<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 1-11656
GENERAL GROWTH PROPERTIES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 42-1283895
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 N. Wacker Dr., Chicago, IL 60606
------------------------------------
(Address of principal executive offices, Zip Code)
(312) 960-5000
--------------
(Registrant's telephone number, including area code)
N / A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of Common Stock, $.10 par value, outstanding on November 9,
2000 was 52,174,029.
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
-------------------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
NUMBER
------
<S> <C>
Part I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999....................... 3
Consolidated Statements of Operations and Comprehensive Income
for the three and nine months ended September 30, 2000 and 1999...... 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999................ 5
Notes to Consolidated Financial Statements........................... 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 21
Liquidity and Capital Resources of the Company....................... 24
Item 3: Quantitative and Qualitative Disclosures about Market Risk...... 27
Part II OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds....................... 28
Item 6: Exhibits and Reports on Form 8-K................................ 28
SIGNATURE............................................................... 29
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Investment in real estate:
Land $ 648,545 $ 640,276
Buildings and equipment 3,925,915 3,664,832
Less accumulated depreciation (461,279) (376,673)
Developments in progress 24,072 21,443
---------- ----------
Net property and equipment 4,137,253 3,949,878
Investments in Unconsolidated Real Estate Affiliates 719,172 666,074
Mortgage note receivable - 31,065
---------- ----------
Net investment in Real Estate 4,856,425 4,647,017
Cash and cash equivalents 35,672 25,593
Tenant accounts receivable, net 75,297 84,123
Deferred expenses, net 103,860 93,536
Investment in and note receivable from General Growth
Management, Inc. 61,307 65,307
Prepaid expenses and other assets 39,934 39,319
---------- ----------
$5,172,495 $4,954,895
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Mortgage notes and other debt payable $3,184,902 $3,119,534
Distributions payable 46,022 42,695
Accounts payable and accrued expenses 159,240 170,868
---------- ----------
3,390,164 3,333,097
---------- ----------
Minority interests 525,503 356,540
---------- ----------
Commitments and contingencies
Preferred Stock: $100 par value; 5,000,000 shares authorized; 337,500 337,500
345,000 designated as PIERS (Note 1) which are convertible
and carry a $1,000 liquidation value, 337,500 of which were
issued and outstanding at September 30, 2000 and
December 31, 1999
Stockholders' Equity:
Common stock: $.10 par value; 210,000,000 shares authorized;
52,149,627 and 51,697,425 shares issued and outstanding
as of September 30, 2000 and December 31, 1999, respectively 5,215 5,170
Additional paid-in capital 1,207,294 1,199,921
Retained earnings (deficit) (282,617) (272,199)
Notes receivable-common stock purchases (8,850) (3,420)
Accumulated equity in other comprehensive loss of
unconsolidated affiliate (1,714) (1,714)
---------- ----------
Total stockholders' equity 919,328 927,758
---------- ----------
$5,172,495 $4,954,895
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $107,960 $ 99,185 $ 315,238 $ 269,657
Tenant recoveries 52,720 44,102 158,371 126,997
Overage rents 8,906 7,423 14,692 16,610
Other 1,888 3,876 7,248 8,538
Fee income 1,812 1,441 5,246 4,401
-------- -------- --------- ---------
Total revenues 173,286 156,027 500,795 426,203
-------- -------- --------- ---------
Expenses:
Real estate taxes 13,191 10,459 38,259 33,808
Management fees to affiliate (806) 1,789 3,155 4,389
Property operating 40,976 36,330 118,276 99,093
Provision for doubtful accounts 1,190 569 1,368 2,767
General and administrative 1,699 1,089 4,721 4,186
Depreciation and amortization 32,427 29,282 94,185 80,050
-------- -------- --------- ---------
Total expenses 88,677 79,518 259,964 224,293
-------- -------- --------- ---------
Operating income 84,609 76,509 240,831 201,910
Interest expense, net (52,857) (43,764) (152,132) (120,121)
Equity in net income/(loss) of
unconsolidated affiliates 13,088 3,025 30,568 11,757
Gain on sales - - 44 2,977
Income before extraordinary items and
allocation to minority interests 44,840 35,770 119,311 96,523
Income allocated to minority interests (13,477) (6,987) (31,757) (19,996)
-------- -------- --------- ---------
Income before extraordinary items 31,363 28,783 87,554 76,527
Extraordinary items - (5,093) - (13,786)
-------- -------- --------- ---------
Net income 31,363 23,690 87,554 62,741
-------- -------- --------- ---------
Convertible Preferred Stock Dividends (6,117) (6,117) (18,351) (18,351)
-------- -------- --------- ---------
Net income available to
common stockholders $ 25,246 $ 17,573 $ 69,203 $ 44,390
======== ======== ========= =========
Earnings before extraordinary
items per share-basic $0.48 $0.45 $1.33 $1.32
======== ======== ========= =========
Earnings before extraordinary
items per share-diluted $0.48 $0.45 $1.33 $1.32
======== ======== ========= =========
Earnings per share-basic $0.48 $0.35 $1.33 $1.01
======== ======== ========= =========
Earnings per share-diluted $0.48 $0.35 $1.33 $1.01
======== ======== ========= =========
Distributions declared per share $0.51 $0.49 $1.53 $1.47
======== ======== ========= =========
Net income $ 31,363 $ 23,690 $ 87,554 $ 62,741
Other Comprehensive income (loss):
Equity in unrealized income/(loss)
on available-for-sale securities
of unconsolidated affiliate,
net of minority interest - (1,758) - (1,758)
-------- -------- --------- ---------
Comprehensive income $ 31,363 $ 21,932 $ 87,554 $ 60,983
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 87,554 $ 62,741
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 31,757 19,996
Extraordinary items - 13,786
Equity in net income of unconsolidated affiliates (30,568) (11,757)
Provision for doubtful accounts 1,368 2,767
Distributions received from unconsolidated affiliates 27,235 17,521
Depreciation 84,606 74,910
Amortization 9,579 5,140
Gain on sales (44) (2,977)
Net Changes:
Tenant accounts receivable 7,458 (12,369)
Prepaid expenses and other assets (615) (27,295)
Accounts payable and accrued expenses (11,628) (3,102)
--------- -----------
Net cash provided by (used in) operating activities 206,702 139,361
--------- -----------
Cash flows from investing activities:
Acquisition/development of real estate and improvements
and additions to properties (194,064) (1,051,234)
Increase in investments in unconsolidated affiliates (78,434) (15,456)
Change in notes receivable from General Growth Management, Inc. 4,963 (31,086)
Distributions received from unconsolidated affiliates 27,705 22,567
Increase in deferred expenses (16,477) (7,975)
--------- -----------
Net cash provided by (used in) investing activities (256,307) (1,083,184)
--------- -----------
Cash flows from financing activities:
Cash distributions paid to common stockholders (79,505) (57,117)
Cash distributions paid to Operating Partnership Unitholders (30,288) (28,732)
Cash distributions paid to holders of RPU's (2,175) -
Payment of dividends on PIERS (18,351) (18,351)
Proceeds from exercised options 1,203 760
Proceeds from sale of common stock, net of issuance costs 2,826 331,651
Proceeds from issuance of RPU's, net of issuance costs 170,625 -
Proceeds from issuance of mortgage / other notes payable 297,239 1,294,312
Principal payments on mortgage notes and other debt payable (278,464) (573,473)
Increase in deferred expenses (3,426) (18,865)
--------- -----------
Net cash provided by (used in) financing activities 59,684 930,185
--------- -----------
Net change in cash and cash equivalents 10,079 (13,638)
Cash and cash equivalents at beginning of year 25,593 19,630
--------- -----------
Cash and cash equivalents at end of period $ 35,672 $ 5,992
========= ===========
Supplemental disclosure of cash flow information
Interest paid $ 171,380 $ 143,569
Interest capitalized 12,941 12,055
Non-cash investing and financing activities:
Common stock issued in exchange for Operating Partnership Units $ 2,732 522
Common stock issued in exchange for GGP/Homart stock - 90,513
Operating Partnership Units issued as consideration for purchase of land 215 -
Penalty on retirement of debt - 8,655
Notes receivable issued for exercised stock options 6,550 -
Assumption and conversion of notes in conjunction with acquisition of property 77,657 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
NOTE 1 ORGANIZATION
Readers of this quarterly report should refer to the Company's audited financial
statements for the year ended December 31, 1999 which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999
(Commission File No. 1-11656) dated March 14, 2000, as certain footnote
disclosures which would substantially duplicate those contained in the 1999
annual audited financial statements have been omitted from this report.
Capitalized terms used but not defined in this quarterly report have the same
meanings as in the Company's 1999 Annual Report on Form 10-K.
General
General Growth Properties, Inc., a Delaware corporation ("General Growth"), was
formed in 1986 to own and operate regional 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 and the LLC as described below), unless the
context indicates otherwise. Proceeds from General Growth's April 15, 1993
initial public offering of common stock (the "Common Stock") were used to
acquire a majority interest in GGP Limited Partnership (the "Operating
Partnership") which was formed to succeed to substantially all of the interests
in regional 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, which commenced operations on April
15, 1993.
As of September 30, 2000, the Company owned 100% of fifty-three regional
shopping centers (the "Wholly-Owned Centers"); 50% of the stock of GGP/Homart,
Inc. ("GGP/Homart"), 50% of the membership interest in GGP/Homart II L.L.C.
