General Growth Properties, Inc. (GGP) reported fourth-quarter 2013 funds from operations (FFO) per share of 36 cents, which exceeded the Zacks Consensus Estimate by a penny and the year-ago quarter figure by a nickel. Moreover, the reported FFO per share was higher than the company’s guidance range of 30–32 cents.
The improvement in the quarterly FFO per share was mainly aided by better-than-expected revenue growth, rise in same store net operating income (NOI) and increase in initial rental rates.
Total revenue during the reported quarter increased 2.7% year over year to $681.4 million and also exceeded the Zacks Consensus Estimate of $666 million.
For full-year 2013, General Growth Properties reported FFO per share of $1.16 on revenues of $2.53 billion. Results were higher than the prior-year FFO per share of 98 cents on revenues of $2.47 billion.
Inside the Headlines
As of Dec 31, 2013, General Growth Properties’ malls portfolio leasing level increased 100 basis point year over year to 97.1%. Tenant sales at the malls rose 3.6% year over year to $564 per square foot in the quarter under review.
In addition, initial rental rates for executed leases that started in 2013 (on a suite-to-suite basis) escalated 12.3% year over year to $64.29 per square foot, as compared to the rental rates of expiring leases. Moreover, same store NOI upped 6.2% year over year to $582 million in fourth-quarter 2013.
Portfolio Restructuring Activities in Q4
General Growth Properties bought 2 assets worth $315 million and development land worth $35 million. Additionally, the company divested three malls and reaped proceeds of $134 million.
Moreover, the company has about $2.1 billion of properties under development and redevelopment (of them properties worth $285 million have already been opened).
Liquidity
As of Dec 31, 2013, the company had cash and cash equivalents of $577.3 million compared with $624.8 million as of Dec 30, 2012.
During the fourth quarter, General Growth Properties took property-level debt of $649 million, having a weighted-average interest rate and term-to maturity of 3.76% and 7.5 years, respectively. The previous loans have a weighted-average interest rate of 5.00% and remaining term-to-maturity of 2.3 years. The transactions helped General Growth Properties to garner net proceeds of about $167 million.
2014 Guidance
General Growth Properties provided guidance for first-quarter and full-year 2014. The company expects first-quarter and full-year 2014 FFO per share to be in the range of 29 – 30 cents and $1.27 – $1.31 cents, respectively. Notably, the guidance for first-quarter and full-year 2014 are in line with the Zacks Consensus Estimate of 29 cents and $1.27, respectively.
Our Take
We are encouraged by a better-than-expected quarterly result at General Growth Properties, which came on the back of its improved operational performances. Also, the portfolio restructuring activity bodes well for the company’s long-term growth. Additionally, the same day delivery deal of General Growth Properties is strategic fit given the increasing competition from online retailers.
However, the company’s notable development pipeline, competitive pressure and broader industry concerns restrain us from becoming positive on this Zacks Rank #4 (Sell) stock.
Some better-ranked stocks in the REIT sector include Federal Realty Investment Trust (FRT), American Assets Trust, Inc. (AAT) and Glimcher Realty Trust (GRT). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.
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