General Growth Properties, Inc. (GGP)

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General Growth Properties (GGP)

Q3 2012 Earnings Conference Call

November 1, 2012, 10:00 am ET

Executives

Kevin Barry – Head of IR

Sandeep Lahkmi – CEO

Michael Berman - CFO

Analysts

Alexander Goldfarb – Sandler O'Neill

Ross Nussbaum – UBS

Cedrick Lachance – Green Street Advisors

Rich Moore – RBC Capital Markets

Michael Mueller – JPMorgan

Caitlin Burrows – Goldman Sachs

Michael Bilerman – Citi

Ben Yang – Evercore Partners

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties third 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 and instructions will follow at that time. (Operator Instructions)

As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Mr. Kevin Barry. You may begin.

Kevin Barry

Thank you, (Ashley). Good morning, everyone. Welcome to General Growth Properties third quarter 2012 earnings conference call hosted by Sandeep Lakhmi, Chief Executive Officer and Michael Berman, Chief Financial Officer.

Certain statements made during the call may be 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, November 1, 2012. 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. Sandeep, you may begin.

Sandeep Lahkmi

Thank you, Kevin, and good morning, everyone. Thank you for participating in our call today. At the top of everyone's minds today is the impact hurricane Irene is having along our East Coast. I know I speak for everyone at GGP when I say our thoughts and prayers are with those affected by this storm.

We are very grateful and humbled by the commitments and sacrifices made by the First Responders in the area. Our utmost, highest priority is to ensure the safety of our employees, customers and others involved with our properties in the area.

In preparation for the storm's arrival, we decided to close 19 of our malls in eight states. I, along with other members of the senior team, have been communicating on a daily basis with our teams to ensure safety. As of this morning, all but one of the malls have reopened.

Although we're still assessing property damage, it seems relatively minor and limited to issues of ceiling leaks and damaged landscaping.

I will now provide an overview of our financial and operating results and then turn the call over to Michael to review in more detail our financial results and guidance for the remainder of the year.

Earlier today we reported FSO per share of $0.23 for the third quarter. FSO increased 8.8% from the same period last year and increased over 10% on a year-to-date basis. EBITDA increased 5.1% from the same period last year and 5.8% on a year-to-date basis.

NOI from the regional mall portfolio increased 4% from the same period last year and 4.8% on a year-to-date basis. As we start to get the full-year benefit of the leasing activity and the developments come online, our NOI, EBITDA and FSO will continue to increase in an accelerating manner.

Tenant sales have continued for a positive trend increasing 8.2% from the same time last year to $541 per square foot and our portfolio-wide occupancy cost is 13%.

The Europe mall portfolio's total lease level increased to 95.5%, up 130 basis points from this time last year. The 95.5% lease figure includes 87.3% of permanent occupancy, 5.4% of temp occupancy and 2.8% of leases signed that have not taken occupancy yet. These metrics exclude certain properties, as Mike will explain further in his remarks.

Increasing permanent occupancy is one of the three growth drivers for GGP. Based on our extraordinary leasing achievements to date, we currently expect permanent occupancy to increase at least 200 basis points ending this year at approximately 89%.

It is good to note that we have converted 230 leases comprising 564,000 square feet or approximately 1% of our total G&A from a temp occupancy status to a permanent status. And in the process, rents for those tenants have increased 120%, ie from about $25 a square foot to about $55 a square foot.

Turning to the second driver of our growth, increasing rents, suite to suite rental rates have increased 10.4% over expiring rents for over $4.7 million square feet taking occupancy this year. Keep in mind that these rents are based on gross rent figures that includes base rent, CAM and taxes.

Counting out CAM and taxes to compare rent spreads for base rent only, our suite to suite stats would have been 14.7%.

The third driver of our growth is our $1.6 billion redevelopment and expansion pipeline encompassing 51 regional malls throughout the United States. We have committed approximately 80% of this amount to a number of Class A plus and Class A malls such as (inaudible) and Fashion Show.

(inaudible) 19 malls with redevelopment activities totaling approximately $770 million have commenced. Over 90% of this $770 million number have been committed to A plus and A malls. We currently expect double digit unlevered returns on these (inaudible) investments.

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