("GGP/Homart II"), 51% of the stock of GGP Ivanhoe, Inc. ("GGP Ivanhoe"), 51% of
the stock of GGP Ivanhoe III, Inc. ("GGP Ivanhoe III") and 50% of Quail Springs
Mall and Town East Mall (collectively the "Unconsolidated Real Estate
Affiliates"); 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/Homart II owned interests in seven shopping centers, GGP Ivanhoe
owned 100% of two shopping centers, and GGP Ivanhoe III owned 100% of eight
shopping centers. Together, the Wholly-Owned Centers and the centers owned by
the Unconsolidated Real Estate Affiliates comprise the "Company Portfolio" or
the "Portfolio Centers".
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"). The Depositary Shares are convertible at any time, at the
option of the holder, into shares of Common Stock at the conversion price of
$39.70 per share of Common Stock. The PIERS and the Depositary Shares are
subject to mandatory redemption by General Growth on July 15, 2008 at a price of
$1,000 per PIERS, plus accrued and unpaid dividends, if any, to the redemption
date. Accordingly, the PIERS have been reflected in the accompanying financial
statements at such liquidation or redemption value.
During July 1999, General Growth completed a public offering of 10,000,000
shares of Common Stock (the "1999 Offering"). General Growth received net
proceeds of approximately $330,296, of which a portion was used to reduce
outstanding loans including certain indebtedness to affiliates of the
underwriter of the 1999 Offering. In addition, a portion of the proceeds of the
1999 Offering was used to fund a portion of the purchase price of Ala Moana
Center (Note 2).
6 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
During 1999, General Growth established the General Growth Properties, Inc.
Employee Stock Purchase Plan (the "ESPP") to assist eligible employees in
acquiring a stock ownership interest in General Growth. A maximum of 500,000
shares of Common Stock is reserved for issuance under the ESPP. Under the ESPP,
eligible employees make payroll deductions over a six-month purchase period at
which time the amounts withheld are used to purchase shares of Common Stock at a
purchase price equal to 85% of the lesser of the closing price of a share of
Common Stock on the first trading day of the purchase period or the last trading
day of the purchase period. The first purchase period under the ESPP ended
December 31, 1999. On January 3, 2000, 26,205 newly issued shares of Common
Stock were sold to ESPP participants at a price of $23.80 per share. On July 1,
2000 41,423 newly issued shares of Common Stock were sold to ESPP participants
at a price of $23.75 per share. In addition, effective January 1, 2000, General
Growth established a Dividend Reinvestment and Stock Purchase Plan ("DRSP").
General Growth has reserved for issuance up to 1,000,000 shares of Common Stock
for issuance under the DRSP. The DRSP will, in general, allow participants to
make purchases of Common Stock from dividends received or additional cash
investments. Although the purchase price of the Common Stock will be determined
by the current market price, the purchases will be made without fees or
commissions. General Growth will satisfy DRSP Common Stock purchase needs
through the issuance of new shares of Common Stock or by repurchases of
currently outstanding Common Stock. As of September 30, 2000, an aggregate of
16,992 shares of Common Stock have been issued under the DRSP.
During May 2000, the Operating Partnership formed GGPLP L.L.C., a Delaware
limited liability company ("the LLC") by contributing its interest in a
portfolio of 44 Wholly-Owned regional shopping centers to the LLC in exchange
for all of the common units of membership interest in the LLC. On May 25, 2000,
a total of 700,000 redeemable preferred units of membership interest in the LLC
(the "RPUs") were issued to an institutional investor by the LLC, which yielded
approximately $170,625 in net proceeds to the Company. The net proceeds of the
sale of the RPUs were used to repay a portion of the Company's unsecured debt.
Holders of the RPUs are entitled to receive cumulative preferential cash
distributions per RPU (payable quarterly commencing July 15, 2000) at a per
annum rate of 8.95% of the $250 liquidation preference thereof (or $5.59375 per
quarter) prior to any distributions by the LLC to the Operating Partnership. As
of the date of this report, cumulative distributions of $6,091 representing
preferential distributions through October 15, 2000 have been paid. Subject to
certain limitations, the RPUs may be redeemed in cash by the LLC at any time on
or after May 25, 2005 for the liquidation preference amount plus accrued and
unpaid distributions and may be exchanged by the holders of the RPUs on or after
May 25, 2010 for an equivalent amount of a newly created series of redeemable
preferred stock of General Growth. Such preferred stock would provide for an
equivalent 8.95% annual preferred distribution and would also be redeemable by
the Company for cash equal to the liquidation preference amount plus accrued and
unpaid distributions. The RPUs have been reflected in the accompanying
consolidated financial statements as a component of minority interest at the
current total liquidation preference amount of $175,000.
As of September 30, 2000, General Growth owned an approximate 73% general
partnership interest in the Operating Partnership (excluding its preferred units
of partnership interest as discussed below). The remaining approximate 27%
minority interest in the Operating Partnership is held by limited partners that
include trusts for the benefit of the families of the original stockholders who
initially owned and controlled the Company and subsequent contributors of
properties to the Company. These minority interests are represented by common
units of limited partnership interest in the Operating Partnership (the
"Units"). The Units can be redeemed for cash or, at General Growth's election
with certain restrictions, for shares of Common Stock on a one-for-one basis.
The holders of the Units also share equally with General Growth's common
stockholders on a per share
7 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
basis in any distributions by the Operating Partnership on the basis that one
Unit is equivalent to one share of Common Stock.
In addition, in order to enable General Growth to comply with its obligations in
respect to the PIERS, General Growth owns preferred units of limited partnership
interest in the Operating Partnership (the "Preferred Units") which have rights,
preferences and other privileges, including distribution, liquidation,
conversion and redemption rights, that mirror those of the PIERS. Accordingly,
the Operating Partnership is 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 September 30, 2000, 100% of the Preferred Units (337,500) were
owned by General Growth.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company and the Operating Partnership consisting of the fifty-three centers
(including those owned by the LLC) and the unconsolidated investments in
GGP/Homart, GGP/Homart II, GGP Ivanhoe, GGP Ivanhoe III, Quail Springs Mall,
Town East Mall and GGMI. All significant inter-company balances and transactions
have been eliminated.
This 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.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the financial position of the
Company as of September 30, 2000 and the results of operations for the three and
nine months ended September 30, 2000 and 1999 and cash flows for the nine months
ended September 30, 2000 and 1999 have been included. The results for the
interim periods ended September 30, 2000 and 1999 are not necessarily indicative
of the results to be obtained for the full fiscal year.
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications have
had no effect on reported net operating results of the Company.
Earnings Per Share ("EPS")
Basic per share amounts are based on the weighted average of common shares
outstanding of 51,977,286 for 2000 and 43,991,690 for 1999. Diluted per share
amounts are based on the total number of weighted average common shares and
dilutive securities (stock options) outstanding of 52,027,251 for 2000 and
44,114,763 for 1999. The effect of the issuance of the PIERS is anti-dilutive
with respect to the Company's calculation of diluted earnings per share for the
three and nine months ended September 30, 2000 and 1999 and therefore has been
excluded. The outstanding Units have been excluded from the diluted earnings per
share calculation as there would be no effect on the EPS amounts since the
minority interests' share of income would also be added back to net income.
Options to purchase 306,141 and 258,595 shares of Common Stock pursuant to
General Growth's stock option plans which were granted on May 23, 2000 and March
25, 1999, respectively, have not been included in the computation of diluted EPS
because the conditions which must be
8 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
satisfied prior to the issuance of any such shares under such plans were not
achieved during the applicable periods.
9 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
The following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Numerators:
Income before extraordinary items $31,363 $28,783 $ 87,554 $ 76,527
Dividends on PIERS (6,117) (6,117) (18,351) (18,351)
-------- -------- --------- --------
Income available to common shareholders before
extraordinary items - for basic and diluted EPS $25,246 22,666 $ 69,203 58,176
-------- -------- --------- --------
Extraordinary Items - (5,093) - (13,786)
Net income available to common
shareholders - for basic and diluted EPS $25,246 $17,573 $ 69,203 $ 44,390
======== ======== ========= ========
Denominators:
Weighted average common shares
outstanding (in thousands) - for basic EPS 52,095 50,149 51,997 43,992
Effect of dilutive securities - options 39 65 30 123
-------- -------- --------- --------
Weighted average common shares
outstanding (in thousands) - for diluted EPS 52,134 50,214 52,027 44,115
======== ======== ========= ========
</TABLE>
Notes Receivable - Officers
In April, May and September, 1998 certain officers of the Company issued to the
Company an aggregate of $3,164 of promissory notes in connection with their
exercise of options to purchase an aggregate of 166,000 shares of the Company's
Common Stock. During 1999, the Company received approximately $62 in payments,
made advances of approximately $380 in conjunction with additional advances and
Common Stock purchases by such officers and forgave approximately $64 in
principal and accrued interest on such notes. As of the date of this report, the
Company has made during 2000 aggregate advances of $7,149 in conjunction with
the exercise of options to purchase an aggregate 270,000 shares of Common Stock
by officers. In June 2000, a $1,120 loan was repaid by one of the officers. Also
in 2000, the Company forgave approximately $150 of other notes receivable from
an officer (previously reflected in prepaid expenses and other assets). The
notes, which bear interest at a rate 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.
Revenue Recognition
Minimum rent revenues are recognized on a straight-line basis over the term of
the related leases. Overage rents are recognized on an accrual basis (see Note
8). Recoveries from tenants for taxes, insurance and other shopping center
operating expenses are recognized as revenues in the period the applicable costs
are incurred. The Company provides an allowance for doubtful accounts against
the portion of accounts receivable (including amounts recognized as receivable
due to the recognition of minimum rents on a straight-line basis as described
above) which is estimated to be uncollectible. Such allowances are reviewed
periodically based upon the recovery experience of the Company.
