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General Growth Properties Inc. (GGP)

Q3 2008 Earnings Call

November 5, 2008 9:00 am ET


Tim Goebel - Director, Investor Relations

Adam Metz - Interim CEO

Tom Nolan - Interim President

Ed Hoyt - SVP and Interim CFO

Bob Michaels - COO


Christy McElroy - Banc of America Securities

Jeff Spector - UBS

Lou Taylor - Deutsche Bank

Rich Moore - RBC Capital Markets

Ben Yang - Green Street Advisors

Paul Morgan - FBR

Jeff Donnelly - Wachovia Securities

Michael Bilerman - Citi

Jay Haberman - Goldman Sachs

Steve Sakwa - Merrill Lynch

Fred Taylor - MJX Asset Management

Michael Mueller - JPMorgan

Nate Isbee - Stifel Nicolaus

Evon Cee - Credit Suisse

Ramin Kamali - Credit Suisse

Jeff Miller - JMG Capital



Good day everyone and welcome to today's General Growth Properties' third quarter 2008 Earnings Call. This call is being recorded.

At this time, I would like to turn the call over to Mr. Tim Goebel. Please go ahead, sir.

Tim Goebel

Thank you, Stacy. Please note that this conference call and webcast will contain forward-looking statements, including guidance for 2008 core FFO. Actual results may differ materially from the future operations suggested by these forward-looking statements due to various risks and uncertainties. Please consult documents General Growth Properties Inc. has filed with the SEC, specifically the most recent Forms 10-K and 10-Q for a detailed discussion of these risks and uncertainties. The company disclaims any obligation to update any forward-looking statements.

Additionally, GGP has furnished its quarterly supplemental information packet to the SEC in an 8-K filed this morning and posted the documents on in the Investment section.

During the Q&A, we respectfully request that you limit yourself to a single question with a follow-up and then re-queue if necessary.

Now, I am turning the call over to Adam Metz, our CEO, who will kick things off.

Adam Metz

Thank you, Tim. Good morning, everybody, and thank you for your interest in General Growth. I am here with Tom Nolan, our President; Bob Michaels, our COO; and Ed Hoyt, our CFO. I want to start out and ask for your patience and understanding. Tom and I are not yet 10 days into our new positions.

What I do now is that this is a very good portfolio of assets, operated by an extremely dedicated and talented group of individuals. I also know that we have a significant amount of debt maturities ahead of us and a challenging capital market and what appears to be a rapidly deteriorating retail sales climate.

Let me first say a few words about the credit market. These are the worst credit markets I believe most of us have experienced in our careers. We are currently in a world where even performing assets with strong sponsorship and low loan to values have difficulty refinancing upon loan maturity.

The problem is that the traditional sources of mortgage capital have dried up. CMBS is nonexistent and banks and insurance companies are all stressed to varying degrees. Debt capital is an extraordinarily scarce resource today.

So what are we doing? Our plan is fairly straightforward. Unfortunately in real estate, it is not possible to turn things around immediately. So, you are going to have to bear with us on some of these items.

First, we are trying to reduce our spending and run the business on more of a basis to generate cash. As you know, last month we suspended our dividend. Although we obviously need to meet the minimum payout requirements to retain our REIT status, I do not envision restoring our dividend in the near term. The Board will review this on a periodic basis.

We are drastically reducing our development spending, and have either canceled or postponed projects. As I previously said, most of our development spending in the fourth quarter is already committed. The real impact of our reduction will be felt in 2009. Given the current economic circumstances, this is something we would want to do anyway. We have also been in an ongoing dialogue with our key department stores and tenants, and they are very supportive of this change.

Second, we are reexamining the way we spend money both corporately and at the properties. For example, I anticipate we will reduce the amount of tenant allowances we may give out. Again, because many of our deals are already signed up through '09, it will take some time to feel this impact, but we are changing things here. We also want to be cognizant as we are giving out tenant allowance of the credit quality of our tenant base.

Third, we are going to attempt to negotiate loan extensions where possible. We think this is a practical solution for all parties given the reality of the refinancing market. GGP has historically been a large issuer of CMBS. It is unclear at this time how the traditional process of negotiating extensions with either a bank or insurance company will be altered in the case of CMBS.

Historically, GGP has disclosed very detailed information on each loan, including rate and term. Although we try to be transparent where possible, we balance that against how the public disclosure of information impacts our ability to operate our business effectively.

Going forward in these volatile debt markets, except where specifically required, we do not believe it is in the best interest of the company to make individual loan details available. I liken it to our nondisclosure of lease deals on specific tenant transactions. Obviously, we do not want one tenant to know the terms we gave a competitor and vice versa. We will continue to disclose loan information in the aggregate.

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