-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NWTZtwmLgNAjDAMsxfwsN5fnlFDVaxjJDM5Mj5JxhwXtXomET5zVvc/sFh44R6rZ oXjhj4TZgKQUEQEbnDVZTQ== 0000950137-97-001330.txt : 19970401 0000950137-97-001330.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950137-97-001330 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL GROWTH PROPERTIES INC CENTRAL INDEX KEY: 0000895648 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 421283895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11656 FILM NUMBER: 97569376 BUSINESS ADDRESS: STREET 1: 55 WEST MONROE ST STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3125515000 MAIL ADDRESS: STREET 1: 55 WEST MONROE ST STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60603 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---------------------- --------------------- COMMISSION FILE NUMBER 1-11656 GENERAL GROWTH PROPERTIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 42-1283895 - ------------------------------- ---------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 55 W. MONROE - SUITE 3100 CHICAGO, ILLINOIS 60603 - --------------------------------------- ------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 551-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ---------------------------- ----------------------------------------- COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- / / Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 25, 1997, the aggregate market value of the 27,798,947 shares of Common Stock held by non-affiliates of the registrant was $854,817,620 based upon the closing price on the New York Stock Exchange composite tape on such date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) As of March 25, 1997, there were 30,789,185 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual stockholders meeting to be held on May 15, 1997 are incorporated by reference into Part III. 2 PART I ITEM 1. BUSINESS GENERAL General Growth Properties, Inc. (the "Company") was formed in 1986 by Martin Bucksbaum and Matthew Bucksbaum. On April 15, 1993, an initial public offering (the "IPO") of the common stock (the "Common Stock") of the Company and certain related transactions were completed. During May 1995, the Company completed a follow-on stock offering of 4,500,000 shares of Common Stock. In connection with the IPO, the Company and Messrs. Bucksbaum, members of their family and trusts for the benefit of them and their families (collectively, the "Bucksbaums") formed GGP Limited Partnership (the "Operating Partnership"). As a result of the IPO and related transactions, the Company and the Operating Partnership owned 1% and 99%, respectively, of eighteen property partnerships, each of which owned an enclosed mall shopping center. The Operating Partnership also owned 100% of three additional shopping centers. At December 31, 1996, the Company and the Operating Partnership owned 1% and 99%, respectively, of twenty-five property partnerships, and the Operating Partnership owned 100% of five additional shopping centers and a 50% interest in Quail Springs Mall (the thirty-one centers are the "Original Centers"). Currently, the Company owns a 63% general partnership interest in the Operating Partnership, and various minority interests, primarily the Bucksbaums, own the remaining 37% limited partnership interest. The Company, as general partner of the Operating Partnership, is engaged in the ownership, operation, management, leasing, acquisition, development, expansion and financing of enclosed mall shopping centers. See the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K for certain financial information required by this Item 1. On February 11, 1994, the Company, through the Operating Partnership, acquired 40% of the outstanding stock of CenterMark Properties, Inc. ("CenterMark"). CenterMark owned interests in sixteen enclosed regional shopping centers and three power centers (collectively, the "CenterMark Centers") and other real estate, including fourteen free-standing department stores net leased to May Company and a 116-unit apartment project in LaJolla, California. On December 19, 1995, the Company sold 25% of its 40% interest in CenterMark for $72.5 million and granted the buyer an option to purchase its remaining interest. On June 28, 1996, the option was exercised by the buyer to purchase the remaining interest in two transactions. See "Recent Developments - CenterMark Acquisition and Disposition" below. On December 22, 1995 the Company, through the Operating Partnership's ownership of stock in GGP/Homart, Inc. ("GGP/Homart") acquired a 38.2% interest in substantially all of the regional mall assets and liabilities that were owned by Homart Development Co., an indirect wholly-owned subsidiary of Sears, Roebuck & Co. GGP/Homart currently owns interests in twenty-six shopping centers (the "Homart Centers") and one property under development. Together, the Original Centers, the CenterMark Centers and the Homart Centers comprise the Operating Partnership portfolio ("the "Portfolio Centers"). During 1996, the Operating Partnership, acting through GGP Management, Inc., acquired General Growth Management, Inc. ("GGMI"). GGMI is an affiliate of the Company and is currently the largest third party owned regional mall management company in the United States. See "Acquisition of GGMI" below. RECENT DEVELOPMENTS CENTERMARK ACQUISITION AND DISPOSITION On February 11, 1994, the Company, through the Operating Partnership, together with Westfield U.S. Investments Pty. Limited ("Westfield") and five real estate investment funds sponsored by Goldman Sachs & Co. acquired all of the outstanding stock of CenterMark (the "CenterMark Stock") for approximately $1 billion (including both assumption of existing and new mortgage indebtedness aggregating approximately $542 million). On December 19, 1995, the Company sold 25% of its 40% interest in CenterMark to Westfield for $72.5 million, and also granted Westfield an option which was exercisable on or before September 30, 1996, to purchase its remaining CenterMark stock for $217.5 million. On June 28, 1996, Westfield exercised its option to acquire the remaining 30% of the outstanding CenterMark Stock. The first payment of $87 million was received on July 1, 1996, and the second payment of $130.5 million was received on January 2, 1997. The aggregate financial statement gain from the sale transactions approximated $143 million. -2- 3 HOMART REGIONAL MALL PORTFOLIO ACQUISITION On December 22, 1995, the Company through the Operating Partnership, jointly with four other investors formed GGP/Homart to acquire Homart Development Company from Sears, Roebuck & Co. The Company acquired 38.2% of the stock of GGP/Homart for approximately $179 million including certain transaction costs. The Company also committed to invest up to an additional $30.6 million to fund new projects as well as certain redevelopment costs. As of December 31, 1996, the Company had contributed $17.2 million of the additional equity. On January 21, 1997, an additional $5.7 million of capital was contributed to GGP/Homart by the Company. GGP/Homart holds