General Growth Properties, Inc. (GGP) reported third-quarter 2014 FFO per share of 33 cents, which exceeded the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 4 cents. Moreover, the reported FFO per share was above the company’s guidance range of 30–32 cents for the quarter.
The improvement in the quarterly FFO per share was mainly aided by an increase in initial rental rates and rise in same store net operating income (NOI).
Total revenue during the reported quarter increased 4.2% year over year to $631.8 million and comfortably exceeded the Zacks Consensus Estimate of $616 million.
Quarter in Details
As of Sep 30, 2014, same-store malls leasing level increased 20 basis points year over year to 96.8%. In addition, initial rental rates for executed leases that started in 2014 (on a suite-to-suite basis) escalated 17.6% year over year to $62.44 per square foot, as compared to the rental rates of expiring leases. Moreover, same store NOI increased 5.4% year over year to $548 million.
During the quarter under review, General Growth Properties bought a 12.5% stake in Miami Design District (Miami, FL) and 40% interest in The Shops at the Bravern (Bellevue, WA) for net equity at share of $175.0 million and $66.6 million, respectively. Additionally, General Growth Properties acquired a 10% interest in 522 Fifth Avenue (New York City) for $8.3 million.
On the other hand, General Growth Properties divested a medical office building and a strip center and reaped net proceeds of $40.3 million from it. Moreover, subsequent to the end of third-quarter, the company completed the buyout of 50% stake in 530 Fifth Avenue (New York City) for net equity at share of $49.0 million.
As of Sep 30, 2014, the company had about $2.3 billion of properties under development and redevelopment (of the total property, worth $1.1 billion is under construction and $394 million has already been opened).
The company’s cash and cash equivalents as of Sep 30, 2014 were $279.6 million, up from $242.0 million as of Jun 30, 2014.
2014 Guidance Raised
General Growth Properties increased its full-year FFO per share guidance in the range of $1.31 – $1.33, from the previous range of $1.30 to $1.32. The company provided guidance for fourth-quarter 2014 FFO per share and expects it in the range of 37–39 cents.
Notably, the Zacks Consensus Estimate for full year and fourth-quarter 2014 of $1.32 and 38 cents, respectively, falls within the company’s guided range for the same.
Our Take
We are encouraged by the better-than-expected third quarter performance of General Growth Properties and 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 The Macerich Company (MAC), DDR Corp. (DDR) and Regency Centers Corporation (REG). All these stocks have the 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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