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General Growth Properties, Inc. (GGP)

Q4 FY07 Earnings Call

February 12, 2008, 9:00 AM ET

Executives

Timothy Goebel - Director, IR

John Bucksbaum - Chairman and CEO

Robert A. Michaels - President and COO

Bernard Freibaum - EVP and CFO

Analysts

Louis Taylor - Deutsche Bank

Jay Habermann - Goldman Sachs

Craig Schmidt - Merrill Lynch & Co.

Benjamin Yang - Green Street Advisors

Ambika Goel - Citigroup

Michael Bilerman - Citigroup

Michael Mueller - J.P. Morgan

David Harris - Lehman Brothers

David Fick - Stifel Nicolaus

Jeffrey Donnelly - Wachovia Securities

Christine McElroy - Banc of America Securities

Jeffrey Spector - UBS

Frederick Taylor - MJX Asset Management

Michael Dimler - UBS

Rich Moore - RBC Capital Market

Presentation

Operator

Good day everyone and welcome to the General Growth Properties' Fourth Quarter 2007 Earnings Conference Call. Today's call is being recorded. With us today from the company is the Chairman and Chief Executive Officer, Mr. John Bucksbaum; the Chief Financial Officer, Mr. Bernie Freibaum; and the President and Chief Operations Officer, Mr. Bob Michaels.

At this time for opening remarks, I would like to turn the call over to the Director of Investor Relations, Mr. Tim Goebel. Please go ahead sir.

Timothy Goebel - Director, Investor Relations

Thank you. 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 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. GGP has furnished its quarterly supplemental information to the SEC in 8-K filed yesterday, as well as posted it to our website, ggp.com. During the Q&A, we respectfully request that you limit yourself to two questions or one with a follow-up.

With that, I will turn the call over to John Bucksbaum, our CEO.

John Bucksbaum - Chairman and Chief Executive Officer

Thanks Tim. Good morning everyone and thank you all for joining us. Also with me this morning are Bob Michaels and Bernie Freibaum. During the fourth quarter, we produced core funds from operations of $0.92 per fully diluted share. As we previously reported in the fourth quarter, the company recognized non-recurring litigation provision. Excluding this non-recurring item, core FFO for the fourth quarter increased approximately 11%.

For the full year 2007, core FFO per fully diluted share was $2.97. Again, excluding the non-recurring charge, core FFO increased approximately 11% for the full year as well. Our quarter retail real-estate business delivered very solid operational results in 2007. The quarter was highlighted by comparable NOI gain in our consolidated properties of 5.9%, while unconsolidated properties increased by 5.3%. In aggregate, GGP comparable centers produced a very strong 5.1% overall NOI growth for the full year 2007.

Occupancy ended the year at an all-time record high of 93.8%. This marks four consecutive years of record setting occupancy. Total sales per square foot increased to $462 versus year-end sales of $453 in 2006. Total sales in all malls increased by 4.3%. Indicative of the strength within our portfolio is the performance of our 50 most productive United States Centers. These properties generated average sales per square foot of $635 in 2007. Not only did these 50 centers produce tremendous sales per square foot, but they also represented approximately 50% of our total mall NOI, which is just one more example of the quality of our portfolio and quality will be very important, more important than ever as we move forward in 2008.

During the quarter, we signed leases totaling approximately 2.5million square feet of space. For the year, we completed new and renewal leases involving approximately 8.8 million square feet. The majority of these lease signings will be reflected in 2008 store openings.

During the past quarter, we also opened over 315 stores which shows that despite the softening in retail environment, retailers are continuing to expand. It's my belief that slowing retail sales won't necessarily translate into an increase in mall retail bankruptcies during 2008. Retailers today are in a far better financial shape than any years past. The reasons for this includes consolidation, greater expense control, enhanced inventory management, greater operating margins and stronger balance sheets. It's also important to note that those retailers that have announced our closings tend to have very good locations and various strong properties, making releasing an attractive alternative for GGP.

Also, the economics associated with these terminations... lease terminations, are very favorable given the healthy financial conditions of the retailers. If one looks at past recessionary periods, please don't interpret this remark as my opinion that we are in a recession. So, you would see that our operating performance either remains constant or did not suffer appreciably. It was generally agreed that from 1990 to 1992 with the collapse of junk bonds and the credit crunch in the United States, that we were experiencing a recession. While there was not two consecutive quarters of declining GDP and therefore it was not deemed in official recession from its statistical perspective. The general consensus was that it was a recession. During this three-year period, 1990 through 1992 our occupancy actually increased as the comparable sales.

From 2001 through 2003, well again it's not officially a recession, it's certainly was a very difficult period as we endured the collapse of the dot com bubble, September 11th and corporate accounting scandals throughout all industries. The confluence of these events produced a contraction in the North American economy that brought fear and uncertainty to investors, financial institutions and the consumer. But once again, during this period GGP experienced three consecutive years of 91% or greater occupancy and comparable sales decreased shift slightly by approximately 0.7% during this time.

We're not trying to be pollyannish about our present economy, pioneers are as concerned as anyone as we face an abundance of issues, arguably some of the toughest we as a company designation have ever encountered. But if history is any indicator, I feel it is important to stress how predictable and stable our sales, occupancy and retail operating cash flows have been.

The primary reason for this is because we always had an operating plan and today is no different. Difficult times require difficult decisions, and we're not afraid to make them. Bob will share more details regarding this approach to asset management while Bernie will be giving you an update regarding our financial plans.

We are evaluating all departments of GGP, whether it is asset management, development, accounting, finance or legal. We'll delay the commencement of a number of redevelopments. We're exploring the disposition of certain properties. We're redrafting our leases to be more efficient. We've restructured our central marketing efforts to better relay to today's changing consumer. We continued to reduce energy demands within our centers, thus saving money that goes straight to the bottom line. We're working with local and state governments to create public and private partnerships. We are continuing to develop new malls in Brazil and Turkey, where the markets are robust. In fact, the equity we've invested in Brazil has more than tripled in value. Our specialty leasing remains strong.

There is big demand for lease space on a temporary basis, as space becomes available due to store closings. We continue to analyze department storage space for remerchandising opportunities. We now determine the best use for the property as apposed to only thinking of the best retail use as we've done in the past. Our plan is to always do what is right. We will make the right decisions as we move forward. Over the last 54 years, we have implemented different plans during different cycles. Everyone at GGP is focused on executing the current operating plan in the most efficient, realistic and profitable manner.

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