interests in twenty-six regional shopping malls and one property currently under development in Waterbury, Connecticut. On October 2, 1996, GGP/Homart opened West Oaks Mall, a new development, located in Ocoee, (Orlando) Florida. The Company obtained a $125 million interim loan to facilitate the acquisition of its interest in GGP/Homart. On January 31, 1996, the interim loan was reduced to $75 million with $50 million of excess proceeds from a $340 million refinancing. The remaining $75 million was repaid in July, 1996, with the proceeds from the sale of the Company's interest in CenterMark. PROPERTY ACQUISITIONS AND DEVELOPMENTS ACQUISITIONS During the fourth quarter of 1996, the Company acquired 100% ownership in five properties, Park Mall, Sooner Fashion Mall, Lakeview Square, Lansing Mall and Westwood Mall, and a 50% interest in Quail Springs Mall. Park Mall in Tucson, Arizona was acquired on October 4, 1996, for 1,000,000 shares of newly issued common stock and $24 million in cash. Sooner Fashion Mall and 50% of Quail Springs Mall, in Norman and Oklahoma City, Oklahoma, respectively, were acquired on November 27, 1996, for 895,928 newly issued common shares, the assumption of $8.6 million of mortgage debt and the payment of $16.7 million in cash. On December 6, 1996, the Company acquired Lakeview Square, Lansing Mall and Westwood Mall, all located in south central Michigan, for an aggregate purchase price of $132.2 million which consisted of $92.4 million of mortgage debt assumption ($4.4 million of which was retired at closing) and 1,445,000 newly issued Operating Partnership Units. DEVELOPMENTS During 1996, the Company acquired two new development sites located in Iowa City, Iowa and Grand Rapids, Michigan. The Iowa City site is currently under development and is scheduled to open in July 1998. In February of 1996, the Company opened Eagle Ridge Mall in Winterhaven, Florida, which had previously been under development. ACQUISITION OF GGMI On December 22, 1995, the Company formed GGP Management, Inc. ("GGP Management") to manage, lease, develop and operate enclosed malls. In August 1996, the Operating Partnership, acting through GGP Management, completed the acquisition of General Growth Management, Inc. for approximately $51.5 million. The Operating Partnership issued 453,791 Operating Partnership Units (approximately $11.6 million) and sold 1,555,855 shares of common stock it acquired from the Company (approximately $39.9 million) to GGP Management in connection with the acquisition of GGMI. The Operating Partnership extended a loan to GGP Management to purchase the Company's common stock. This loan bears interest at a rate of 14% per annum and is reflected on the consolidated balance sheet. In connection with the acquisition, GGP Management was merged into GGMI at closing. GGMI currently manages, leases, and performs various other services for the Original Centers, GGP/Homart and other properties owned by unaffiliated parties. THE SHOPPING CENTER BUSINESS Success in the highly competitive real estate shopping center business depends upon many factors, including general economic conditions, increases or decreases in operating expenses and interest rates, changes in demographics, and competitive pressures. The Portfolio Centers compete with numerous shopping alternatives in seeking to attract retailers to lease space as retailers themselves face increasing competition from discount shopping centers, outlet malls, discount shopping clubs, direct mail and telemarketing. Management believes that the shopping center business is evolving from having primarily a development-orientation to one which has more of a operations-oriention. This evolution necessitates the implementation of new approaches to shopping center management and -3- 4 leasing. Management's strategies include the integration of mass merchandise retailers with traditional department stores, specialty leasing, entertainment-oriented tenants, proactive property management and leasing, strategic expansions and acquisitions, and selective new shopping center developments. These approaches should enable the Company to operate and grow successfully in today's value-oriented environment. Most of the Original Centers are strategically located nationwide in middle markets where they have strong competitive positions. The Original Centers' geographic diversification should mitigate the effects of regional economic conditions and local factors. The CenterMark Centers and the Homart Centers are primarily concentrated in areas not served by the Original Centers. In addition, most of the CenterMark Centers and Homart Centers are located in major markets which further diversify the Portfolio Centers in terms of geographic region and market type of the Company's enclosed mall shopping centers. As used herein, the term "GLA" refers to gross retail space, including anchors and mall tenant areas; the term "Mall GLA" refers to gross retail space, excluding anchors; the term "Anchor" refers to a department store or other large retail store; the term "Mall Stores" refers to stores (other than anchors) that are typically specialty retailers who lease space in shopping centers; and the term "Freestanding GLA" means gross leasable area of freestanding retail stores or convenience stores located along the perimeter of a center's parking area. BUSINESS OF THE COMPANY The Portfolio Centers currently consist of the Original Centers, a portfolio of thirty-one enclosed mall shopping centers in twenty states and the twenty-six Homart Centers located in fifteen states and through January 2, 1997, the nineteen CenterMark centers located in eight states. Thirty-two of the fifty-seven Original Centers and Homart Centers have been expanded, renovated or developed since 1990 and several other centers are currently being redeveloped and/or expanded. In addition, over $350 million was spent by the former owners of the CenterMark Centers from 1989 to 1993 to modernize, redevelop, expand and remerchandise many of the properties. The Company is the asset manager of the Original Centers, making all key strategic decisions. It retains final authority over all operating matters and supervises GGMI, the property manager of the Original Centers. GGMI performs day-to-day property management functions including leasing, construction management, data processing, maintenance, accounting, marketing, promotion and security at the Original Centers pursuant to the management agreement. The Company, along with its stockholders in GGP/Homart, makes all key strategic decisions for the Homart Centers. The Company is the asset manager of the Homart Centers, executing the strategic plans and overseeing the day-to-day activites performed by GGMI. GGMI is currently the property manager for twenty-one of the Homart Centers, and the joint venture partners manage the other five Homart Centers. The goal for each Portfolio Center is to maximize the sales of their retail tenants, thereby increasing both the potential to receive both percentage rents from existing tenants and higher minimum rents from new tenants. Management believes that sales will be