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Key Takeaways from General Growth Properties’ 3Q15 Earnings Call

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General Growth Properties conference call

On November 2, 2015, General Growth Properties’ (GGP) management scheduled a conference call to discuss its 3Q15 earnings as well as to provide an outlook for the future. Notably, the company’s FFO per share and revenue beat analyst estimates.

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Space in high demand

General Growth Properties believes that the space in its malls is in high demand. The company stated that it proactively negotiates with certain retailers to either relocate within the mall, downsize, or vacate their space entirely. For example, Love Culture, a retailer in 20 of the company’s malls, generally occupies well-located space in GGP’s mall and has a relatively large store footprint. But the company is taking back space at 15 of its locations in order to replace Love Culture with higher productivity retailers.

Asset sale

GGP is planning to sell a mall on the West Coast for approximately $225 million, equating to a sub-7% cap rate. The mall is over 90% occupied and generates about $350 in sales per foot. The company expects the transaction to close before the end of fiscal 2015.

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Guidance for fiscal 2015

GGP’s FFO for 4Q15 is expected to be in the range of $0.41–$0.43 per diluted share. For fiscal 2015, the company’s FFO is expected to be in the range of $1.42–$1.44 per diluted share. This preliminary FFO for fiscal 2016 is expected to be in the range of $1.51–$1.55 per diluted share.

Michael Berman, CFO of the company, said the company expects “same-store NOI of approximately $615 million, or around 5.5% growth,” adding that GGP expects “EBITDA of approximately $580 million, or growth of around 5.5% to 6%.”

Berman went on to say that the company expects “funds from operations in the range of $385 million to $405 million, representing a growth of approximately 10% per share at the midpoint.”

The iShares US Real Estate ETF (IYR) invests 1.95% of its portfolio in General Growth Properties. Other companies in the retail REIT industry, such as Taubman Centers (TCO), CBL & Associates (CBL), and Pennsylvania Real Estate Investment Trust (PEI), released their 3Q15 earnings in the final week of October.

In the next and final part of this series, we’ll discuss the valuation of General Growth Properties.

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