10 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
Comprehensive Income
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" requires that the Company disclose comprehensive income in addition to
net income. Comprehensive income is a more inclusive financial reporting
methodology that encompasses net income and all other changes in equity except
those resulting from investments by and distributions to equity holders. One
item included in comprehensive income but not net income is unrealized holding
gains or losses on marketable securities classified as available-for-sale.
Although General Growth and its consolidated affiliates do not have any material
available-for-sale securities, one of its unconsolidated affiliates received
common stock of Simon Property Group, Inc. as part of a 1998 transaction.
Holding gains or losses on such securities through June 30, 1999 were not
significant and were not reflected. However, at September 30, 1999 the Company
reduced its carrying amount for its investment in such unconsolidated affiliate
by $2,550 and reflected $1,758 as other comprehensive loss, net of minority
interest of $792, as its equity in such unconsolidated affiliate's cumulative
unrealized holding loss on such securities. For the three and nine months ended
September 30, 2000 there were nominal holding losses on such securities which
have not been reflected.
Business Segment Information
The Financial Accounting Standards Board (the "FASB") has issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 requires disclosure of certain operating and
financial data with respect to separate business activities within an
enterprise. The sole business of General Growth and its consolidated affiliates
is owning and operating shopping centers. General Growth evaluates operating
results and allocates resources on a property-by-property basis and does not
distinguish or group its consolidated operations on a geographic basis.
Accordingly, General Growth has determined it has a single reportable segment
for Statement 131 purposes. Further, all operations are within the United States
and no customer or tenant comprises more than 10% of consolidated revenues.
NOTE 2 PROPERTY ACQUISITIONS AND DEVELOPMENTS
Wholly-Owned Properties
2000
On April 26, 2000, the Company acquired a 100% interest in Crossroads Center in
St. Cloud (Minneapolis), Minnesota for a purchase price of approximately $80,000
as further described in Note 6.
1999
On January 11, 1999, the Company acquired a 100% ownership interest in The
Crossroads Mall in Kalamazoo, Michigan. The aggregate purchase price was
approximately $68,000 (subject to pro-rations and certain adjustments), which
was funded initially from a new $83,655 short-term floating rate interim loan.
In May 1999, a new $45,000 ten-year non-recourse mortgage loan collateralized by
the property was obtained.
11 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
On July 30, 1999, the Company acquired a 100% ownership interest in the Ala
Moana Center in Honolulu, Hawaii. The price paid to the seller was $810,000
(before closing adjustments, including a credit for the cost to complete an
ongoing expansion project), and was funded with the proceeds of a short-term
first mortgage loan of approximately $438,000 and approximately $294,000 in cash
including a portion of the net proceeds from the 1999 Offering. The short-term
floating rate loan was fully repaid on August 26,1999 with the proceeds of the
issuance of commercial mortgage-backed securities (Note 4).
On October 28, 1999, the Company acquired Baybrook Mall in Houston, Texas. The
aggregate consideration paid by the Company was approximately $133,000 (subject
to pro-rations and certain adjustments), which was paid in cash (raised
primarily through new long-term financing on other previously unsecured
properties), and a new 10-year $95,000 non-recourse loan.
The Company financed the forgoing acquisitions through a combination of secured
and unsecured debt and the proceeds of the 1999 Offering as described in Note 1.
All acquisitions completed through September 30, 2000 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.
Developments
During 2000 and 1999, the Company was developing or had completed construction
at two development sites: Grandville (Grand Rapids), Michigan and Frisco
(Dallas), Texas. Construction of the RiverTown Crossings Mall, a Wholly-Owned
Center located in Grandville (Grand Rapids), Michigan, commenced in December
1997, and opened in November 1999. Construction of Stonebriar Centre, owned by
GGP/Homart II, located in Frisco (Dallas), Texas commenced in October of 1999
and opened as scheduled on August 4, 2000.
The Company has an ongoing program of renovations and expansions at its
properties including significant projects currently under construction at the
Park Mall in Tuscon, Arizona; Eden Prairie Mall in Eden Prairie (Minneapolis),
Minnesota; and Knollwood Mall in St Louis Park (Minneapolis), Minnesota. In
addition, the Company has commenced construction of a private wide-area network
to link tenants and mall locations via the Internet. The Company has already
incurred the majority of these network costs (financed or to be financed by
fixed-rate intermediate term equipment financing) and hopes to have the majority
of its regional shopping centers wired for such broadband connectivity by early
April, 2001.
During 1999, the Company formed a joint venture to develop a regional mall in
Westlake (Dallas), Texas. As of September 30, 2000, the Company has invested
approximately $13,947 (including land acquisition costs) in the joint venture.
In addition, the Company is currently obligated to fund pre-development costs
(estimated to be approximately $1,545, a major portion of which remains to be
incurred). Actual development costs are not resolved at this time. The retail
site, part of a planned community which is expected to contain a resort hotel, a
golf course, luxury homes and corporate offices, is currently planned to contain
up to 1.6 million square feet of tenant space including up to six anchor stores
and a multi-screen theater. There can be no assurance that development of this
site will proceed beyond the pre-development phase.
12 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
The Company also owns and is investigating certain other potential development
sites, including sites in Toledo, Ohio and West Des Moines, Iowa, but there can
be no assurance that development of these sites will proceed.
13 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
NOTE 3 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
GGP/Homart
The Company currently owns 50% of GGP/Homart with the remaining ownership
interest held by an institutional investor. At September 30, 2000, GGP/Homart
owned interests in twenty-three regional shopping malls, six of which were owned
jointly with venture partners. During 2000, GGP/Homart purchased its venture
partner's interest in Lakeland Square (Lakeland, Florida). During 1999,
GGP/Homart purchased its venture partner's interest in the Parks at Arlington
(Arlington (Dallas), Texas). GGP/Homart has elected real estate investment trust
status for income tax purposes. The Company shares in the profits and losses,
cash flows and other matters relating to GGP/Homart in accordance with its
ownership percentage. The co-investor in GGP/Homart has an exchange right under
the GGP/Homart Stockholders Agreement, which permits it to convert its ownership
interest in GGP/Homart to shares of Common Stock of General Growth. If such
exchange right is exercised, the Company may alternatively satisfy such exchange
in cash. During 1999, the Company received notice that one of the institutional
investors (which then owned an approximate 4.7% interest in GGP/Homart) desired
to exercise its exchange right. The Company satisfied the exercise of such
exchange right (effective as of January 1, 1999) by issuing 1,052,182 shares of
Common Stock, thereby increasing its ownership interest in GGP/Homart from
approximately 38.2% in 1998 to approximately 42.9% for the first quarter of
1999. During the second quarter of 1999, two additional co-investors (which then
owned in the aggregate an approximate 7.1% interest in GGP/Homart) notified the
Company that they desired to exercise their exchange rights. The Company
satisfied the exercise of such exchange rights (effective as of April 1, 1999)
by issuing an aggregate of 1,551,109 shares of Common Stock, thereby increasing
its ownership interest in GGP/Homart to 50%.
GGP/Homart II
In November 1999, the Company, together with New York State Common Retirement
Fund ("NYSCRF"), the Company's co-investor in GGP/Homart, formed GGP/Homart II,
a Delaware limited liability company which is owned equally by the Company and
NYSCRF. GGP/Homart II owns 100% interests in Stonebriar Centre in Frisco
(Dallas) Texas, Altamonte Mall in Altamonte Springs (Orlando), Florida, Natick
Mall in Natick (Boston), Massachusetts and Northbrook Court in Northbrook
(Chicago), Illinois which were contributed by the Company; and 100% interests in
Alderwood Mall in Lynnwood (Seattle), Washington; Carolina Place in Charlotte,
North Carolina; and Montclair Plaza in Los Angeles, California which were
contributed by NYSCRF. Certain of the malls were contributed subject to existing
financing in order to balance the net equity values of the malls contributed by
each of the venture partners. According to the membership agreement between the
venture partners, the Company and its joint venture partner share in the profits
and losses, cash flows and other matters relating to GGP/Homart II in accordance
with their respective ownership percentages.
GGP Ivanhoe III
In 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 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. In 1999, GGP Ivanhoe III acquired Oak View Mall in Omaha, Nebraska
and Eastridge Shopping Mall in San Jose, California.
14 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
GGP Ivanhoe III, which has elected to be taxed as a REIT, is owned 51% by the
Company and 49% by a joint venture partner. The joint venture partner in GGP
Ivanhoe III is an affiliate of Ivanhoe Inc. of Montreal, Quebec, Canada
("Ivanhoe") and is also the Company's joint venture partner in GGP Ivanhoe
(described below). The Company and Ivanhoe share in the profits and losses, cash
flows and other matters relating to GGP Ivanhoe III in accordance with their
respective ownership percentages except that certain major operating and capital
decisions (as defined in the stockholders' agreement) require the approval of
both stockholders. Accordingly, the Company is accounting for GGP Ivanhoe III
using the equity method.
GGP Ivanhoe
GGP Ivanhoe owns The Oaks Mall in Gainesville, Florida and Westroads Mall in
Omaha, Nebraska. The Company contributed approximately $43,700 for its 51%
ownership interest in GGP Ivanhoe and Ivanhoe owns the remaining 49% ownership
interest. The terms of the stockholder's agreement are similar to those of GGP
Ivanhoe III.
Town East Mall / Quail Springs Mall
The Company owns a 50% interest in Town East Mall, located in Mesquite, Texas
and a 50% interest in Quail Springs Mall in Oklahoma City, Oklahoma. The Company
shares in the profits and losses, cash flows and other matters relating to Town
East Mall and Quail Springs Mall in accordance with its ownership percentage.