maximized by maintaining a quality relationship with retailers, generating high customer traffic and incorporating new strategies such as the use of entertainment tenants, theaters, ice rinks and museums. Company management believes that per share growth in its "Funds from Operations", which is defined as net income (loss) before non-cash expenses and certain gains or losses on sales and investments, is the key factor in enhancing stockholder value. It is management's objective to achieve growth in Funds from Operations through development of new shopping centers, acquisition of additional shopping centers, expansions, renovations, leasing vacant space, and proactive management to increase cash flow in the exisiting Portfolio Centers. Funds from Operations can also be affected by external factors, such as inflation or increases in disposable consumer income. CENTERMARK'S BUSINESS CenterMark is engaged in owning, operating, managing, leasing, expanding and redeveloping regional shopping centers and power centers and other related properties. CenterMark currently owns interests in the nineteen CenterMark Centers, fourteen separate department store properties net leased to The May Company and certain other real estate investments. The CenterMark Centers are located primarily in major metropolitan areas, including suburbs of Los Angeles and San Diego, California; Hartford, Connecticut; Portland, Oregon; St. Louis, Missouri; and Washington D.C. The -4- 5 CenterMark Centers contain approximately 15.8 million square feet of total GLA, including approximately 60 Anchors operating under 17 trade names and more than 1,800 Mall Stores operating under approximately 960 trade names. GGP/HOMART'S BUSINESS GGP/Homart is primarily engaged in owning, operating, expanding and redeveloping regional shopping centers. GGP/Homart currently owns interests in twenty-six existing centers and one center under construction in Waterbury, Connecticut. The Homart Centers are located primarily in major metropolitan areas, including suburbs of San Diego and San Francisco, California; Phoenix, Arizona; Houston and Dallas - Fort Worth, Texas; Philadelphia, Pennsylvania; Miami/Ft. Lauderdale, Florida; and Washington, D.C. The Homart Centers contain approximately 22.7 million square feet of total GLA and approximately 7.9 million square feet of Mall Stores. There are approximately 109 Anchors and more than 2,500 Mall Stores in the Homart Centers. As of December 31, 1996, GGP/Homart owned 100% of sixteen Homart Centers and varying percentages of the other eleven Homart Centers. THE PORTFOLIO CENTERS Sixty-one of the seventy-five Portfolio Centers are enclosed mall shopping centers with at least two major department stores as Anchors and a wide variety of smaller Mall Stores. At most of the Portfolio Centers, additional Freestanding Stores are located along the perimeter of the parking area. Each Portfolio Center provides ample surface parking for shoppers. The Portfolio Centers: - range in size between approximately 340,000 and 1,373,000 square feet of total GLA and between approximately 125,000 and 530,000 square feet of Mall and Freestanding GLA. The smallest Portfolio Center has approximately 40 stores, and the largest has over 175 stores; - have approximately 287 Anchors, operating under approximately 64 trade names; and - have approximately 7,000 Mall and Freestanding Stores. The average size of the 75 Portfolio Centers is approximately 795,000 square feet of GLA, including all Anchors, Mall Stores and Freestanding Stores. The average Mall and Freestanding GLA per Portfolio Center is approximately 310,000 square feet. As of December 31, 1996, the Original Centers contain approximately 20.9 million square feet of GLA consisting of Anchors (whether owned or leased), Mall Stores and Freestanding Stores. The CenterMark Centers and the Homart Centers contain GLA of approximately 15.8 million square feet and 22.7 million square feet, respectively. The Company's share of total revenues from the Portfolio Centers and GGMI increased from $229.1 million in 1995 to $363.4 million in 1996. No single Portfolio Center generated more than 8% of the Company's total 1996 pro rata revenues. In 1996, total Mall Store sales at all of the Portfolio Centers increased by approximately 4.7%. The Portfolio Centers weighted average Mall Store rent per square foot from leases that expired in 1996 was $18.79. As a result of market rents being higher than the rents under many of the expiring leases, the weighted average Mall Store rent per square foot on new and renewal leases during 1996 was $23.71, or $4.92 per square foot more than the above-indicated average for expiring leases. Total mortgage debt on the Original Centers including 50% of Quail Springs' debt at December 31, 1996 was approximately $1,177.1 million. Of this amount, $401.7 million was variable rate debt, and the remaining $775.4 million was fixed rate debt. The weighted average interest rate on the Company's debt was approximately 7.18% as of December 31, 1996. The Company's share of mortgage debt on the Homart Centers (38.2% of the debt on centers owned entirely by GGP/Homart and 38.2% of GGP/Homart's share of debt on joint venture properties) was approximately $324.4 million at December 31, 1996. $110.4 million was variable rate debt, and $214.0 million was fixed rate debt. The weighted average interest rate of the Company's share of debt attributable to the Homart Centers was approximately 7.51% as of December 31, 1996. The Company's pro rata share of total consolidated -5- 6 debt was $1,501.5 million as of December 31, 1996, and its weighted average interest rate was approximately 7.25%. In most cases, the land underlying the Portfolio Centers is owned in fee; however, in five of the Original Centers, all or part of the underlying land is owned by a third party that leases the land pursuant to a ground lease. The Company leases the land under Knollwood Mall and Rio West Mall. It also leases a portion of the Fallbrook Mall land and a portion of the SouthShore and Bayshore parking areas. The leases contain various purchase options in favor of the Company and typically provide for a right of first refusal in favor of the Company in the event of a proposed sale of the property by the Landlord. In addition, Prince Kuhio Plaza, one of the Homart Centers, is located on land leased pursuant to a long-term ground lease. ANCHORS Anchors have traditionally been a major factor in the public's image of an enclosed shopping center. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Anchors either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rates that are generally lower than the rents charged to Mall Store tenants. Although the Portfolio Centers receive a smaller percentage of their operating income from Anchors than from Mall Stores, strong Anchors play an important part in maintaining customer traffic and making the Portfolio Centers desirable locations for Mall Store tenants. Anchors accounted for approximately 6% of the Portfolio Centers' pro rata consolidated minimum rent during 1996. The following table indicates the parent company of each Anchor and sets forth the number of stores and square feet owned or leased by each Anchor at the Original Centers and the Homart Centers as of December 31, 1996. -6- 7 GENERAL GROWTH PROPERTIES, INC. PORTFOLIO ANCHORS(1) As of December 31, 1996
