General Growth Properties, Inc. (GGP) reported second-quarter 2014 FFO per share of 31 cents, which came in line with the Zacks Consensus Estimate but improved from the year-ago quarter figure by 4 cents. Moreover, the reported FFO per share was at the higher end of the company’s guidance range of 29–31 cents.
The improvement in the quarterly FFO per share was mainly backed by an increase in initial rental rates and a rise in same store net operating income (NOI).
Total revenue during the reported quarter increased 3.0% year over year to $617.6 million and comfortably exceeded the Zacks Consensus Estimate of $614 million.
Quarter in Details
As of Jun 30, 2014, same-store malls leasing level increased 60 basis points year over year to 96.5%. In addition, initial rental rates for executed leases that started in 2014 (on a suite-to-suite basis) escalated 14.4% year over year to $62.93 per square foot, as compared to the rental rates of expiring leases. Moreover, same store NOI increased 5.0% year over year to $537 million.
In the quarter under review, General Growth Properties bought a 50% stake in 685 5th Avenue in New York City for $521 million (of which the company’s share is $260.5 million). Also, General Growth Properties divested Fallbrook Center for $210 million and reaped net proceeds of around $103 million, after repayment of associated mortgage debt and closing costs.
As of Jun 30, 2014, General Growth Properties had about $2.2 billion of properties under development and redevelopment (of the total property, worth $1.1 billion is under construction and $326 million has already been opened).
The company’s cash and cash equivalents as of Jun 30, 2014 were $242.0 million compared with $403.1 million as of Mar 31, 2014.
Guidance
General Growth Properties expressed comfort in its previously guided range for full-year FFO per share of $1.30 to $1.32. The company provided guidance for third-quarter 2014 FFO per share and expects it in the range of 30–32 cents.
Notably, the Zacks Consensus Estimate for third-quarter and 2014 of 32 cents and $1.32, respectively, falls within the company’s guided ranges for the same.
Our Take
The year over year uptick in the second quarter results at General Growth Properties encourage us and we expect this trend to continue given its improving operational efficiencies. Also, the portfolio restructuring activity bodes well for long-term growth of the company, which aims at owning high-quality retail properties across prosperous locations in the U.S.
General Growth Properties has a Zacks Rank #2 (Buy). Other stocks worth considering in the REIT sector include Acadia Realty Trust (AKR), DDR Corp. (DDR) and Realty Income Corporation (O). All these stocks have same rank as General Growth Properties.
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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