General Growth Properties Inc. GGP reported second-quarter 2015 funds from operations (“FFO”) per share of 33 cents, which were in line with the Zacks Consensus Estimate and 2 cents above the year-ago quarter figure. Results were backed by a 3.6% increase in comparable net operating income (“NOI”).
Total revenue during the quarter declined 5.2% year over year to nearly $580.0 million. The figure also missed the Zacks Consensus Estimate of $591 million.
Quarter in Details
At quarter-end, same-store lease percentage was 96.0%, reflecting an uptick of 20 basis points (bps) from the previous quarter.
Moreover, initial rental rates for signed leases that started in the trailing 12 months (on a suite-to-suite basis) increased 10.4% to $62.30 per square foot, as compared to the rental rate for expiring leases. On a trailing 12-month basis, tenant sales (all less anchors) improved 3.4% to $20.5 billion, while tenant sales (<10,000 square feet) increased 5.6% to $595 per square foot.
The company's cash and cash equivalents as of Jun 30, 2015 were $175.4 million, down from $372.5 million as of Dec 31, 2014.
Portfolio Activity
During the quarter, GGP acquired Crown Building, NY for a gross purchase price of $1.8 billion that was financed with $1.25 billion of secured debt. The retail segment of the property is jointly owned by GGP and Jeff Sutton. GGP and Jeff Sutton have further plans to redevelop, lease and manage the property’s retail section, which is $1.3 billion of the purchase price. (Read more: General Growth Buys Crown Building with Sutton for $1.775B)
Importantly, GGP’s share of the retail property purchase price is $650 million, while its share of equity is $209 million. Further, in relation to this deal, GGP gave $204 million in loans to its joint venture (JV) partners.
GGP also acquired a 50% stake in a JV with Jeff Sutton for ownership of 85 Fifth Avenue, NY that had a gross purchase price of $88 million and was financed with $60 million of secured debt. Notably, GGP’s share of the equity is $14 million.
On the other hand, the company reaped net proceeds of $49 million by selling the office section of 200 Lafayette, NY for a gross purchase price of about $125 million. The company also disposed a 12.5% stake in Ala Moana Center for net proceeds of $454 million. On closing, GGP received $335 million and is slated to receive residual proceeds of $119 million in late 2016 following the conclusion of the redevelopment.
The company’s development and redevelopment activities totaled around $2.1 billion at share. Of this, projects aggregating $1.0 billion is under construction, $657 million in the pipeline and around $442 million already functional.
Guidance
GGP expects full-year 2015 FFO per share in the range of $1.41–$1.45. The Zacks Consensus Estimate of $1.43 lies within this range.
For third and fourth quarters of 2015, the company expects FFO per share in the range of 34–36 cents and 41–43 cents, respectively. The Zacks Consensus Estimate of 36 cents for the third quarter and 43 cents for the fourth quarter lie within those range.
Our Take
Though GGP’s FFO per share performance was in line with estimates, the revenue lag clearly remains a concern. The portfolio repositioning measures are also encouraging although the anticipated hike in interest rates in the medium term is expected to adversely impact financing costs.
General Growth Properties has a Zacks Rank #4 (Sell). Investors interested in the residential REIT industry may consider stocks like Acadia Realty Trust AKR, Agree Realty Corp. ADC and Simon Property Group Inc. SPG. All these stocks have a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.
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