General Growth Properties, Inc. (GGP)

GGP 
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General Growth Properties (GGP)

Q4 2012 Earnings Call

February 5, 2013 9:00 am ET

Executives

Sandeep Mathrani – Chief Executive Officer

Michael Berman – Chief Financial Officer

Kevin Berry – Vice President, Investor Relations

Analysts

Christy McElroy – UBS

Steve Sakwa – ISI Group

Quentin Velleley – Citigroup

Michael Bilerman – Citigroup

Alexander Goldfarb – Sandler O’Neill

Mike Mueller – JP Morgan

Cedrik LaChance – Green Street Advisors

David Harris – Imperial Capital

Rich Moore – RBC Capital Markets

Presentation

Operator

Good day ladies and gentlemen and welcome to the General Growth Properties Fourth Quarter 2012 Earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session with instructions to follow at that time. Should anyone require operator assistance on the call, you may press star and then zero on your touchtone telephone. As a reminder, this conference is being recorded.

I would now like to turn the call over to your host for today, Mr. Kevin Berry. Sir, you may begin.

Kevin Berry

Good morning everyone. Welcome to General Growth Properties’ Fourth Quarter 2012 Earnings conference call, hosted by Sandeep Mathrani, Chief Executive Officer, and Michael Berman, Chief Financial Officer

Certain statements made during the call may be deemed forward-looking statements and actual results may differ materially from those indicated due to a variety of risks, uncertainties, and other factors. Please refer to our report filed with the SEC for a more detailed discussion. Statements made during this call may include time-sensitive information accurate only as of today, February 5, 2013.

We will discuss certain non-GAAP financial measures and have provided a reconciliation of each measure to its comparable GAAP measure. Reconciliations are included in our earnings release and supplemental information package, both filed with the SEC and available on our website.

It’s my pleasure to turn the call over to Sandeep and Michael.

Sandeep Mathrani

Thank you Kevin, and good morning everyone. I’ll begin with an overview of our financial and operating results, recent activities, and then turn the call over to Michael to review in more detail our financial results and earnings guidance for 2013.

Yesterday we reported FFO per share of $0.31 for the fourth quarter and $0.99 for the year. Total FFO increased about 23% quarter-over-quarter and about 14% year-over-year. These results were driven by strong increases NOI of about 6% for the quarter and slightly better than 5% for the year. We’re obviously very pleased with our results as they surpassed our previously issued earnings guidance and represent an important measure of the progress we’ve made over the last couple of years. We also announced an increase in our quarterly dividend to $0.12, representing a 9% increase.

Our operating metrics continued to post strong results. The portfolio was slightly over 96% leased as of year-end compared to 95.7 last year. However, the level of permanent occupancy increased over 200 basis points from 87.5% to 89.6% during the same period. Part of this increase was driven by converting 640,000 square feet from temp to perm – that’s about 1.25%. The portfolio’s temp occupancy was 5.3% at year-end and signed not opened at 1.2%. Tenant sales were $545 a square foot, an increase of 6.6% from the last year, equating to an occupancy cost across the portfolio of 13.2%, a level considered relatively low for a portfolio of this quality. We expect tenant sales to continue growing, albeit at a more normalized rate as we’ve passed the peak reached several years ago.

Turning to our big box activity, we had a very successful year, closing on 47 leases comprising approximately 1.6 million square feet. In terms of occupancy, about 400,000 square feet commenced last year. Almost 700,000 will commence in 2013, and the remaining 500,000 in 2014. Within the portfolio, we currently have 15 vacant boxes, three of which have executed leases included in the figures above, two are committed, and 10 are uncommitted. So said differently, we started 2011 with 57 vacant boxes; we have 10 left.

On the department store side, we closed on 14 leases comprising approximately 2 million square feet, taking occupancy through 2014 with names including Von Maur, Macy’s, Bloomingdale’s, (inaudible), and our recent announcements with Nordstrom’s opening at Richdale in Minneapolis, the Woodlands in Houston, and Mayfair in Milwaukee. Within the portfolio are 15 vacant anchors, six of which are executed and included in the figures just provided, three are committed, and six are uncommitted.

In tandem with our redevelopment efforts, the step-up in anchor quality at our malls is just one of the key drivers of boosting the overall mall quality and in turn optimizing the value of each property within the portfolio. During the last two years for GGP, the team has accomplished extraordinary results, especially in terms of leasing volume and rental rates, property sales and debt refinancing. A little over one year ago at our inaugural investor day conference, we set forth a number of goals for our company, which I’ll recap. We estimated for 2012 permanent occupancy would be 88%. We’re now over 89%. In addition, I want to highlight that 70% of our leasing goal for 2013 has been reached, and we hope the portfolio will stabilize close to 92% in 2013. We announced 1.6 billion five-year redevelopment strategy and have commenced over 900 million to date Most of the projects include existing space, making it difficult to accurately show percentage leased. Projects that add new square footage, except Ala Moana, are 75% preleased prior to construction start.

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