GGMI
The Operating Partnership currently holds all of the non-voting preferred stock
ownership interest in GGMI representing 95% of the equity interest. Certain key
current or former employees of the Company hold the remaining 5% equity interest
through ownership of 100% of the common stock of GGMI, which is entitled to all
voting rights in GGMI. Accordingly, the Company utilizes the equity method to
account for its ownership interest in GGMI. GGMI cannot distribute funds to its
common stockholders until its available cash flow exceeds all accumulated
preferred dividends owed to the preferred stockholder. As of September 30, 2000,
no preferred stock dividends have been paid by GGMI. Due to these currently
unpaid and accrued preferences on the preferred stock, the Company has been
allocated 100% of the earnings (loss) and cash flows generated by GGMI since
1996. Any dividends in excess of the preferred cumulative dividend are allocated
95% to the preferred stockholder and 5% to the common stockholders. The
Operating Partnership also has advanced funds to GGMI at interest at rates
ranging from 8% to 14% per annum and which mature by 2016. The loans require
payment of interest only until maturity, but GGMI may make principal payments on
the loans if it has sufficient cash flow. GGMI manages, leases, and performs
various other services for the Portfolio Centers and other properties owned by
unaffiliated parties.
15 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
Summarized Income Statement Information Of Unconsolidated Real Estate Affiliates
The following is summarized income statement information of Unconsolidated Real
Estate Affiliates of the Company for the three and nine months ended September
30, 2000 and 1999.
Three Months Ended Nine Months Ended
September September
2000 1999 2000 1999
-------- -------- --------- --------
Revenues
Tenant rents and other revenues $145,664 $ 94,974 $ 416,030 $276,249
-------- -------- --------- --------
Total Revenues 145,664 94,974 416,030 276,249
-------- -------- --------- --------
Operating expenses 58,036 39,381 172,008 113,183
Depreciation and amortization 25,919 19,980 77,053 51,284
-------- -------- --------- --------
Operating Income 61,709 35,613 166,969 111,782
Interest expense, net (36,707) (27,808) (104,785) (77,535)
Equity in net income of
unconsolidated real
estate affiliates 1,424 1,719 4,125 4,715
Gain (loss) on property sales 1 189 184 842
Extraordinary Item - (3,561) - (3,561)
Income allocated to minority
interest (83) (190) (234) (531)
-------- -------- --------- --------
Net Income $ 26,344 $ 5,962 $ 66,259 $ 35,712
======== ======== ========= ========
NOTE 4 MORTGAGE NOTES AND OTHER DEBTS PAYABLE
Mortgage notes and other debts payable at September 30, 2000 and December 31,
1999 consisted of the following:
September 30, 2000 December 31, 1999
Fixed-Rate debt
Mortgage and other notes payable $1,777,919 $1,724,854
Variable-Rate debt
Mortgage notes payable 1,166,983 1,234,680
Credit Facility and bank loan 240,000 160,000
---------- ----------
Total Variable-Rate debt 1,406,983 1,394,680
---------- ----------
Total $3,184,902 $3,119,534
========== ==========
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<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
Fixed Rate Debt
Mortgage Notes Payable
Mortgage notes and other debt payable consist primarily of fixed rate non-
recourse notes collateralized by individual or groups of properties or
equipment. 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.
Variable Rate Debt
Mortgage Notes Payable
Variable mortgage notes payable consist primarily of the approximate $97,500
outstanding on the construction loan collateralized by Rivertown Crossings as
described below, approximately $130,000 of non-recourse financing collateralized
by a pool of six wholly-owned properties and approximately $858,800 of
collateralized mortgage-backed securities, as described below. The remaining
loans are generally short term in nature and bear interest at a rate per annum
equal to LIBOR (6.6206% at September 30, 2000) plus 90 to 185 basis points. The
Company currently expects to retire or refinance such obligations when due.
MEPC Acquisition Financing
In June 1998, the Company obtained a loan of approximately $830,000 to acquire a
portfolio of eight regional mall shopping centers (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 Depositary Shares as described in Note 1.
Shortly after the initial acquisition loan funding, the Company obtained from
the lender an option to allow the extension of this loan at maturity at the
lender's then current rates. During 1999 however, the Company reached agreements
in principle with other lenders for full replacement financing and notified the
current lender that the loan would be fully repaid at maturity. Such
notification obligated the Company to pay $8,655 to the lender as a loan
prepayment fee which has been reflected in extraordinary items for the nine
months ended September 30, 1999. The remaining MEPC Acquisition Financing was
repaid in 1999 with other secured financing and approximately $441,000 of the
proceeds of the GGP-Ivanhoe CMBS financing described below. In conjunction with
the repayment, the Company expensed previously unamortized deferred financing
costs of approximately $3,280.
Commercial Mortgage-Backed Securities
In August 1999, the Company issued $500,000 of commercial mortgage-backed
securities, collateralized by the Ala Moana Center. The securities (the "Ala
Moana CMBS") are comprised of notes which bear interest at rates per annum
ranging from LIBOR plus 50 basis points to LIBOR plus 275 basis points (weighted
average equal to LIBOR plus 95 basis points), calculated and payable monthly. In
conjunction with the issuance of the Ala Moana CMBS, the Company arranged for an
interest rate cap agreement, the effect of which limits the maximum interest
rate the Company will be required to pay on the securities to 9% per annum.
Payments received pursuant to the interest rate cap agreement for the nine
months ended September 30, 2000 were approximately $45, which were reflected as
a reduction in net interest expense.
In September 1999, the Company issued $700,229 of commercial mortgage backed
securities cross-collateralized and cross-defaulted by a portfolio of nine
regional malls and an office complex adjacent to one of the regional malls. The
securities (the "GGP-Ivanhoe CMBS") are comprised of notes which bear interest
at rates per annum ranging from LIBOR plus 52 basis points to LIBOR
17 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
plus 325 basis points (weighted average equal to LIBOR plus approximately 109
basis points), calculated and payable monthly. In conjunction with the issuance
of the GGP-Ivanhoe CMBS, the Company arranged for an interest rate cap
agreement, the effect of which limits the maximum interest rate the Company will
be required to pay on the securities to 9.03% per annum. Payments received
pursuant to the interest rate cap agreement for the nine months ended September
30, 2000 were approximately $233, which were reflected as a reduction in net
interest expense. The $392,000 interim loan collateralized by the USPPI
portfolio was repaid with $341,019 of the proceeds from the sale of the GGP-
Ivanhoe CMBS and capital contributions by the Company (from its Credit Facility)
and from Ivanhoe in the ratio of their respective stock ownership percentages.
The remaining proceeds from the sale of the GGP-Ivanhoe CMBS along with other
interim financing proceeds were used by the Company to repay the $441,000
remaining balance on the MEPC Acquisition Financing.
Credit Facility
The Company's $200,000 unsecured revolving credit facility was originally
scheduled to mature on July 31, 2000. On June 23, 2000, the Company prepaid all
remaining outstanding principal amounts and terminated the Credit Facility. The
Credit Facility bore interest at a floating rate per annum equal to LIBOR plus
80 to 120 basis points depending upon the Company's leverage ratio. The Credit
Facility was subject to financial performance covenants including debt-to-market
capitalization, minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA") ratios and minimum equity values.
As of July 31, 2000 the Company obtained a new unsecured revolving credit
facility (the "Revolver") in a maximum aggregate principal amount of $135,000
(increased to $160,000 in September 2000). At September 30, 2000 the outstanding
balance of the Revolver was $85,000. During October 2000, approximately $40,000
of the Revolver was repaid from additional proceeds obtained from the Term Loan
as described below. The Revolver has a maturity of July 31, 2003 and bears
interest at a floating rate per annum equal to LIBOR plus 100 to 190 basis
points, depending on the Company's average leverage ratio. The Revolver is
subject to financial performance covenants including debt to value and net worth
ratios, EBITDA ratios and minimum equity values.
Interim Financing
In January 1999, the Company obtained an additional $30,000 unsecured bank loan,
which bore interest at a floating market rate (average rate equal to 6.46% per
annum). The Company had obtained in November 1998 a thirteen-month loan in the
principal amount of $55,000 collateralized by a negative pledge (i.e., the
promise not to encumber) of Coastland Center. These loans were repaid on May 21,
1999 with a ten-year 7.0% mortgage loan in the principal amount of $87,000
collateralized by Coastland Center.
In January 1999, the Company obtained an additional $83,655 floating rate
interim loan which was originally scheduled to mature June 1, 1999. During May
1999, the Company obtained a new $45,000 mortgage loan collateralized by The
Crossroads Mall. The loan partially repaid the interim loan and the remaining
balance, approximately $38,655, was extended and repaid in October 1999 with a
portion of the proceeds of a six property $130,000 two-year non-recourse
mortgage pool financing.
18 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
In April 1999, the Company obtained an additional $25,000 bank loan, partially
secured by Park Mall in Tucson, Arizona. In October 1999, the loan was increased
to $50,000. The loan matures November 15, 2000 as extended, bears interest at a
rate per annum of LIBOR plus 175 basis points and is expected to be further
extended and then replaced by maturity with a $90,000 construction loan facility
to be collateralized by Park Mall which is currently undergoing extensive
renovation, with the final phase of renovation expected to be completed in 2001.
In January 2000, the Company obtained a new $200,000 unsecured short-term bank
loan. The Company's initial draw under this loan was $120,000 in January, 2000
and the remaining available amounts were fully drawn at June 30, 2000. Loan
proceeds were used to fund ongoing redevelopment projects and repay the
remaining balance of $83,000 on an interim loan obtained in September 1999. The
bank loan bore interest at a rate per annum of LIBOR plus 150 basis points and
was refinanced on August 1, 2000 with the Revolver and the Term Loan described
below.