Total Square Feet Name Stores (000's) - ----------------------------------------------------------- ------ ----------- Sears 47 5,648 JCPenney 45 4,181 Dayton Hudson Daytons 2 269 Hudsons 3 304 Mervyns 18 1,482 Target 14 1,455 ----- ------- Sub-Total Dayton Hudson 37 3,510 ----- ------- Dillards 24 3,580 May Department Stores Company Filenes 4 682 Filenes Home Store 1 36 Foleys 6 1,064 Lord & Taylor 3 335 Robinsons-May 3 497 ----- ------- Sub-Total May Department Stores Company 17 2,614 ----- ------- Proffitt's Younkers 4 355 Herbergers 1 71 Parisian 1 95 ----- ------- Sub-Total Proffitt's 6 521 ----- ------- Federated Department Stores Burdines 2 283 Lazarus 1 50 Macys 6 1,030 Richs 1 240 The Bon Marche 1 100 ----- ------- Sub-Total Federated Department Stores 11 1,703 ----- ------- Montgomery Ward & Co. Montgomery Ward 5 617 Lechmere 1 69 ----- ------- Sub-Total Montgomery Ward & Co. 6 686 ----- ------- Harcourt General Neiman-Marcus 1 132 Mercantile Stores Bacons 1 187 Castner Knott 1 101 Gayfer's 1 213 Joslins 1 171 JB White 1 181 ----- ------- Sub-Total Mercantile Stores 5 853 ----- ------- Kohls 2 177 TJ Maxx 2 76 Burlington Coat Factory 1 101 KMart 4 357 Wal-Mart 2 197 All About Sports 1 335 Elder-Beerman 2 142 Emporium 1 50 Gottschalks 1 173 Hills Department Store 2 175 Ross Dress For Less 3 96 Service Merchandise 1 34 Bealls 2 47 Belk 1 122 Belk-Lindsey 1 82 Belk Men's 1 34 Boscov 1 185 Dicks Sporting Goods 1 80 Harris 1 150 Jordan Marsh 1 210 Liberty House 1 50 Oshman's Sporting Goods 1 64 Saks Fifth Avenue 1 120 Scheels All Sports 1 50 Steinbachs 1 55 Strawbridge & Clothier 1 218 The Bon Ton 1 82 Toys R Us 1 47 Woolworth 1 50
7 8 MALL AND FREESTANDING STORES The Portfolio Centers have an aggregate of approximately 7,000 Mall and Freestanding Stores. As of December 31, 1996, national or regional chains leased approximately 91% of the space occupied in the Portfolio Centers consisting of Mall Stores and Freestanding Stores. Among the retailers with the largest representation in Mall and Freestanding Stores are: The Limited, Limited Express, Lerner, Lane Bryant, Victoria's Secret, Structure, Payless Shoesource, Kay-Bee Toys, Wilson's Leather, Thom McAnn, Casual Corner, LensCrafters, Kinney, Foot Locker, Northern Reflections, Champs. The Portfolio Centers derived approximately 92% of their 1996 revenues from Mall and Freestanding Stores, which comprise approximately 40% of the Portfolio Centers' total GLA. No single retailer accounted for more than 8% of leased Mall and Freestanding GLA or more than 8% of the 1996 annualized base rent. Current Mall and Freestanding Store leases have an average remaining term of approximately seven years. Generally, they provide for tenants to pay rent comprised of two elements: minimum and percentage rent. Minimum or base rent is often subject to increases according to a schedule agreed upon at the time of lease inception. In many cases, the base rent is adjusted for inflation by increases tied to changes in the Consumer Price Index. Percentage rent is additional rent based on a percentage of the tenants' sales over certain stated levels. In some cases, tenants pay only a fixed minimum rent, and in a few cases, tenants pay only percentage rents. Most leases for Mall Stores contain provisions that allow the Portfolio Centers to recover their costs for common area maintenance, property taxes and other expenditures related to day-to-day operations. Some Anchors also contribute to the recovery of these costs. EXPANSIONS AND RENOVATIONS Most of the Portfolio Centers were designed to allow for expansion and growth through the addition of new Anchors or Mall and Freestanding Stores. Six Original Centers and five Homart Centers are in the process of an expansion, Anchor addition or renovation. The expansion and renovation of a Portfolio Center often increases customer traffic, trade area penetration and typically improves the competitive position of the property. ACQUISITIONS The Company continues to seek desirable properties for acquisition. In 1996, the Company also acquired interests in six other properties for approximately $230 million. The Company's management believes that it, together with the Operating Partnership, have the following competitive advantages and reasons to acquire enclosed shopping malls: - The funds necessary for a cash acquisition of a shopping center can be obtained by the Company and the Operating Partnership from a combination of sources, including mortgage or unsecured financing or the issuance of public debt or equity. - The Company and the Operating Partnership have the flexibility to pay for an acquisition with a combination of cash, Common Stock or limited partnership units in the Operating Partnership. This creates the opportunity for tax-advantaged transactions for sellers. - Management's expertise allows it to evaluate proposed acquisitions for their increased profit potential. Additional profit can originate from many sources including expansions, remodeling, remerchandising, and more efficient management of the property. 8 9 DEVELOPMENT The Company, through the Operating Partnership, intends to pursue development when warranted by the potential financial returns. During 1996, the Company acquired 100% of two new development sites located in Iowa City, Iowa and Grand Rapids, Michigan. The Company and its affiliates are currently developing an enclosed shopping center in Waterbury, Connecticut and completing predevelopment work on the site recently acquired in Iowa City, Iowa. Brass Mill Mall, a 950,000 square foot enclosed regional mall and Brass Mill Commons, a 200,000 square foot power center, located in Waterbury Connecticut are scheduled to open in the fall of 1997. Coral Ridge Mall, a 1,000,000 square foot enclosed regional mall located in Iowa City, Iowa, is scheduled to open in the summer of 1998. ENVIRONMENTAL MATTERS Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with its ownership and operation of the Portfolio Centers, the Company, the Operating Partnership or the relevant Property Partnership, may be potentially liable for such costs. All of the Portfolio Centers have been subject to Phase I environmental assessments, which are intended to discover information regarding, and to evaluate the environmental condition of, the surveyed and surrounding properties. The Phase I assessments included an historical review, a public records review, a preliminary investigation of the site and surrounding properties, screening for the presence of asbestos, polychlorinated biphenyls ("PCBs") and underground storage tanks and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations. Where the Phase I assessment so recommended, a Phase II assessment was conducted to further investigate any issues raised by the Phase I assessment. In each case where Phase I and/or Phase II assessments resulted in specific recommendations for remedial actions, management has either taken or scheduled the recommended action. Neither the Phase I nor the Phase II assessments have revealed any environmental liability that the Company believes would have a material effect on the Company's business, assets or results of operations, nor is the Company aware of any such liability. