General Growth Properties, Inc. (GGP)

GGP 
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Industry: Consumer Services
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General Growth Properties, Inc (GGP)

Q3 2013 Earnings Call

October 29, 2013 10:00 am ET

Executives

Kevin Berry - Vice President of Investor Relations

Sandeep Lakhmi Mathrani - Chief Executive Officer and Director

Michael B. Berman - Chief Financial Officer and Executive Vice President

Analysts

Daniel Oppenheim - Crédit Suisse AG, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Joshua Patinkin

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Benjamin Yang - Evercore Partners Inc., Research Division

Caitlin Burrows - Goldman Sachs Group Inc., Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Samit Parikh - ISI Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties Third Quarter 2013 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Kevin Berry. Sir, you may begin.

Kevin Berry

Thank you, Mary. Good morning, everyone. Welcome to the General Growth Properties' third quarter of 2013 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 reports filed with the SEC for a more detailed discussion. Statements made during this call may include time-sensitive information accurate only as of today, October 29, 2013. We will discuss certain non-GAAP financial measures and have provided a reconciliation of each measure to its comparable GAAP measures. Reconciliations are included in our earnings release and supplemental information package was filed with the SEC and available on our website. It's my pleasure to turn the call over to Sandeep and Mike.

Sandeep Lakhmi Mathrani

Thank you, Kevin. Good morning, everyone, and thank you for joining our conference call. I'll begin with an overview of our financial and operating results for the quarter, a discussion of our development initiatives throughout the portfolio and perspectives on the retail property sector. Michael will provide more detail on our results and guidance for the remainder of the year. Yesterday evening, we reported FFO per share of $0.29 for the third quarter, 26% higher than last year and above our guidance range. Same-store net operating income increased 6.8% driven primarily of higher permanent occupancy, in-place rents and managing operating expenses i.e. from the business. Overall, company NOI increased 5% after taking into account acquisition and disposition activity during the period. And EBITDA grew 4.4% quarter-over-quarter.

Year-to-date, FFO per share is 19% higher than last year. Same-store NOI is up 5.9%. Overall company NOI is up 5.1%. And EBITDA is up 4.5%. The financial performance to-date and outlook for the remainder of the year leads us to increase the quarterly dividend of $0.01 to $0.14 per share. The fourth quarter dividend is up 27% from last year's fourth quarter.

Turning to growth. We are very focused on the core sources of long-term growth for this company, increasing permanent occupancy, achieving positive rental spreads and creating value from our development initiatives. The growing permanent occupancy and reletting space at higher rents are the main sources of growth for next year as the portfolio reaches stabilized occupancy. Our reported occupancy of 94.6% at quarter-end includes permanent occupancy of 90.1%, which has increased over 2% from this time last year, when it was 88%. We're on track to approach 92% by year-end and over 93% by end of 2014. Through October, approximately 65% of the incremental leasing towards next year's permanent occupancy goal has been complete.

The next key component of growth is achieving positive rent spreads. On a suite-to-suite basis, the initial gross rent's on 4.6 million square feet taking occupancy this year by 12% higher than expiring rent on the same-suite basis. Excluding camp and tax charges from the gross rents results in 17% to 18% net suite-to-suite rental spreads. As you can see in our supplemental disclosure, rent spreads for 2014 suite-to-suite commencements are about 11.5%. There is an additional 1 million square feet not included in the disclosure since those are leases approved, but not signed. If included, the spreads on gross rents are about 13%. Once again, we report on gross spreads. We're obviously not finished with leasing for 2014 and expect gross rent spreads to moderate to approximately 8% to 10%.

The third primary source of GDP's growth is the value creation from our development initiatives. Overall, the total project cost is about $2 billion with returns of 9% to 11% upon stabilization. We currently have approximately $1.3 billion of development projects in process, all complete including the following: the successful opening earlier this year of 90,000 square feet of additional in-line retail space and the Macy's Men's store at Fashion Show Mall in Las Vegas. This represents the true value creation exercise as it replaced a vacant anchor to previously Robinsons-May department store; an extensive reconfiguration and retenanting of the outdoor plaza area at Northridge Fashion Center in California, bringing a new element of dining and shopping to the mall is complete; the grand opening of Boscov's department store at Woodbridge Center, occupying a once-vacant anchor, i.e. a portion of department store is complete; the near completion next month of our flagship redevelopment, the complete interior, exterior redevelopment and renovation of Glendale Galleria in Los Angeles, California capped with the opening of a new Bloomingdales in the long vacant Mervyn's department store box. The Bloomingdales is scheduled to open on November 6. The major expansion and renovation of Ala Moana Center, our most productive asset, which will soon be home to Bloomingdales and many new tenants, is under construction. The expansion of Macy's and future openings of Nordstrom's at Ridgedale Center in the Minneapolis market is under construction, and the future opening of Nordstrom's at Mayfair Mall. In addition, approximately $750 million of projects are in the pipeline and include the exterior renovation and expansion of Staten Island Mall in New York, the expansion of Baybrook Mall near Houston, the extensive redeveloping and rebranding of Southwest Plaza in Denver and the planned ground-up development in Fairfield County, Connecticut, which we envision will be a highly productive retail center anchored by 2 department stores. Our development strategy varies by assets. But overall, our goal is to strengthen malls within its marketplace, fortified from sources of future competition and generate very attractive risk-adjusted returns of 9% to 11% on assets we already own and know very well.

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