As of July 31, 2000, the Company obtained an unsecured bank term loan (the "Term
Loan") of $100,000. The principal amount of the Term Loan was increased to
$155,000 in September, 2000. Term Loan proceeds were used to fund ongoing
redevelopment projects and repay a portion of the remaining balance of the bank
loan described in the prior paragraph immediately above. During October 2000,
the principal amount of the Term Loan was further increased to $205,000. The
additional $50,000 was used to pay down the Revolver as discussed above and for
other current redevelopment projects. The Term Loan has a maturity of July 31,
2003 and bears interest at a rate per annum of LIBOR plus 100 to 170 basis
points depending on the Company's average leverage ratio.
Construction Loan
During April 1999 the Company received $30,000 representing the initial loan
draw on an $110,000 construction loan facility. The facility is collateralized
by and provided financing for the RiverTown Crossings Mall development
(including outparcel development) in Grandville (Grand Rapids), Michigan. The
construction loan provides for periodic funding as construction and leasing
continue and currently bears interest at a rate per annum of LIBOR plus 150
basis points. As of September 30, 2000 additional loan draws of approximately
$80,000 had been made and no further amounts are available under the
construction loan facility. Interest is due monthly but during 1999 were added
to the periodic loan draws. The loan matures on June 29, 2001 and the Company
currently intends to refinance the loan at or prior to maturity with a non-
recourse long-term mortgage loan.
Letters of Credit
As of September 30, 2000 and December 31, 1999, the Operating Partnership had
outstanding letters of credit of $7,668, primarily in connection with special
real estate assessments and insurance requirements. In addition at September 30,
2000 the Company has a letter of credit of approximately $30,925 related to the
funding of the Ala Moana CMBS and pending construction projects at the Ala Moana
Center.
NOTE 5 DISTRIBUTIONS PAYABLE
The following is a chart of the previous common and preferred distributions for
the Company paid in 1999 and 2000. As described in Note 1, General Growth's
preferred stock dividends to its preferred stockholders were in the same amount
as the Operating Partnership's distributions to General Growth on the same dates
with respect to the Preferred Units held by General Growth.
19 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
--------------------------------------------------------------------------------------
General Operating
Growth Partnership
Declaration Amount per Record Payment Stockholders Limited Partners
Date Share Date Date Amount Amount
---- ----- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
09/19/00 $0.51 10/05/00 10/31/00 $26,596 10,046
06/14/00 0.51 07/06/00 07/31/00 26,541 10,090
03/22/00 0.51 04/06/00 04/28/00 26,483 10,101
12/13/99 0.51 01/06/00 01/31/00 26,481 10,097
09/22/99 0.49 10/05/99 10/29/99 25,322 9,701
06/18/99 0.49 07/02/99 07/30/99 19,651 9,712
03/18/99 0.49 04/05/99 04/30/99 19,136 9,712
12/17/98 0.47 01/06/99 01/29/99 18,330 9,309
</TABLE>
<TABLE>
<CAPTION>
PREFERRED DISTRIBUTIONS
---------------------------------
Record Payment Amount per
Date Date Share
---- ---- -----
<S> <C> <C>
10/05/00 10/31/00 $0.4531
07/06/00 07/14/00 0.4531
04/06/00 04/14/00 0.4531
01/06/00 01/14/00 0.4531
10/05/99 10/15/99 0.4531
07/02/99 07/15/99 0.4531
04/05/99 04/15/99 0.4531
01/06/99 01/15/99 0.4531
</TABLE>
NOTE 6 MORTGAGE NOTE RECEIVABLE
During September 1999, St. Cloud Funding, L.L.C., a wholly-owned subsidiary of
the Operating Partnership ("St. Cloud Funding"), agreed to advance approximately
$31,000 to an unaffiliated developer in the form of a second mortgage loan
(bearing interest at 15% per annum) collateralized by such developer's ownership
interest in Crossroads Center in St. Cloud (Minneapolis), Minnesota.
Contemporaneously with the loan, St. Cloud Mall L.L.C., all of the interests of
which are owned by the Company ("St. Cloud Mall"), was granted an option to
acquire the property in 2002. The loan had a scheduled maturity of June 1, 2004
which was accelerated in February 2000 to April 28, 2000. In conjunction with
the maturity date modification, a put option agreement was executed which would
permit the borrower (after March 15, 2000) to require St. Cloud Mall to purchase
the property. In addition, St. Cloud Mall's purchase option was advanced to
April 2000. On March 15, 2000 the borrower notified St. Cloud Mall of the
exercise of the put option. Pursuant to the put option agreement, on April 26,
2000, St. Cloud Mall purchased the property at a price equal to approximately
$2,000 plus the then outstanding balances of the first mortgage (approximately
$46,600) and St. Cloud Funding's second mortgage.
NOTE 7 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in
legal actions relating to the ownership and operations of its properties. In
management's opinion, the liabilities if any, that
20 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
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.
Subsequent to September 30, 2000, the Company, together with the current owners
of Liberty House, Inc. ("Liberty House") proposed a joint plan of reorganization
for Liberty House. Liberty House, which operates twelve department stores in
Hawaii including two at malls owned by the Company, six specialty retail stores
and a department store on Guam, is currently in Chapter 11 bankruptcy
proceedings. If the joint plan of reorganization is confirmed by the bankruptcy
court and the conditions identified in the joint plan are satisfied, the Company
would proceed to acquire a 100% ownership interest in Liberty House. As the
decision to proceed with the acquisition is contingent on, among other things,
further investigation by the Company, there can be no assurance that the
acquisition will be consummated on the terms proposed in the joint plan of
reorganization or on any other terms. If the Company were to proceed to acquire
Liberty House, the acquisition would occur no earlier than the first quarter of
2001. The Company expects to finance the acquisition by expanding its existing
Term Loan and/or Revolver or alternatively, using other methods of indirect
financing.
The Company periodically enters into contingent agreements for the acquisition
of properties. Each acquisition is subject to satisfactory completion of due
diligence and, in the case of developments, completion of the project.
NOTE 8 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin 101 "Revenue Recognition" ("SAB" 101"). SAB 101
provides, among other things, 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 is entitled to receive contingent rents because a
majority of the tenant leases provide for additional rent computed as a
percentage of tenant sales revenues above certain annual thresholds
(predominantly computed on a calendar year basis). The Company had previously
accrued, on an interim basis, such overage rents based on the prorated annual
overage rent estimated to be due from tenants. The Company has applied this
revised accounting effective January 1, 2000. The Company believes that there
was no material cumulative effect on the Company's financial position as of the
date of adoption of this revised accounting and the only material effect of this
pronouncement will be to shift the Company's recognition, including amounts from
the operations of the Unconsolidated Real Estate Affiliates, of major portions
of overage rent from interim quarters to the third and fourth quarter of 2000
and subsequent years. The Company's cash collections of overage rent has not
been affected by this accounting recognition change. The Company estimates that
it would have recognized approximately $5,798 of additional consolidated overage
rent in the nine months ended September 30, 2000 if this change in accounting
recognition of overage rent had not been mandated.
The FASB issued Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("Statement 133") on June 1, 1998. Statement No.138
"Accounting for Derivative Instruments and Hedging Activities - An Amendment of
FASB Statement 133" was issued in June 2000. Statement 133, as amended, is
effective for fiscal years beginning after June 15, 2000 as provided by FASB
Statement No. 137 issued in July, 1999. The Company does not currently have any
investments in derivatives, and the Company's only hedging activity is the cash
value hedge represented by its cap agreements relating to its commercial
mortgage-backed securities (Note 4). The interest rate cap agreements place a
limit on the effective rate of interest the Company will bear on such floating
rate
21 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
obligations. The Company has concluded that these cap agreements are highly
effective in achieving its objective of eliminating its exposure to variability
in cash flows relating to these floating rate obligations when LIBOR rates
exceed the strike rates of the cap agreements. Therefore, the Company does not
believe there will be a material effect of adoption on the Company's financial
statements when the Company adopts Statement 133 on January 1, 2001 as required
by the standard.
In March 2000, the FASB issued Statement of Accounting Standards Interpretation
44, Accounting for Certain Transactions Involving Stock Compensation
("Interpretation 44"). Interpretation 44 is generally effective for new stock
option grants beginning July 1, 2000. However, the interpretive definition of an
employee apply to new awards granted after December 15, 1998. Further, the FASB
determined that any modifications to current accounting as a result of this
guidance are to be recorded prospectively, effective as of July 1, 2000. General
Growth has previously granted stock options to its employees, directors and to
employees of its currently unconsolidated subsidiary, GGMI. Under the terms of
the Interpretation, any awards to GGMI employees are considered awards to non-
employees. The Company has applied the accounting mandated by Interpretation 44
as of July 1, 2000 and there was no impact on the Company's consolidated
financial position or consolidated results of operations.
22 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All references to numbered Notes are to specific footnotes to the Consolidated
Financial Statements of the Company included in this quarterly report and which
descriptions are hereby incorporated herein by reference. The following
discussion should be read in conjunction with such Consolidated Financial
Statements and related Notes.
Forward-Looking Information
Certain statements contained in this Quarterly Report on Form 10-Q may include
certain forward-looking information statements, within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including (without limitation) statements with
respect to anticipated future operating and financial performance, growth and
acquisition opportunities and other similar forecasts and statements of
expectation. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and "should" and variations of these words and
similar expressions, are intended to identify these forward-looking statements.