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Portfolio Centers will not be affected by tenants and occupants of the Portfolio Centers, by the condition of properties in the vicinity of the Portfolio Centers (such as the presence of underground storage tanks) or by third parties unrelated to the Operating Partnership or the Company. EMPLOYEES As of March 25, 1997, the Company and GGMI had approximately 3,000 full-time employees. None of the employees are subject to a collective bargaining agreement and the Company has not experienced a labor-related work stoppage. QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST AND TAXABILITY OF DISTRIBUTIONS The Company currently qualifies as a real estate investment trust pursuant to the requirements contained under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the "Code"). If, as the Company contemplates, such qualification continues, the Company will not be taxed on its real estate investment trust taxable income. During 1996, the Company distributed (or was deemed to have distributed) 100% of its taxable income to stockholders. Cash distributions in the amount of $1.72 per share were paid in 1996. Of that amount, $.808 (47.0%) was ordinary income, based on the taxable income of the Company and $.912 (53.0%) was a long-term capital gain from the sale of a portion of the CenterMark stock. 9 10 ITEM 2. PROPERTIES The Company's investment in real estate as of December 31, 1996 consisted of its interests in the Portfolio Centers, development in progress and certain other real estate . As described elsewhere herein, as of December 22, 1995, the Company acquired, through the Operating Partnership, 38.2% of GGP/Homart. GGP/Homart owns interests in the Homart Centers and certain other real estate assets. The Company completed the sale of its remaining interest in CenterMark on January 2, 1997. As a result of the sale, the Company no longer has an ownership interest in the CenterMark Centers. The following tables set forth certain information regarding the Original Centers and the Homart Centers as of December 31, 1996. The first table depicts the Original Centers and the second table depicts the Homart Centers. 10 11 ORIGINAL CENTERS
TOTAL GLA/MALL YEAR AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES - ---------------------------- ---------------- ---------------- ----------------------------------------------------- --------- Bayshore Mall 1987/ 616,036/ Gottschalks, JCPenney, Sears, Mervyn's, Ross Dress Eureka, California 1989 346,021 for Less None Bellis Fair Mall 1988/ 764,124/ Bellingham, Washington N/A 350,961 The Bon Marche, JCPenney, Sears, Target, Mervyn's None Birchwood Mall 1990/ 607,048/ Port Huron, Michigan 1991 280,994 Younkers, JCPenney, Sears, Target None Capital Mall 1978/ 537,513/ Jefferson City, Missouri 1985 307,828 Dillard's, JCPenney, Sears None Chapel Hills Mall 1982/ 957,251/ Colorado Springs, Colorado 1986 420,234 Joslin's, Sears, Mervyn's, KMart, JCPenney, Dillard's None Colony Square Mall 1981/ 548,851/ Zanesville, Ohio 1987 290,847 Lazarus, Elder-Beerman, JCPenney, Sears None Columbia Mall 1985/ 727,013/ Columbia, Missouri 1987 311,569 Dillard's, JCPenney, Sears, Target None Eagle Ridge Mall 1996/ 615,357/ Winter Haven, Florida N/A 317,638 Dillard's, JCPenney, Sears None Fallbrook Mall West Hills, California 1966/ 1,017,869/ JCPenney, Target, Mervyn's, KMart, Burlington Coat (Los Angeles, California) 1985 465,855 Factory None Fox River Mall 1984/ 1,090,016/ Appleton, Wisconsin 1991 525,320 Dayton's, Younkers, JCPenney, Sears, Target None Gateway Mall 1990/ 640,508/ Springfield/Eugene, Oregon 1990 357,243 The Emporium, Sears, Target None Grand Traverse Mall 1992/ 578,277/ Traverse City, Michigan N/A 312,989 Hudson's, JCPenney, Target, TJ Maxx None Greenwood Mall 1979/ 772,802/ Bowling Green, Kentucky 1987 393,749 Castner Knott, JCPenney, Sears, Dillard's None Knollwood Mall St. Louis Park, Minnesota 1955/ 511,496/ (Minneapolis, Minnesota) 1981 300,896 Montgomery Ward, Kohl's, TJ Maxx None Lakeview Mall 1993/ 614,230/ Battle Creek, Michigan N/A 322,637 Hudson's, JCPenney, Sears None Lansing Mall 1969/ 830,213/ Lansing, Michigan N/A 386,811 Hudson's, JCPenney, Mervyn's, Montgomery Ward None Lockport Mall 1971/ 345,894/ Lockport, New York 1984 125,497 Montgomery Ward, Hills, Bon Ton None Mall of the Bluffs Council Bluffs, Iowa 1986/ 587,193/ (Omaha, Nebraska) 1988 353,559 Dillard's, JCPenney, Target None Natick Mall 1966/ 1,138,252/ Natick, Massachusetts 1994 431,066 Sears, Filene's, Lord & Taylor, Macy's, Jordan Marsh None Oakwood Mall 1986/ 753,400/ Dayton's, JCPenney, Target, Sears, Scheel's All Eau Claire, Wisconsin 1991 288,324 Sports None Park Mall 1974/ 857,274/ Tucson, Arizona N/A 338,961 Sears, Dillard's, Macy's None Piedmont Mall 1984/ 659,866/ Danville, Virginia 1995 187,168 Belk, Hills, JCPenney, Sears, Belk Mens None
11 12 ORIGINAL CENTERS
TOTAL GLA/MALL YEAR AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES - ---------------------------- ---------------- ---------------- ----------------------------------------------------- --------- The Pines 1986/ 607,874/ Pine Bluff, Arkansas 1990 268,165 Dillard's, JCPenney, Sears, Wal-Mart None Quail Springs Mall (2) 1980/ 1,016,395/ Oklahoma City, Oklahoma N/A 328,542 Dillard's, Foley's, JCPenney, Sears None Rio West Mall 1981/ 366,121/ Gallup, New Mexico 1991 184,988 Beall's, JCPenney, KMart None River Falls Mall Clarksville, Indiana 1990/ 744,405/ (Louisville, Kentucky) N/A 399,367 Bacons, Wal-Mart, Toys "R" Us, All About Sports None River Hills Mall 1991/ 647,235/ Mankato, Minnesota 1996 285,186 Herberger's, JCPenney, Target, Sears None Sooner Fashion Square 1976/ 466,165/ Norman, Oklahoma N/A 199,933 Dillard's, JCPenney, Sears, Service Merchandise None SouthShore Mall 1981/ 339,825/ Aberdeen, Washington N/A 150,498 JCPenney, Sears, KMart None Westwood Mall 1972/ 465,218/ Jackson, Michigan N/A 147,124 Elder-Beerman, JCPenney, Montgomery Ward None West Valley Mall 1995/ 557,715/ Tracy, California N/A 281,097 Gottschalks, JCPenney, Target, Ross Dress for Less None MALLS UNDER DEVELOPMENT - ----------------------- Coral Ridge Mall 1998/ 900,000/ Iowa City, Iowa N/A 300,000 Dillard's, Younkers, Sears, JCPenney, Target None
(1) In some cases, where a center's location is part of a larger metropolitan area, the metropolitan area is identified in parentheses. (2) The Company owns 50% of Quail Springs Mall. 12 13 HOMART CENTERS
