General Growth Properties, Inc. (GGP)

GGP 
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General Growth Properties, Inc (GGP)

Q4 2013 Earnings Call

February 04, 2014 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

Joshua Patinkin

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

Ki Bin Kim - Macquarie Research

Vincent Chao - Deutsche Bank AG, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Christy McElroy - Citigroup Inc, Research Division

Andrew Schaffer

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Caitlin Burrows - Goldman Sachs Group Inc., Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to Kevin Berry. Sir, you may begin.

Kevin Berry

Thank you, Shanna. Good morning, everyone, and welcome to General Growth Properties' Fourth Quarter 2013 Earnings Call hosted by Sandeep Mathrani, our Chief Executive Officer; and Michael Berman, our Chief Financial Officer.

Certain statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. Please reference our earnings press release and SEC filings for a more detailed discussion. Statements made during this call may include time-sensitive information, accurate only as of today, February 4, 2014. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed and Form 8-K with the SEC and available on our website. It's my pleasure to now turn the call over to Sandeep and Michael.

Sandeep Lakhmi Mathrani

Thank you, Kevin. Good morning, everyone. I'd like to wish everyone a very Happy New Year. I'd like to note the passing of Matthew Bucksbaum on November 24. Matthew was a true innovator of the shopping center and mall industry in this country. With his gutter Martin[indiscernible], he transformed the family-owned grocery store company in Iowa into General Growth Properties. Matthew was a visionary, a respected leader, philanthropist and a friend to many. Matthew was known for his business acumen and unwavering focus on integrity, hard work and respect for others. Matthew's qualities have a foundation of the core values we live by today, high-performance, having the right attitude, doing the right thing, working together and owning it. On behalf of my colleagues here at GGP, we extend our sincere condolences to the Bucksbaum family.

Now turning to our results. Last night, we reported [indiscernible] earnings per share of $0.36 for the fourth quarter, representing a 17% increase over last year, and at the high end of our guidance range. Same-store NOI increased 6.2% when compared to the fourth quarter last year. FFO per share was $1.16 for the year, representing an 18% increase over the last year. These results meet the initial expectations for the year by over $50 million, even with the sales of Aliansce and Grand Canal and Palazzo. Same-store NOI increased 6% when compared to the last year. Our earnings guidance for 2014 is $1.27 to $1.31 per share and is based on a 4% to 4.5% same-store NOI growth and a 4-plus percent EBITDA growth. Guidance represents about 11% FFO per share growth over last year.

In addition, we expect FFO per share of $0.29 to $0.30 in the first quarter, about 18% higher than the first quarter of last year. The mall portfolio boosted occupancy of 96.4% as compared to 94.9% last year and over 97% leased.

Within the occupancy figure is 92% permanent occupancy. We expect permanent occupancy to reach 93% by year end. It is good to note that to date we've completed over 70% of the leasing required to achieve our 2014 goal. Suite-to-suite lease spreads for 2013 commencements were 12% higher than expiring rents. 2014 commencements for leases down to date are 10% higher than expiring rents. This spread will likely adjust as we continue signing leases for 2014, which should settle between the 8% and 10% above expiring rents.

I'd like to provide some commentary on overall retail trends and expectations and discuss the trends we're seeing in our portfolio. As you know, there have been numerous reports about e-commerce and related traffic declines. I'd like to address the impact of e-commerce have had on the industry, noting that its impact has been positive and negative. First, let me reiterate. Retail sales were up 2.2% this year and our portfolio reported a 3.6% increase. The current level of retail spending is generally at a very healthy level, over 20% above the previous peak reached in 2007. Previous peak sales per square foot were $463 per square foot in the GGP portfolio, and we ended 2013 at $564 per square foot. [Indiscernible] before e-commerce was born, sales that were not conducted at the store were generally made through the catalog and direct mail. In that year, catalog and direct mail accounted for about 10% of total sales. In 2013, e-commerce accounted for less than 9% of total sales. The initial reaction when hearing that growth in e-commerce is that it must be at the expense of the store. Not entirely true. The growth in e-commerce is primarily coming at the expense of sales that were previously made to the catalog and direct mail. I'd like you to note that 83% of e-commerce sales represent that of catalog and direct mail sales in 1995.

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