Forward-looking statements made by the Company and its management are based on
estimates, projections, beliefs and assumptions of 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, changes in
retail rental rates in the Company's markets, shifts in customer demands, tenant
bankruptcies or store closures, changes in vacancy rates at the Company's
properties, changes in operating expenses, including employee wages, benefits
and training, governmental and public policy changes, changes in applicable
laws, rules and regulations (including changes in tax laws), the ability to
obtain suitable equity and/or debt financing, and the continued availability of
financing in the amounts and on the terms necessary to support the Company's
future business.
Certain Information about the Company Portfolio
As of September 30, 2000, the Company owns 100% of the fifty-three Wholly-Owned
Centers, 50% of the stock of GGP/Homart, 50% of the membership interest in
GGP/Homart II, 51% of the stock of GGP Ivanhoe, 51% of the stock of GGP Ivanhoe
III, 50% of Quail Springs Mall and Town East Mall, and a non-voting preferred
stock ownership interest (representing 95% of the equity interest) in GGMI.
GGP/Homart owns interests in twenty-three shopping centers, GGP/Homart II owns
interests in seven shopping centers, GGP Ivanhoe owns interests in two shopping
centers, and GGP Ivanhoe III owns interests in eight shopping centers.
The Mall Store and Free-standing Store portions of the centers in the Company
Portfolio which were not undergoing redevelopment on September 30, 1999 had an
occupancy of approximately 87.4% as of such date. On September 30, 2000, the
Mall Store and Free-standing Store portions of the centers
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<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
in the Company Portfolio which were not undergoing redevelopment were
approximately 89.3% occupied as of such date, representing an increase in
occupancy percentage of 1.9% over 1999.
Total annualized sales averaged $355 per square foot for the Company Portfolio
in the nine months ended September 30, 2000. In the nine months ended September
30, 2000, total mall store sales for the Company Portfolio increased by 7.8%
over the same period in 1999. Comparable mall store sales are sales of those
tenants that were open the previous 12 months. Therefore, comparable mall store
sales in the nine months ended September 30, 2000 are of those tenants that were
operating in the nine months ended September 30, 1999. Comparable mall store
sales in the nine months ended September 30, 2000 increased by 3.9% over the
same period in 1999.
The average Mall Store rent per square foot from leases that expired in the nine
months ended September 30, 2000 was $29.29. The Company Portfolio benefited from
increasing rents inasmuch as the average Mall Store rent per square foot on new
and renewal leases executed during this same period was $35.09, or $5.80 per
square foot above the average for expiring leases. As of the date of this
report, the Company has the following upcoming lease expirations in 2001: For
the Wholly-Owned Centers, tenant leases representing 787,769 square feet with
average rents per square foot of $23.34 are scheduled to expire. For the centers
owned by the Unconsolidated Real Estate Affiliates, the square footage expiring
is 669,364 square feet with average rent equal to $28.63. Reference is made to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999 (Commission File No. 1-11656) dated March 14, 2000 for comparable lease
expiration schedules for the Company Portfolio by year for the years 2002
through 2004.
Company revenues are primarily derived from fixed minimum rents, overage 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/Homart II, GGP Ivanhoe, GGP Ivanhoe III, Quail
Springs Mall and Town East Mall and GGMI, the discussion of results of
operations of the Company below relates primarily to the revenues and expenses
of the Wholly-Owned Centers.
Results Of Operations of the Company
Three Months Ended September 30, 2000 and 1999
During calendar 1999, the Company opened Rivertown Crossings and purchased
interests in the following Wholly-Owned Centers: The Crossroads, Ala Moana, and
Baybrook. In addition, the Company contributed its 100% interests in Stonebriar,
Northbrook Court, Natick, and Altamonte to GGP/Homart II, an unconsolidated
entity. During April 2000, the Company purchased an 100% interest in Crossroads
Center. For purposes of the following discussion of the results of operations,
the net effect of acquisitions will include the effect of the Rivertown Crossing
opening, the effect of the new acquisitions in 1999 and 2000 and the effect of
the three operating properties contributed to GGP/Homart II.
Total revenues for the three months ended September 30, 2000 were $173.3
million, which represents an increase of $17.3 million or approximately 11.0%
from $156.0 million in the three months ended September 30, 1999. The majority
of the increase is from the net effect of acquisition of properties. Minimum
rent for the three months ended September 30, 2000 increased by $8.8 million or
8.9% from $99.2 million in the comparable period in 1999 to $108.0 million. The
net effect of acquisition of properties generated the majority of such increase
in minimum rents. Expansion space, specialty leasing and occupancy increases at
the comparable centers (properties owned for the entire time during the three
months ended September 30, 1999 and 2000) accounted for the remaining increase
in minimum rents. Tenant recoveries increased by $8.6 million or 19.5% from
$44.1 million to $52.7 million for the three months ended September 30, 2000.
The majority of the increase was generated by the net effect of newly acquired
properties. For the three months ended September 30,
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<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
2000, overage rents increased to $8.9 million from $7.4 million in 1999. The
increase is primarily attributable to the change in accounting for overage rents
effective January 1, 2000, which has the impact of shifting the recognition of
percentage rents to the later quarters of a calendar year as more fully
described in Note 8.
Total expenses, including depreciation and amortization, increased by
approximately $9.2 million, from $79.5 million in the three months ended
September 30, 1999 to $88.7 million in the three months ended September 30,
2000. For the three months ended September 30, 2000, property operating expenses
increased by $4.7 million or 12.9% from $36.3 million in 1999 to $41 million in
the third quarter of 2000, substantially all of which is attributable to the net
effect of new acquisitions. The remainder is due to increases at the comparable
centers. Depreciation and amortization increased by $3.1 million or 10.6% over
the same period in 1999. The majority of the increase in depreciation and
amortization was generated by the net effect of newly acquired properties.
Management fees to affiliates decreased by approximately $2.6 million or 144.0%
over the same period in 1999 due primarily to a retroactive decrease in the
rates charged by GGMI to Wholly-Owned Centers.
Net interest expense for the three months ended September 30, 2000 was $52.9
million, an increase of $9.1 million or 20.8% from $43.8 million in the three
months ended September 30, 1999. The net effect of acquisition of new properties
was responsible for approximately $3.2 million of the increase. The remainder is
due to increased debt and interest rates at the comparable centers.
Equity in net income of unconsolidated affiliates in the three months ended
September 30, 2000 increased by approximately $10.1 million to earnings of $13.1
million in 2000, from $3.0 million in the three months ended September 30, 1999.
The Company's equity in the earnings of GGP/Homart decreased approximately $.8
million, primarily due to an increase in debt and related interest expense. The
formation of GGP/Homart II and the opening of Stonebriar Mall in August 2000
resulted in earnings of approximately $5.2 million for the three months ended
September 30, 2000. The Company's equity in the earnings of GGMI resulted in an
increase of approximately $3.1 million, primarily due to an increase of fee
revenue. This increase was partially offset by a retroactive decrease in the
management fees charged by GGMI to the Company's Wholly-Owned Centers.
Results Of Operations of the Company
Nine Months Ended September 30, 2000 and 1999
Total revenues for the nine months ended September 30, 2000 were $500.8 million,
which represents an increase of $74.6 million or approximately 17.5% from $426.2
million in the nine months ended September 30, 1999. Substantially all of the
increase is from the net effect of acquisition of properties. Minimum rent for
the nine months ended September 30, 2000 increased by $45.5 million or 16.9%
from $269.7 million in the comparable period in 1999 to $315.2 million. The net
effect of acquisition of properties generated the majority of such increase in
minimum rents. Expansion space, specialty leasing and occupancy increases at the
comparable centers (properties owned for the entire time during the nine months
ended September 30, 1999 and 2000) accounted for the remaining increase in
minimum rents. Tenant recoveries increased by $31.4 million or 24.7% from $127
million to $158.4 million for the nine months ended September 30, 2000.
Substantially all of the increase was generated by the net effect of properties
which were acquired. For the nine months ended September 30, 2000, overage rents
decreased to $ 14.7 million from $16.6 million in 1999. The net effect of
acquisitions contributed an increase of approximately $5.4 million in overage
rent. The decrease is primarily attributable to the change in accounting for
overage rents in the nine months ended September 30, 2000 as more fully
described in Note 8.
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<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
Total expenses, including depreciation and amortization, increased by
approximately $35.7 million, from $224.3 million in the nine months ended
September 30, 1999 to $260.0 million in the nine months ended September 30,
2000. For the nine months ended September 30, 2000, property operating
expenses increased by $19.2 million or 19.4% from $99.1 million in 1999 to
$118.3 million for the three quarters of 2000, substantially all of which is
attributable to the net effect of the new acquisitions. Depreciation and
amortization increased by $14.1 million or 17.7% over the same period in 1999.
Approximately $6.0 million of the increase in depreciation and amortization was
generated at comparable centers. The remaining $8.1 million was from the net
effect of newly acquired properties. Management fees to affiliates was
approximately $1.2 million or 28.1% lower than in the nine months ended
September 30, 1999 due primarily to a retroactive decrease in the rates charged
by GGMI to Wholly-Owned Centers.
Net interest expense for the nine months ended September 30, 2000 was $152.2
million, an increase of $32.0 million or 26.6% from $120.2 million in the nine
months ended September 30, 1999. Debt incurred in connection with the
acquisition of new properties was responsible for substantially all of such
increase.
Equity in net income of unconsolidated affiliates in the nine months ended
September 30, 2000 increased by approximately $18.9 million to earnings of $30.6
million in 2000, from $11.7 million in the nine months ended September 30, 1999.
