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General Growth Properties Inc. (GGP)

Q1 FY08 Earnings Call

April 30, 2008, 09:00 AM ET


Timothy Goebel - Director of IR

John Bucksbaum - Chairman and CEO

Robert A. Michaels - President and COO

Bernard Freibaum - EVP and CFO


Lou Taylor - Deutsche Bank

Jay Habermann - Goldman Sachs

Michael Bilerman - Citi

Paul Morgan - FBR

Michael Gorman - Credit Suisse

Michael Mueller - J.P. Morgan

Louis Taylor - Deutsche Bank Securities

David Toti - Lehman Brothers

Christy McElroy - Banc of America

Nathan Isbee - Stifel Nicolaus

Ben Yang - Green Street Advisors

Tom - Goldman Sachs

Jeffrey Spector - UBS

David Harris - Lehman Brothers

Richard Moore - RBC Capital Markets

Ambika Goel - Citi



Good day, everyone, and welcome to today's General Growth Properties first quarter conference call. As a reminder, today's call is being recorded. With us today are John Bucksbaum, Chairman and CEO; Bob Michaels, President and COO; and Bernie Freibaum, CFO. At this time for opening remarks, I would like to turn the call over to Mr. Tim Goebel, Director of Investor Relations. Please go ahead, sir.

Timothy Goebel - Director of Investor Relations

Thank you, Stacey. 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. GGP has furnished its quarterly supplemental information to the SEC and an 8-K filed yesterday as well as posted it to our website,

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

John Bucksbaum - Chairman and Chief Executive Officer

Thank you, Tim. Good morning, everyone. This is John Bucksbaum, and thank you for joining us. Also with me this morning are Bob Michaels and Bernie Freibaum.

During the first quarter, we produced core funds from operations of $0.76 per fully diluted share. Core FFO for the quarter increased approximately 18% versus first quarter 2007. The quarter was highlighted by comparable NOI gain in our consolidated properties of 5.1%, while unconsolidated properties increased by 7.3%, giving the overall portfolio a 5.4% gain. Occupancy for the quarter was 92.7% versus 92.9% in the first quarter of 2007.

According to a recent survey by Marcus & Millichap, retail vacancy is expected to increase by only 50 basis points on a national average in 2008. This is a powerful endorsement of the strength of retail real estate. Last quarter, I spoke to you about historical periods of slowing retail sales that have not necessarily translated into a marked increase in store closings. Most retailers today are in better financial shape with stronger balance sheets than retailers in years past. While it is true that we saw a slight increase in closings due to bankruptcies during the quarter, a fraction of 1% of our mall shop square footage. It is important to note that those closings had good locations and strong properties, making re-leasing an attractive alternative for GGP.

During the quarter, we signed leases totaling approximately 1.6 million square feet of space. The majority of these leases will commence in 2008. We also opened 317 stores during the quarter. This shows that despite the softening retail environment, retailers are continuing to expand. Another good indicator that retailers are continuing to look for good productive locations is evidenced by the 124 portfolio review meetings we held throughout the first quarter, an average of more than two per day.

Total sales per square foot increased to $460 versus $459 a year ago. Comparable sales increased nine-tenths of 1%. 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 $648 versus $635 at year end. Not only do these 50 centers produce tremendous sales per square foot, but they also represent approximately 50% of our total mall NOI. This is one more example of the quality of our portfolio, and quality will be more important than ever as we move forward in 2008.

There is no question the world we operate in has changed dramatically from last year. The credit markets we have known are either not available or have changed considerably. The strong employment environment we have enjoyed during the last three years is weakening. Consumer confidence is down and sales have softened. Is this reason to set off the alarms and abandon the ship? Of course, not. But it is reason to draw upon our experience and our approach to business, which allows us to continue to grow and operate as a consistent, stable and profitable company.

We are a blue-chip company and blue-chip companies are renowned for quality and the wide acceptance of their products and services. Most notably, blue-chips consistently make money and pay increased dividends year-after-year. This continues to be who we are. We have always had plans at GGP to guide us. Whether it is to build a building, lease the building or finance a building, our plan is always to do what is right. We continue to make the right decisions as we move forward.

Over the last 54 years, we have implemented different plans during different cycles. This is no different. Everyone at GGP is focused on executing the current operating, development and financing plans in the most efficient, realistic and profitable manner. I've often used four words to describe our approach to the future, words that come from our past: boldness, excellence, innovation, and passion.

Boldness ruled the day and led to the expansion of this company. Excellence is what we expect from ourselves. Innovation is what continues to allow us to excel and to keep growing. And passion is why we have been successful for all these years -- passion for the business, passion for the promise of the future, passion for continuing to be the best.

You'll find that in an environment of increasing difficulty, the company with the best properties, the best talent and the best plan will be the most successful. We expect a lot from ourselves and I know you expect a lot from us as well. I remain very enthusiastic about our business. The world we live in, as I said, has changed dramatically from just nine months ago. We recognize this change and we are adapting to it. Do we expect it to be easy? No. Do we expect to be successful at it? Yes.

This company is blessed with great properties and great people. Certain external challenges do exist, but I promise you, just as we have done in the past, we will meet every challenge within our reach. I would now like to turn the call over to Bob Michaels to discuss past, present and future performance in the areas of asset management.

Robert A. Michaels - President and Chief Operating Officer

Thank you, John. In the first quarter, our sales were up slightly, but basically even with those last year. So much has been published over the last three to six months about retail sales that to now see that April sales are apparently going to be somewhat better is a breath of fresh air. The flat sales of the first quarter can be attributed to the slowing economy. However, both weather and the calendar also played a part, the way retailers report their sales.

In 2007, there was one extra week in the retail calendar versus the number of weeks in 2008, which had the effect of one less week in 2008. Despite the flat sales numbers, we and the retailers remain cautiously optimistic that sales will pick up as we get to the third and fourth quarters of this year. We believe that the economic stimulus checks which are now being received, the continued low interest rates, the pent-up demand for fall fashions, and the fact that this is an election year will all have a positive impact on sales later this year, and that we will see higher positive sales comparisons in the third and fourth quarters.

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