TOTAL GLA/MALL YEAR OWNERSHIP AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED INTEREST % GLA ANCHOR LOCATION(1) OR EXPANDED OF GGP/HOMART (SQUARE FEET) (2) ANCHORS VACANCIES - ------------------------------- ---------------- ------------- ----------------- ------------------------------------ --------- Dillard's, JCPenney, Mervyn's, Arrowhead Towne Center 1993/ 1,135,603/ Montgomery Ward, Glendale, Arizona 1996 33.3 397,656 Robinson's-May None Bay City Mall 1991/ 527,246/ Sears, Target, JCPenney, Bay City, Michigan 1993 100 211,595 Younkers None Chula Vista Center 1960/ 884,314/ Macy's, Sears, JCPenney, Chula Vista, California 1994 100 302,364 Mervyn's None Columbiana Centre 1990/ 789,018/ Sears, Parisian's, Dillard's, Columbia, South Carolina 1992 100 251,130 J. B. White None Deerbrook Mall Humble, Texas 1984/ 1,199,864/ Sears, Mervyn's, Macy's, (Houston, Texas) N/A 100 362,936 Foley's, JCPenney None Eden Prairie Center 1976/ 863,399/ Sears, Target, Kohl's, Eden Prairie, Minnesota 1994 100 325,973 Mervyn's None (Minneapolis, Minnesota) Lakeland Square 1988/ 904,910/ Sears, Mervyn's, Belk-Lindsey, Lakeland, Florida 1994 50 291,780 Dillard's, JCPenney, Burdines None Meriden Square 1971/ 725,265/ Sears, JCPenney, Filene's None Meriden, Connecticut 1993 50 290,439 (Hartford, Connecticut) Moreno Valley Mall 1992/ 1,034,788/ Sears, Robinson's-May, Moreno Valley, California N/A 100 429,254 JCPenney, Harris' None Neshaminy Mall 1968/ 945,779/ Sears, Strawbridge & Clothier, Bensalem, Pennsylvania N/A 50 308,988 Boscov's, Woolworth None Newgate Mall 1981/ 688,856/ Sears, Mervyn's, Dillard's, Ogden, Utah 1994 100 275,692 Oshman's None New Park Mall 1980/ 1,107,837/ Sears, Macy's, Mervyn's, Newark, California 1993 50 388,005 JCPenney None North Point Mall Alpharetta, Georgia 1993/ 1,362,574/ Sears, JCPenney, Lord & Taylor, (Atlanta, Georgia) N/A 100 396,287 Mervyn's, Rich's, Dillard's None The Parks at Arlington 1988/ 1,190,857/ Sears, Dillard's, Mervyn's, Arlington, Texas N/A N/A 359,912 Foley's, JCPenney None The Pavilions at Buckland Hills 1990/ 963,120/ Sears, Filene's, JCPenney, Lord & Manchester, Connecticut 1994 N/A 327,284 Taylor, Filene's Home Store, Dick's None Sporting Goods Pembroke Lakes Mall 1992/ 1,063,859/ Sears, Burdine's, JCPenney, Pembroke Pines, Florida N/A 100 337,235 Mervyn's, Dillard's None Prince Kuhio Plaza 1985/ 475,765/ Sears, Liberty House, Woolworth, Hilo, Hawaii N/A 100 166,191 JCPenney None Rolling Oaks Mall 1988/ 758,584/ San Antonio, Texas 1992 50 297,727 Sears, Dillard's, Foley's, Beall's None Sequoia Mall and Tower Plaza 1975/ 345,940/ Visalia, California N/A 100 172,940 Sears, Mervyn's, Ross Dress for Less None Steeplegate Mall 1990/ 446,598/ Concord, New Hampshire N/A 100 162,655 Sears, JCPenney, Steinbach One Superstition Springs Center 1990/ 1,075,054/ Sears, JCPenney, Dillard's, East Mesa, Arizonia 1994 33.3 368,361 Mervyn's, Robinson's-May None Tysons Galleria 1988/ 808,771/ Macy's, Saks Fifth Avenue, McLean, Virginia N/A 100 296,838 Neiman Marcus None
13 14 HOMART CENTERS
TOTAL GLA/MALL YEAR OWNERSHIP AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED INTEREST % GLA ANCHOR LOCATION(1) OR EXPANDED OF GGP/HOMART (SQUARE FEET) (2) ANCHORS VACANCIES - ------------------------------- ---------------- ------------- ----------------- ------------------------------------ --------- Vista Ridge Mall 1989/ 1,052,617/ Sears, Dillard's, Foley's, Lewisville, Texas 1991 80 379,555 JCPenney None Washington Park Mall 1984/ 351,486/ Bartlesville, Oklahoma 1986 100 157,190 Sears, Dillard's, JCPenney None West Oaks Mall Ocoee, Florida 1996/ 1,015,160/ (Orlando, Florida) N/A 100 312,626 Dillard's, Sears, JCPenney, Gayfers None The Woodlands Mall The Woodlands, Texas 1994/ 1,028,033/ Sears, Dillard's, Mervyn's, (Houston, Texas) N/A 50 350,082 Foley's None MALLS UNDER DEVELOPMENT - ----------------------- Brass Mill Center/Commons 1997/ 1,185,199/ Sears, Filene's, Lechmere, Waterbury, Connecticut N/A 100 528,608 JCPenney None
(1) In cases where a Center's location is part of a larger metropolitan area, the metropolitan area is identified in parenthesis. (2) Includes square footage added in redevelopment/expansion projects. (3) GGP/Homart's participation is subordinated to certain preferred returns to its Joint Venture Partners. For other information concerning the Original Centers and the Homart Centers see "Item 1 - Business - Business of the Company" and "Item 1 - Business - GGP/Homart's Business", and for information concerning the mortgage debt encumbering the Original Centers see Note 7 to the Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company, the Operating Partnership and the Property Partnerships are not currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company, the Operating Partnership, the Property Partnerships or their properties, CenterMark, or GGP/Homart other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance. For information about certain environmental matters, see "Item 1 - Business - Environmental Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the Company's stockholders during the fourth quarter of fiscal 1996. 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") and trades under the symbol "GGP". As of March 25, 1997, the 30,789,185 outstanding shares of Common Stock were held by approximately 965 stockholders of record. The closing price per share of Common Stock on the NYSE on such date was $30.75 per share. Set forth below are the high and low sales prices per share of Common Stock as reported on the composite tape, and the distributions per share of Common Stock declared for each such period.
Price 1996 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1996 $24.00 $20.63 $.43 June 30, 1996 $24.63 $20.63 $.43 September 30, 1996 $26.00 $23.50 $.43 December 31, 1996 $32.75 $23.88 $.43 Price 1995 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1995 $22.63 $20.38 $.41 June 30, 1995 $21.75 $19.38 $.41 September 30, 1995 $20.63 $19.00 $.41 December 31, 1995 $21.63 $18.50 $.43 Price 1994 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1994 $21.50 $19.63 $.39 June 30, 1994 $22.00 $19.25 $.39 September 30, 1994 $22.63 $19.50 $.39 December 31, 1994 $22.63 $19.25 $.41
15 16 Set forth below is certain information about sales made by the Company and/or the Operating Partnership of securities during the fourth quarter of 1996, which sales were not registered under the Securities Act of 1933, as amended. The sales were all made in connection with the acquisition of the malls and interests therein indicated below, were effected in reliance upon the exemption contained in Section 4 (2) of the Securities Act pf 1933, as amended and/or Regulation D promulgated thereunder, and were not underwritten offerings.
Offering Price or Date Issuer Security Amount Purchaser Consideration - -------------------------------------------------------------------------------------------------- 10/04/96 Company Common Stock 1,000,000 K-GAM Limited Park Mall Partnership 11/27/96 Company Common Stock 895,928 The Equitable Life Sooner Fashion Mall Assurance Society and 50% of Quail of the United Springs Mall States 12/06/96 Operating Units 1,445,000 Forbes-Cohen Lakeview Square, Partnership Properties, Lansing Mall and Lakeview Square Westwood Mall Associates and Jackson Properties
16 17 SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table sets forth selected financial data for the Company and should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report.