The Company's equity in the earnings of GGP/Homart decreased approximately $3.8
million, primarily due to the gain recognized by GGP/Homart on its May, 1999
sale of its interest in the Rolling Oaks Mall in San Antonio, Texas. This
decrease is partially offset by an increase in average property occupancy, an
increase in the ownership interest of GGP/Homart in The Parks at Arlington and
an increase in the Company's ownership interest in GGP/Homart in 2000 versus
1999. The Company's equity in the earnings of GGMI resulted in an increase of
approximately $8.6 million, primarily due to the write-off of terminated third-
party management contracts in 1999. Such increase was partially offset by a
retroactive decrease in the management fees charged by GGMI to the Company's
Wholly-Owned Centers.The formation of GGP/Homart II resulted in earnings of
approximately $12.9 million for the nine months ended September 30, 2000.
Gain on sale in the nine months ended September 30, 1999, represents the gain on
the sale of outparcel land to a major tenant at Park Mall.
Liquidity and Capital Resources of the Company
As of September 30, 2000, the Company held approximately $35.7 million of
unrestricted cash and cash equivalents. The Company uses operating cash flow as
the principal source of internal funding for short-term liquidity and capital
needs 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 longer-term liquidity
needs such as acquisitions, new development, expansions and major renovation
programs at individual centers include construction loans, mini-permanent loans,
long-term project financing, joint venture financing with institutional
partners, additional Operating Partnership level or Company level equity
investments, unsecured Company level debt or secured loans collateralized 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 $329.2 million in equity or debt securities may be
issued from time to time. The Company also has a revolving credit facility and
term loans (Note 4) under which approximately $240 million had been borrowed as
of September
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<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
30, 2000 which loans mature on July 31, 2003. The Company currently anticipates
it will be able to increase from an aggregate of $365 million as of the date of
this report to $650 million as necessary the aggregate principal amounts
available to be borrowed under such facilities.
As of September 30, 2000, the Company had consolidated debt of approximately
$3,185 million, of which $1,778 million is comprised of debt bearing interest at
a fixed rate, with the remaining $1,407 million bearing interest at floating
rates. A portion of the debt bearing interest at variable rates is subject to
interest rate cap agreements. Reference is made to Note 4 and Item 3 below for
additional information regarding the Company's debt and the potential impact on
the Company of interest rate fluctuations.
The following summarizes certain significant investment and financing
transactions currently planned or completed since December 31,1999:
The Company had previously advanced approximately $31 million collateralized by
a second mortgage on the Crossroads Center in St. Cloud (Minneapolis),
Minnesota. In connection with the second mortgage (as modified in February 2000)
the Company acquired the property in April 2000 as more further described in
Note 6.
In January 2000, the Company obtained a new $200 million unsecured short-term
bank loan. The Company's initial draw under this loan was $120 million which was
used to fund ongoing redevelopment projects and repay an $83 million interim
loan obtained in September 1999. This loan bore interest at LIBOR plus 150 basis
points and the remaining available amounts were drawn by September 30, 2000. The
loan was repaid August 1, 2000 from the proceeds of a new revolving credit
facility and the $100 million term loan described below.
In May 2000, the Company obtained approximately $170.6 million of net proceeds
through the issuance of preferred units of membership interest as more fully
described in Note 1. These units provide for annual 8.95% preferred
distributions and have a liquidation preference of $175 million. The net
proceeds were used primarily to reduce the Company's outstanding short-term
floating rate debt.
As of July 31, 2000, the Company completed the refinancing of its Credit
Facility. The Company's outstanding draws under the Revolver were approximately
$85 million as of September 30, 2000. The Revolver has a maturity of July 31,
2003 and bears interest at a rate per annum equal to LIBOR plus 100 to 190 basis
points depending on the Company's average leverage ratio. In addition, the
Company obtained an unsecured Term Loan, draws under which aggregate $155
million at September 30, 2000. The Term Loan has a maturity of July 31, 2003 and
bears interest at a rate per annum of LIBOR plus 100 to 170 basis points
depending on the Company's average leverage ratio.
Approximately $50 million of the Company's debt is scheduled to mature during
the fourth quarter of 2000. Although final agreements to refinance all such loan
amounts have not yet been reached, the Company anticipates that all of its debt
will be repaid on a timely basis. Other than as described above or in
conjunction with possible future acquisitions, there are no current plans to
incur additional debt or raise equity capital. If additional capital is
required, the Company believes that it can increase the amounts available under
the Revolver or term loans, obtain an interim bank loan, obtain additional
mortgage financing on under-leveraged assets, enter into new joint venture
partnership arrangements or raise additional debt or equity capital. However,
there can be no assurance that the Company can obtain such financing on
satisfactory terms. The Company will
27 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
continue to monitor its capital structure, investigate potential investments or
joint venture arrangements and purchase additional properties if they can be
acquired and financed on terms that the Company reasonably believes will enhance
long-term stockholder value. When property operating cash flow has been
increased, the Company anticipates the refinancing of portions of its long-term
floating rate debt with pooled or property-specific non-recourse fixed-rate
mortgage financing.
Net cash provided by operating activities was $206.6 million in the first nine
months of 2000, an increase of $62.9 million from $143.7 million in the same
period in 1999. Net income before extraordinary items and allocations to the
minority interest increased $22.8 million, which was primarily attributable to
the earnings contributed by acquisitions completed in 1999 and 2000.
Net cash used by investing activities was $256 million in the first nine months
of 2000 compared to $1,087.6 million of cash used in the first nine months of
1999. Cash flow from investing activities was impacted by the lower volume of
acquisitions, development and improvements to consolidated real estate
properties in the first nine months of 2000, as compared to the first nine
months in 1999 as the ownership (and resulting development activities) of
Stonebriar Centre was transferred to GGP/Homart II in November 1999.
Financing activities contributed cash of $59.7 million in the first nine months
of 2000, compared to a source of cash of $930.2 million in 1999. A major
contributing factor to the variance in the cash provided from financing activity
is that financing from mortgages and other debt, net of repayments of principal
on mortgage debt, had a positive impact of $18.7 million in the first nine
months of 2000 versus a positive impact of $720.8 million in the first nine
months of 1999. The additional financing in 1999 was used to fund the
acquisitions, developments and redevelopment of real estate discussed above and
in Note 2.
In order to remain qualified as a real estate investment trust for federal
income tax purposes, the Company must distribute 100% of capital gains and at
least 95% of its ordinary taxable income to stockholders. The following factors,
among others, will affect operating cash flow and, accordingly, influence the
decisions of the Board of Directors regarding distributions: (i) scheduled
increases in base rents of existing leases; (ii) changes in minimum base rents
and/or percentage rents attributable to replacement of existing leases with new
or renewal leases; (iii) changes in occupancy rates at existing centers and
procurement of leases for newly developed centers; and (iv) the Company's share
of operating cash flow generated by GGMI, the Unconsolidated Real Estate
Affiliates and distributions there from, less oversight costs and debt service
on additional loans that have been or will be incurred. The Company anticipates
that its operating cash flow, and potential new debt or equity from future
offerings, new financings or refinancings will provide adequate liquidity to
conduct its operations, fund general and administrative expenses, fund operating
costs and interest payments and allow distributions to the Company's preferred
and common stockholders in accordance with the requirements of the Internal
Revenue Code of 1986, as amended, for continued qualification as a real estate
investment trust and to avoid any Company level federal income or excise tax. In
addition, the Tax Relief Extension Act of 1999 will be effective January 1,
2001. Two key provisions of this tax law change will impact future Company
operations: the availability of a taxable REIT subsidiary which may be wholly
owned directly by a REIT and a reduction in the required level of distributions
by a REIT to 90% of ordinary taxable income. The Company currently intends to
convert its unconsolidated interest in GGMI to a wholly-owned taxable REIT
subsidiary effective January 1, 2001.
During 2000, a number of the companies in the movie theatre industry have
experienced operating difficulties and some have filed for protection under
Chapter 11 of the federal bankruptcy laws. Anumber of such companies have closed
certain of their smaller and older theatres, including isolated
28 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
theatres in centers in the Company Portfolio. The Company has released certain
of these sites without a significant decrease in rents or cash flow. Therefore,
the Company expects the current downturn in the movie industry to have only an
immaterial impact on its consolidated financial results of operations.
The Internet and electronic retailing are growing at significant rates. Although
the amount of retail sales conducted solely via the Internet is expected to rise
in the future, the Company believes that traditional retailing and "e-tailing"
will converge such that the regional mall will continue to be a vital part of
the overall mix of shopping alternatives for the consumer.
In order to enhance the value and competitiveness of its properties through
technology, the Company is moving forward with an integrated broadband
distribution system that will provide tenants at its properties with a private
wide-area network as well as supporting applications and equipment (the
"Broadband System"). The Company hopes that the Broadband System will be
installed and operating at substantially all of its properties by early April,
2001 as more fully discussed in Note 2.
Recently Issued Accounting Pronouncements
As more fully described in Note 8, the FASB, EITF and the AICPA have issued
certain statements, which are effective for the current or subsequent year. The
Company does not expect a significant impact on its annual reported operations
due to the application of such new statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative commodity
instruments. The Company is subject to market risk associated with changes in
interest rates. The economy is currently in a period of rising interest rates.
