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GGP Inc.—A Growth Story amid Struggling Retail REITs

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How are US malls meeting competition with e-commerce?

Amid the widespread belief that US malls are almost dead as they cannot catch up with the growing preference for e-commerce, malls are slowly but steadily transforming themselves and adapting to consumers’ changing needs. Redevelopment projects and leasing vacant spaces for non-retail uses are helping malls generate revenues.

The chart below shows the performance of General Growth Properties (GGP) in terms of FFO (funds from operations) per share from 2012–2019.

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GGP: A retail REIT with bright prospects

One such mall owner is General Growth Properties (GGP), which has been able to maintain its earnings streak in recent years. During 2017, GGP’s management expects its FFO to range from $1.56–$1.60, up 2%–4.5% from its 2017 FFO of $1.53. Analysts expect its FFO to range from $1.53–$1.57. Its FFO is expected to rise 6% and 12% for 2018 and 2019, respectively.

For the ongoing second quarter of 2017, GGP’s management expects its FFO to range from $0.34–$0.36. Analysts expect its FFO to stand in the range of $0.33–$0.35.

Although analysts estimate its FFO to dip 2.2% in 2Q17, its FFO is expected to rise 6.0%, 1.3%, and 5.0% in 3Q17, 4Q17, and 1Q18, respectively.

Strong business momentum

After reporting a miss of 1.4% in 2012, the mall owner has set itself on a growth trajectory and has reported higher-than-expected funds from operations for the last four years since 2013.

Apart from beating estimates, GGP’s FFO also exhibited year-over-year gains. After falling 8.9% in 2012, the company reported growth of 61.1%, 13.8%, 9.1%, and 6.3% in the trailing four years, respectively.

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A soft start to 2017

General Growth Properties (GGP) reported its 1Q17 earnings per share (or EPS) of $0.11 on April 26, 2017, missing its consensus estimate by nearly 14%. Its earnings also failed to meet its 1Q16 mark of $0.20.

GGP’s adjusted FFO came in at $0.36, higher than the consensus estimate of 0.5%. Its FFO, however, missed its 1Q16 results of $0.40 during the quarter. Lower margins and revenues mostly resulted in the downswing of profits during the quarter.

Stock price impact

Investors were encouraged by the earnings results as well as the guidance provided by GGP, and its stock rallied after the earnings conference call. Although it opened at $21.37, its stock spiked to $23.07 on the day. Eventually, the stock closed at $22.61, gaining 4.6% over the previous day’s closing price.

For fiscal 2016, General Growth Properties reported FFO of $1.53 per share. Among its close competitors, Simon Property Group (SPG), DDR Inc. (DDR), Macerich (MAC), and Kimco Realty (KIM) reported FFO of $10.50, $1.27, $4.08, and $1.32, respectively.

General Growth Properties (GGP) forms ~1.5% of the Vanguard REIT ETF (VNQ).

In the next article, we’ll look at the company’s recent performance.

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