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ----------- OPERATING DATA Revenue $ 217,405 $ 167,396 $ 152,583 $ 142,210 $ 119,050 Operating Expenses 75,954 63,968 63,118 55,073 46,379 Depreciation and Amortization 39,809 30,855 28,190 25,377 22,074 Interest Expense, Net 66,439 46,334 42,995 37,495 47,249 Equity in Net Income (Loss) of Unconsolidated Affiliates 17,589 9,274 6,096 - (620) Gain on the sale of a portion of CenterMark 43,821 33,397 - - - Net Income (Loss) Before Minority Interest 96,613 68,910 24,376 24,265 2,728 Minority Interests (1) (34,580) (25,856) (9,518) (9,823) (2,728) Extraordinary Item (2,291) - (693) (1,832) - Net Income 59,742 43,054 14,165 12,610 - Earnings Per Share Before Extraordinary Item 2.20 1.69 .65 .63 - Net Earnings Per Share 2.12 1.69 .62 .55 - Distributions Declared Per Share 1.72 1.66 1.58 1.05 - FUNDS FROM OPERATIONS (Unaudited) Funds From Operations (2) Operating Partnership $ 108,526 $ 81,214 $ 69,610 $ 47,810 $ 25,422 Minority Interest (39,841) (30,915) (27,927) (19,189) (25,422) Funds From Operations Company 68,685 50,299 41,683 28,621 - Funds From Operations per share 2.44 1.97 1.83 1.58 N/A BALANCE SHEET DATA Investment in Real Estate Assets $1,639,440 $1,547,621 $ 996,125 $ 786,008 $ 668,979 Total Assets 1,757,717 1,455,982 906,533 789,455 629,500 Total Debt 1,169,493 1,027,932 607,561 453,437 728,310 Stockholders' Equity/(Deficit) 330,267 229,383 154,426 173,013 (116,237) CASH FLOW DATA Operating Activities $ 52,688 $ 60,660 $ 48,936 $ 53,077 $ 24,313 Investing Activities (14,771) (469,204) (145,253) (111,408) (38,358) Financing Activities (40,268) 421,225 96,380 52,587 16,421
(1) Current minority holders (primarily the Bucksbaums) who were previously the sole stockholders of the Company. (2) Represents net income (loss) before minority interest excluding straight line rent plus real estate depreciation and amortization and adjusted for equity in net income (loss) of unconsolidated affiliates (including related depreciation and amortization). Funds From Operations does not represent cash flow from operations as defined by Generally Accepted Accounting Principles (GAAP) and is not necessarily indicative of cash available to fund all cash requirements. 17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto appearing later in this Annual Report. CERTAIN INFORMATION ABOUT THE PORTFOLIO CENTERS As of December 31, 1996, the Company owned 100% of thirty enclosed regional shopping centers and 50% of Quail Springs Mall (the "Original Centers") and, through the Operating Partnership, owned 14% of the stock of CenterMark Properties, Inc. and 38.2% of the stock of GGP/Homart, Inc. CenterMark owns interests in nineteen shopping centers (the "CenterMark Centers") and other properties. GGP/Homart owns interests in twenty-six shopping centers (the "Homart Centers") and one center under development. Together, the Original Centers, the CenterMark Centers and the Homart Centers comprise the operating partnership portfolio (the "Portfolio Centers"). Virtually all of the Company's revenues are derived from fixed minimum rents, percentage rents and recoveries of operating expenses from its tenants. On December 31, 1996, the Portfolio Centers were approximately 85.4% leased. Excluding certain shopping centers that are currently undergoing redevelopment, the occupancy of the remaining centers on December 31, 1996, was approximately 86.3%. Comparable mall store sales averaged $260 per square foot at the Portfolio Centers in 1996. In 1996, total mall store sales at the Portfolio Centers increased by 4.7% over 1995, and comparable mall store sales increased by 2.2% over 1995. After appropriate weighting based upon the relative contributions to total 1996 portfolio net operating income made by each of the Original Centers, the Homart Centers and the CenterMark Centers, the average Mall Store rent per square foot from leases that expired in 1996 was $18.79. The Portfolio Centers benefited from increasing rents inasmuch as the weighted average mall store rent per square foot on new and renewal leases executed during 1996 was $23.71, or $4.92 per square foot above the average for expiring leases. RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995 Total 1996 revenues increased by $50.0 million or 29.9% to $217.4 million from $167.4 million in 1995. Of this increase, $44.4 million was generated from increased minimum rents, tenant recoveries, percentage rents and other income. A majority of the increases came from new developments that were placed in service during 1995 and five properties that were acquired in 1996. The remaining $5.6 million was generated by straight line rents of $1.9 million and fee revenue of $3.7 million. The fee revenue was primarily generated by asset management services performed for GGP/Homart. Total 1996 operating expenses, including depreciation and amortization, increased by $20.9 million or 22.1% to $115.8 million in 1996 compared to $94.8 million in 1995. This increase consists of $3.0 million of real estate taxes and management fees, $8.9 million of depreciation expense, $1.7 million increase in provision for doubtful accounts and $7.3 million of property operating and general and administrative expenses from all properties, including five properties acquired during the fourth quarter of 1996. Net interest expense increased by $20.1 million or 43.4% to $66.4 million in 1996 compared to $46.3 million in 1995. The acquisitions and development of new properties, net of interest cost savings as a result of the use of the CenterMark sale proceeds, accounted for a $27.7 million increase. Additional interest cost savings due to lower interest rates reduced net interest expense by $4.3 million. Interest income increased by $3.3 million of which $2.8 million was interest income from GGMI. Equity in net income of unconsolidated affiliates increased by $8.3 million, from $9.3 million in 1995 to $17.6 million in 1996, or an 89% increase. Approximately $8.7 million of the increase is attributable to the Company's 38.2% interest in GGP/Homart's net income. The increase of $0.8 million in CenterMark's net income 18 19 was due to changing from the equity method to the cost method of accounting as a result of the Company's reduced ownership interest in CenterMark (see Note 3 of notes to consolidated financial statements). The Company's investment in Quail Springs Mall accounted for a $0.1 million increase and GGMI accounted for a decrease of approximately $1.3 million. In addition, the Company had a gain of $43.8 million on the sale of a portion of its interest in CenterMark on July 1, 1996. As of that date, the Company's interest in CenterMark was reduced to 14%. Net income increased by $16.6 million in 1996 to $59.7 million from $43.1 million in 1995. The increase resulted from a larger gain on CenterMark in the amount of $6.6 million (net of minority interest share) and a combination of the aforementioned items. COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994 Total 1995 revenues increased by $14.8 million or 9.7% to $167.4 million compared to $152.6 million in 1994. Of this increase, $8.9 million or 6.0% came from increased revenues generated by twenty-one of the Original Centers that were owned throughout the two-year period. Of this increase, $5.8 million was generated by higher minimum rents, $2.3 million was derived from additional costs recovered from tenants, and the remaining $0.8 million was from higher percentage rents and other income. The remaining $5.9 million increase in total revenues, or 3.7% came from new acquisitions, developments and other sources for 1995. Of this increase from new sources, $5.1 million