Interest rate exposure is principally limited to the $1,407 million of debt of
the Company outstanding at September 30, 2000 that is priced at interest rates
that float with the market. However, approximately $858 million of such floating
rate consolidated debt is comprised of commercial mortgage-backed securities
which are subject to interest rate cap agreements, the effect of which is to
limit the interest rate the Company would be required to pay on such debt to no
more than approximately 9% per annum. Therefore, a 25 basis point movement in
the interest rate on the floating rate debt would result in an approximate $3.22
million annualized increase or decrease in interest expense and cash flows. The
remaining debt is fixed rate debt. The Company has an ongoing program of
refinancing its floating and fixed rate debt and believes that this program
allows it to vary its ratio of fixed to floating rate debt to respond to
changing market rate conditions. Reference is made to Item 2 above and Note 4
for additional debt information.
29 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Set forth below is certain information about General Growth's issuance of shares
of Common stock during the third quarter of 2000 to the two purchasers named
below in reliance upon the exemption from registration contained in Section 4(2)
of the Securities Act of 1933, as amended, and/or Regulation D promulgated
thereunder. Such shares were issued in connection with the exercise by the
purchasers of redemption rights in respect of their Operating Partnership Units.
Pursuant to such rights, the Units were redeemable, at the option of the holder,
at any time after July 13, 1996 for cash, or at General Growth's election, for
shares of Common Stock on a one-for-one basis. General Growth elected to satisfy
the exercise of such redemption rights by issuing shares of Common Stock.
<TABLE>
<CAPTION>
Date of Number of Offering Price or
Issuance Issuer Security Shares Purchaser Consideration
-------- ------ -------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
7/31/00 General Growth Common Stock 54,625 Estate of 54,625 Units
Properties, Inc. Arthur B.
Morgenstern
9/19/00 General Growth Common Stock 31,711 Arthur Bruce 31,711 Units
Properties, Inc. Associates
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index
(b), (c) Reports on Form 8-K and proforma information
No reports on Form 8-K have been filed by the Company during the quarter covered
by this report.
30 of 31
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
(Dollars in thousands, except for per share amounts)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL GROWTH PROPERTIES, INC.
(Registrant)
Date: November 9, 2000 by: /s/: Bernard Freibaum
--------------------------------------
Bernard Freibaum
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
31 of 31
<PAGE>
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)
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)
<PAGE>
2(o) Purchase and Sale Agreement dated May 8, 1998, among Grosvenor
International Limited, P.I.C. Investments, Northbrook Court I L.L.C. and
Northbrook Court II L.L.C. (17)
2(p) Merger Agreement dated May 14, 1998, among GGP Limited Partnership,
GGP Acquisition L.L.C. and U.S. Prime Property, Inc. (17)
2(q) Sale and Contribution Agreement dated April 2, 1998, between Southwest
Properties Venture and GGP Limited Partnership. (18)
2(r) Contribution and Exchange Agreement dated as of July 10, 1998 (the
"Contribution Agreement") among Nashland Associates, HRE Altamonte, Inc.,
Altamonte Springs Mall L.P., and GGP Limited Partnership. (21)
2(s) Purchase and Sale Agreement and Joint Escrow Instructions dated as of
August 21, 1998 by and between Spring Hill Mall Partnership (seller) and Spring
Hill Mall L.L.C., (purchaser). (22)
2(t) Purchase and Sale Agreement dated as of the 18th day of September,
1998 by and between Coastland Center Joint Venture (seller) and Coastland
Center, L.P. (purchaser). (23)
2(u) Purchase and Sale Agreement dated as of May 3, 1999, among D/E Hawaii
Joint Venture, GGP Limited Partnership and General Growth Properties, Inc. (27)
2(v) Agreement of Purchase and Sale, dated as of July 27, 1999, among Oak
View Mall Corporation, a Delaware corporation, and Oak View Mall, L.L.C., a
Delaware limited liability company. (28)
2(w) Agreement of Purchase and Sale, dated as of July 22, 1999 between
General Growth Properties, Inc., a Delaware corporation (the "Company"), and
RREEF USA Fund-III, a California group trust. (28)
2(x) Operating Agreement, dated November 10, 1999, between GGP Limited
Partnership, a Delaware limited partnership, The Comptroller of the State of New
York as Trustee of the Common Retirement Fund ("NYSCRF"), and GGP/Homart II
L.L.C. a Delaware limited liability company ("GGP/ Homart II"). (28)
2(y) Contribution Agreement dated November 10, 1999, by and between GGP
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), and GGP/Homart II (Altamonte Mall). (29)
2(z) Contribution Agreement dated November 10, 1999, by and between the
Operating Partnership and GGP/Homart II (Northbrook Court). (29)
2(aa) Contribution Agreement dated November 10, 1999, by and between the
Operating Partnership and GGP/Homart II (Natick Trust). (29)
2(bb) Contribution Agreement dated November 10, 1999, by and between the
Operating Partnership and GGP/Homart II (Stonebriar Centre). (29)
2(cc) Contribution Agreement dated November 10, 1999, by and between NYSCRF
and GGP/Homart II (Carolina Place). (29)
<PAGE>
2(dd) Contribution Agreement dated November 10, 1999, by and between NYSCRF
and GGP/Homart II (Alderwood Mall). (29)
2(ee) Contribution Agreement dated November 10, 1999, by and between NYSCRF
and GGP/Homart II (Montclair Plaza). (29)
2(ff) Contribution Agreement, dated February 1, 2000, by and between
General Growth Companies, Inc. and GGP Limited Partnership. (30)
2(gg) Purchase and Sale Agreement dated as of March 15, 2000 by and between
Crossroads Shopping Center Trust and St. Cloud Mall L.L.C. (31)
2(hh) Purchase Agreement dated May 25, 2000 among General Growth
Properties, Inc., GGP Limited Partnership, GGPLP L.L.C. and Goldman Sachs 2000
Exchange Place Fund, L.P. (33)
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)
3(g) 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., 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)
<PAGE>
4(g) Amendment to Certificate of Designations, Preferences and Rights of
7.25% Preferred Income Equity Redeemable Stock, Series A of General Growth
Properties, Inc. filed on May 17, 1999. (27)
4(h) Redemption Rights Agreement dated April 2, 1998, among GGP Limited
Partnership, General Growth Properties, Inc. and Southwest Properties Venture.
(17)
4(i) Indenture and Servicing Agreement dated as of November 25, 1997, among
the Issuers named therein, LaSalle National Bank, as Trustee, and Midland Loan
Services, L.P., as Servicer (the "Indenture Agreement"). (18)
4(j) Form of Note pursuant to the Indenture Agreement. (18)
4(k) Mortgage, Deed of Trust, Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, date and effective as of November
25, 1997, among the Issuers, the Trustee and the Deed Trustees named therein.
(18)
4(l) Rights Agreement, dated November 18, 1998, between General Growth
Properties, Inc. and Norwest Bank Minnesota, N.A., as Rights Agent (including
the Form of Certificate of Designation of Series A Junior Participating
Preferred Stock attached thereto as Exhibit A, the Form of Right Certificate
attached Preferred Stock attached thereto as Exhibit C). (24)
4(m) Form of Common Stock Certificate. (25)
4(n) First Amendment to Rights Agreement, dated as of November 10, 1999,
between the Company and Norwest Bank, Minnesota, N.A. (28)
4(o) Letter Agreement concerning Rights Agreement, dated November 10, 1999,
between the Operating Partnership and NYSCRF. (28)
4(p) Certificate of Designations, Preferences and Rights of 8.95%
Cumulative Redeemable Preferred Stock, Series B. (32)
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)
10(g) Form of Indemnification Agreement between the Operating Partnership,
Martin Bucksbaum, Matthew Bucksbaum, Mall Investment L.P. and M. Bucksbaum
Company. (3)
<PAGE>
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, as
amended (33).
10(o) Amended and Restated Operating Agreement of GGPLP L.L.C. dated as of
May 25, 2000.(32)
10(p) Registration Rights Agreement dated May 25, 2000 between General
Growth Properties, Inc. and Goldman Sachs 2000 Exchange Place Fund, L.P.(33)
23 Consent of PricewaterhouseCoopers LLP - Independent Accountants.(30)
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.
<PAGE>
(7) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated February 25, 1994, incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated July 17, 1996, incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (No. 33-23035), incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated June 19, 1997, incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (No. 333-37247) dated October 6, 1997, incorporated herein by
reference.
(13) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, incorporated herein by reference.
(14) Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (No. 333-28449) dated June 3, 1997, incorporated herein by
reference.
(15) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated June 17, 1998, incorporated herein by reference.
(17) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated May 26, 1998, incorporated herein by reference.
(18) Previously filed as an exhibit to the Company's Current Report on Form
8-K/A dated June 2, 1998, incorporated herein by reference.
(19) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q dated May 14, 1998, as amended May 21, 1998, incorporated herein by
reference.
(20) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated August 7, 1998, incorporated herein by reference.
(21) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated August 5, 1998, incorporated herein by reference.
(22) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 30, 1998, incorporated herein by reference.
(23) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated October 5, 1998, incorporated herein by reference.
<PAGE>
(24) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated November 18, 1998, incorporated herein by reference.
(25) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, incorporated herein by reference.
(26) Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (No. 333-74461) dated March 12, 1999, incorporated herein by
reference.
(27) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated July 12, 1999, incorporated herein by reference.
(28) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated November 23, 1999, incorporated herein by reference.
(29) Previously filed as an exhibit to the Company's Current Report on Form
8-K/A, dated January 11, 2000, incorporated herein by reference.
(30) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, incorporated herein by reference.
(31) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated May 9, 2000, incorporated herein by reference.
(32) Previously filed as an exhibit to the Company's Current Report on Form
8-K, dated June 13, 2000, incorporated herein by reference.
(33) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q dated August 9, 2000, incorporated herein by reference.
