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General Growth Properties beats expectations and takes up guidance

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Apr. 30 2014, Published 12:29 p.m. ET

General Growth Properties reports a sequential drop in funds from operations

General Growth Properties (GGP) reported that funds from operations decreased from 36 cents a share to 31 cents last quarter. The Street was expecting FFO of just under 31 cents a share, so it did beat the numbers. On a year-over-year basis, funds from operations increased from 25 cents to 31 cents, a 21% increase. Company funds from operations increased 15.8%, to $292 million, from $253 million in the prior year’s first quarter. Company earnings before interest, taxes, depreciation, and amortization (commonly referred to as “EBITDA”) increased 4.1%, to $501 million from $481 million in the prior year’s Q1.

Comparable net operating income (same-store NOI) per store increased 5.7%, to $534 million from $505 million the year before. Same-store NOI is a good way to measure organic growth. Finally, net income came in at 13 cents a share versus as loss of 1 cent a share a year ago.

Balance sheet activities

During the quarter, General Growth Properties acquired 27.6 million shares from Pershing Square Capital Management for $20.12 a share. They also rolled over $685 million in property-level debt and lowered the interest rate from 4.7% to 4.37%. The term was extended from 1.9 years to 8.5 years.

Guidance for next year

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General Growth issued guidance for the second quarter of 2014 and raised guidance for the full year. For the second quarter, the company expects to generate funds from operations of $0.29 to $0.31 per share. For the full year, GGP expects funds from operations to be between $1.30 and $1.32 a share. At the end of the year, the company was guiding $1.27 to $1.31 FFO for the year, so this is an increase. It did not change their prior guidance on EBITDA or same-store NOI.

At the end of the fourth quarter, General Growth Properties was telling analysts to expect same-store net operating income growth rate of 4% to 4.5%. EBITDA growth is expected to be about 4%. Same-store NOI grew at 6% last year, so the company is expecting a moderation in retail sales. A moderation in retail sales would also affect retail REITs like Simon Property Group (SPG), Kimco Realty (KIM), and Realty Income Fund (O). Investors who want to invest in the REIT sector as a whole should look at the Vanguard REIT ETF (VNQ).

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