Board of Directors of the Corporation) of the value
of the outstanding Equity Stock of the Corporation unless such Person
is an Existing Holder (in which case the Existing Holder Limit shall be
applicable); or (2) Beneficially Own Equity Stock which would result in
the Corporation being "closely held" under Section 856(h) of the Code.
Any Person who attempts to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the above limitations must
immediately notify the Corporation in writing. If the restrictions
above are violated, the shares of Equity Stock represented hereby will
be transferred automatically and by operation of law to a Trust and
shall be designated Shares-in-Trust. All capitalized terms in this
legend have the meanings defined in the Corporation's Amended and
Restated Certificate of Incorporation, as the same may be further amended
from time to time, a copy of which, including the restrictions on
transfer, will be sent without charge to each stockholder who so
requests.
The Corporation will furnish to any shareholder upon request and
without charge a statement of the designations, preferences,
limitations and relative rights of the shares of each class or series
authorized to be issued, so far as they have been determined, and the
authority of the Board of Directors to determine the relative rights
and preferences of subsequent classes or series. Such requests may be
made to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF TRAN MIN ACT- Custodian
------- -------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfer
to Minors
JT TEN - as joint tenants with right Act
of survivorship and not as ------------------
tenants in common (State)
Additional abbreviations may also be used though not in the above list
For value received, hereby sell, assign and transfer unto
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------------
---------------------------------------------
-----------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
shares
-----------------------------------------------------------------
of common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
Attorney
---------------------------------------------------------------
to transfer the said stock on the books of the with-in named Company with
full power of substitution the premises.
Dated Signature
---------------------------
Signature
---------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without
alteration or enlargement, or any change whatever.
SIGNATURE GUARANTEED:
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
General Growth Properties, Inc. on Forms S-3 (File Nos. 333-11067, 333-15907,
333-17021, 333-23035, 333-37247, 333-37383, 333-41603, 333-58045, and 333-68505)
and the Registration Statements on Forms S-8 (File Nos. 33-79372, 333-07241,
333-11237, 333-28449, and 333-74461) of our reports dated February 8, 1999, on
our audits of the consolidated financial statements of General Growth
Properties, Inc. as of December 31, 1998 and 1997, and for the years ended
December 31, 1998, 1997 and 1996 and the financial statement schedule as of
December 31, 1998, which reports are included in this Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 19, 1999
<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-K FOR THE
YEAR ENDED DECEMBER 31, 1998 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,630
<SECURITIES> 0
<RECEIVABLES> 74,585
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,063,097
<DEPRECIATION> 301,789
<TOTAL-ASSETS> 4,027,474
<CURRENT-LIABILITIES> 0
<BONDS> 2,648,776
337,500
0
<COMMON> 3,900
<OTHER-SE> 885,138
<TOTAL-LIABILITY-AND-EQUITY> 4,027,474
<SALES> 426,576
<TOTAL-REVENUES> 426,576
<CGS> 0
<TOTAL-COSTS> 224,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,451
<INTEREST-EXPENSE> 109,840
<INCOME-PRETAX> 100,988
<INCOME-TAX> 0
<INCOME-CONTINUING> 100,988
<DISCONTINUED> 0
<EXTRAORDINARY> 4,749
<CHANGES> 0
<NET-INCOME> 66,445
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
