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General Growth Properties’ Stock: Fairly Valued after 3Q15 Results?

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GGP’s Valuation

On a price-to-FFO multiple basis, most of the major retail REITs (real estate investment trusts) trade in the range of 15.4x–25.5x. As of November 2, 2015, shares of General Growth Properties (GGP) are trading at a price-to-FFO (funds for operations) multiple of 20.9x. By comparison, the average price-to-FFO multiple for retail REITs is 15.1x.

General Growth Properties’ higher than industry average price-to-FFO multiple can be attributed to its high-quality assets and future growth potential. However, the company’s decline in revenues during 3Q15 is still a major concern. In addition, stiff competition from other retail mall operators and online retailers may pose a challenge to company’s rapid growth moving forward.

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Other major retail REITs like Simon Property Group (SPG) and Taubman Centers (TCO) are trading at a price-to-FFO multiples of 20.3x and 25.7x, respectively. On the other hand, CBL & Associates Properties (CBL) and WP Glimcher (WPG) are trading at low price-to-FFO multiples of 5.7x and 6.8x, respectively. The iShares US Real Estate ETF (IYR) invests 1.95% of its portfolio in General Growth Properties.

Analyst recommendations

On November 3, General Growth Properties’ stock closed at $28.7. As of that date, the company had an average consensus price target of $32.93. At this price, the company’s stock is trading at a discount of 10.3% to analyst expectations. Below is a breakdown of the 17 analysts following the company’s stock:

  • 14 analysts assigned a “buy” rating.
  • No analysts gave a “sell” rating.
  • 3 brokerages assigned a “hold” rating.

It must be noted, however, that the analyst consensus rating for the General Growth Properties stock was “hold” before the release of its 3Q15 earnings. It remains to be seen whether analysts change their price target on the stock in view of the latest data.

Following its 3Q15, a number of brokerage houses came out with a research report on General Growth Properties. In a research report released on September 25, BMO Capital upgraded its rating of General Growth Properties from “market perform” to “outperform.” Earlier, S&P Equity Research reaffirmed a “buy” rating on the company’s stock, with a target price of $33.

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