General Growth Properties (GGP) has an idea for an economic stimulus plan: Let's all hang out at the mall! GGP is the country's #2 mall operator, behind Simon Property Group. The self-managed and self-administered real estate investment trust (REIT) has a portfolio that includes 120 regional shopping malls (some 125 million sq. ft. of space) in major US markets. GGP owns, manages, leases, and redevelops its malls, which generate more than $550 per square foot in sales each year. Some of GGP's shopping locations include Ala Moana Center in Honolulu and Fashion Show in Las Vegas. GGP also has an interest in a mall in Brazil. Top tenants include L Brands, Abercrombie & Fitch, Foot Locker, and The Gap.
Chicago-based GGP owns or has an interest in (through joint venture partnerships) 120 regional malls in some 40 states, as well as another 13 strip/other retail properties. Essentially all of its holdings are located in the US, with the exception of a shopping center in Rio de Janeiro, Brazil in which GGP has a 35% interest.
GGP has struggled to grow revenue since it emerged from bankruptcy in 2010. However, after three consecutive years of declining revenue, the mall operator reversed the downward trend with a modest (0.6%) increase in revenue in 2013 versus 2012. Also, the REIT swung from four consecutive years of net losses to a profit of $302.5 million in 2013. Cash flow from operations continued a steep three year climb. The nascent turnaround included 6% year-over-year same store net operating income growth and an 16% increase in funds from operations (FFO).
The $15.5 million revenue gain was primarily due to an increase in base minimum rent due to increased permanent occupancy to 92%. Tenant recoveries increased and the company settled a multi-year real estate tax suit with a municipality that resulted in a $5.1 million recovery during the first quarter of 2013.
As a REIT, the trust is exempt from paying federal income tax as long as it distributes quarterly dividends to shareholders.
GGP is looking for a sustained rebound in consumer spending to boost mall traffic, retail sales and, consequently, its own fortunes. The REIT is focused on building its portfolio of Class A regional malls. To this end, in mid-2013 it inked a deal with TIAA-CREF to own and operate Las Vegas's The Grand Canal Shoppes and The Shoppes at the Palazzo. The former generates more than $1,000 of sales per square foot.
GGP is also is selling non-core assets to raise capital and pay off debt. The company's strategy is to create value among its existing portfolio by redeveloping and expanding properties. Another element of GGP's growth strategy is improving its balance sheet. The economic environment of low interest rates allowed it to receive better mortgage terms on its properties.
GGP revamped itself in recent years by splitting into two companies. GGP hung on to its portfolio of mall and retail space, while a new publicly traded company, The Howard Hughes Corporation, took over its portfolio of planned communities and other real estate assets with development potential over the long term. GGP paid the heirs of the late American entrepreneur Howard Hughes $230 million to settle a dispute over the Summerlin planned community in Las Vegas, and in return named the new spun off company after him. Executives from Brookfield Asset Management and Pershing Square Capital Management are in charge of The Howard Hughes Corporation.
GGP spun off about half of its mid-tier properties as it continued to restructure in 2012. It created Rouse Properties to own about 30 malls in noncore markets. The Rouse name is a nod to The Rouse Company, an upscale retail REIT acquired by GGP in 2004. The properties are regional malls with lower rents in locations such as Farmington, New Mexico; Springfield, Oregon; and Hayward, California.
Mergers and Acquisitions
The company continues to grow through strategic acquisitions. GGP hopes to take advantage of opportunities and benefit from increased consumer spending. In 2011 GGP (along with Canada Pension Plan) acquired an interest in Plaza Frontenac, a luxury mall in St. Louis. That year GGP also bought several anchor store locations in Las Vegas and Chicago. In 2012 GGP acquired about a dozen Sears stores for $270 million. The deal helped boost GGP's portfolio value and is in line with redevelopment and expansion plans.
The economic downturn, which impacted the commercial real estate industry, hurt GGP. After struggling to handle debt levels of more than $25 billion, GGP filed for Chapter 11 bankruptcy protection in 2009 and represented one of the largest bankruptcy cases of its kind. It emerged the following year. GGP was able to exit bankruptcy after it restructured some $15 billion in debt and received nearly $7 billion in new equity from several investors including Canadian firm Brookfield Asset Management and hedge fund Pershing Capital. The Teacher Retirement System of Texas and the Blackstone Group also invested in GGP.