was generated from minimum rents, tenant recoveries, percentage rents and other income from Piedmont Mall, West Valley Mall and Natick Mall. The other $0.8 million of revenues from new sources were primarily gross fees received for other asset management, property management and other services performed for GGP/Homart, Inc. Total 1995 operating expenses, including depreciation and amortization, increased by $3.5 million or 3.8% to $94.8 million in 1995 compared to $91.3 million in 1994. Of this increase, $0.9 million or 1% was from higher expenses for twenty-one of the Original Centers that were owned throughout the two-year period. The $0.9 million net increase was from a combination of $0.7 million of increased real estate taxes, $1.7 million of increased property operating expenses and $2.1 million of higher depreciation expense, less a $1.9 million reduction in management fees and a $1.7 million reduction in the provision for doubtful accounts. The remaining $2.6 million increase in total expenses, or 2.8%, was from expenses on properties added in 1995 (Piedmont, West Valley and Natick) and from incremental general and administrative expenses for providing services. The $2.6 million increase consists of $0.3 million of real estate taxes and management fees, $0.5 million of depreciation expense and $1.8 million of additional property operating and general and administrative expenses. Net interest expense for 1995 was $46.3 million, an increase of $3.3 million or 7.7% over 1994 net interest expense of $43.0 million. $1.4 million or 3.2% of the increase was attributable to new borrowings for Piedmont, West Valley and Natick Malls, which were not owned in 1994. The other $1.9 million or 4.5% of increased interest expense was primarily from higher interest rates on variable rate loans of approximately $1.5 million. The remaining $0.4 million of increased interest expense was from interest on new financing used to acquire GGP/Homart near the end of 1995. Equity in net income of unconsolidated affiliates increased by $3.2 million, from $6.1 million in 1994 to $9.3 million in 1995, or a 52% increase. $2.5 million, or 41% of the increase was from higher earnings from CenterMark, and the remaining $0.6 million, or 9% of the increase was the Company's 38.2% share of net income from GGP/Homart which was purchased near the end of 1995. In addition, the Company had a gain of $33.4 million on the sale of 25% of its interest in CenterMark on December 19, 1995. As of that date, the Company's interest in CenterMark was reduced to 30%. Net income increased by $28.9 million in 1995, to $43.1 million from $14.2 million in 1994. The increase resulted from the gain of $20.7 million (net of minority interest share) plus an $8.2 million net increase resulting from a combination of the aforementioned items. 19 20 COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS In order to portray the sources of the Company's Funds from Operations in a more meaningful and useful manner, the Company Portfolio results and funds from operations depicted below reflect 100% of the revenues and expenses of the Original Centers and GGMI combined with the Company's share of CenterMark's and GGP/Homart's portfolio results. The Company Portfolio results are a line item pro rata consolidation of 100% of the revenues and expenses of the Original Centers and GGMI, with the Company's share of the comparable revenue and expenses of the wholly owned CenterMark Centers and GGP/Homart Centers and the Company's share of CenterMark's and GGP/Homart's various percentage interests of the revenues and expenses of the centers that are owned in part by unaffiliated joint venture partners. Interest expense and general and administrative costs that relate to the acquisition, management and oversight of the Company's ownership of CenterMark and GGP/Homart are charged entirely against the Company's direct operations. These expenses cannot be charged on CenterMark's and GGP/Homart's books because the other stockholders in CenterMark and GGP/Homart are not affiliated with the Company. The Company's share of CenterMark's and GGP/Homart's Funds from Operations does not represent the net effective incremental contribution to the Company made by the CenterMark and GGP/Homart centers. Accordingly, management believes the following schedule of the relative share of Company Portfolio net operating income (basically Funds from Operations before interest expense) contributed by each of the Original Centers, the CenterMark Centers and the GGP/Homart Centers provides a better indication of the significance of each portfolio to the Company's overall funds from operations. The net operating income from the Company's Portfolio is essentially equivalent to earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA from the Company's property management affiliate is included below with the Original Centers.
THREE MONTHS FOR THE YEAR ENDED ENDED % OF NET OPERATING INCOME BY PORTFOLIO DECEMBER 31, 1996 % OF TOTAL DECEMBER 31, 1996 TOTAL - -------------------------------------- ----------------- ---------- ----------------- ------ Original Centers and GGMI $39,699 70% $140,526 68% CenterMark (a) 5,532 9% 25,977 12% 38.2% of GGP/Homart (b) 11,844 21% 40,798 20% ------- ---- -------- ---- Company Portfolio Net Operating Income $57,075 100% $207,301 100% ======= ==== ======== ====
(a) Reflects the Company's share of CenterMark's Net Operating Income. (b) Reflects the Company's share of GGP/Homart's Net Operating Income. The Company Portfolio results and Funds from Operations reflected below for the three and twelve months ended December 31, 1996 and 1995 do not purport to project results for any future period. 20 21 COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 1996 AND 1995 (In thousands, except for per share amounts - Unaudited)
Three Months Ended For the Year Ended December 31, December 31, 1996 1995 1996 1995 --------- --------- --------- -------- Revenues Minimum rents (a) $ 60,431 $ 42,285 $210,130 $144,520 Tenant recoveries 24,251 19,808 96,263 72,381 Percentage rents 2,298 1,294 7,786 5,745 Other 1,918 1,689 6,665 5,874 Fees 16,833 613 42,544 613 -------- -------- -------- -------- Total revenues $105,731 $ 65,689 $363,388 $229,133 Operating expenses (b) (47,928) (25,582) (153,065) (83,044) General and administrative (728) (710) (3,022) (2,811) -------- -------- -------- -------- Net operating income 57,075 39,397 207,301 143,278 Interest expense, net (25,117) (16,115) (98,775) (62,064) -------- -------- -------- -------- Operating Partnership funds from operations $ 31,958 $ 23,282 $108,526 $ 81,214 Less: FFO allocable to Operating Partnership unitholders $ 11,502 $ 8,617 $ 39,841 $ 30,915 -------- -------- -------- -------- Company funds from operations $ 20,456 $ 14,665 $ 68,685 $ 50,299 ======== ======== ======== ======== FFO per share $ .68 $ .54 $ 2.44 $ 1.97 ======== ======== ======== ========
COMPANY PORTFOLIO RECONCILIATION OF FUNDS FROM OPERATIONS TO NET INCOME (Dollars in thousands - Unaudited)
Three Months Ended For the Year Ended December 31, December 31, 1996 1995 1996 1995 -------- -------- -------- -------- Operating Partnership funds from operations (from above) $ 31,958 $ 23,282 $108,526 $ 81,214 Depreciation and amortization of real estate costs (16,697) (12,526) (62,083) (48,698) Straight-line rent (not included in FFO, so it is added back in order to reconcile to GAAP net income) 1,633 645 6,195 2,997 Gain on sales 27 33,397 43,975 33,397 Allocations to Operating Partnership unitholders (5,826) (16,575) (34,580) (25,856) Extraordinary item (c) - - (2,291) - -------- -------- -------- -------- Net income $ 11,095 $ 28,223 $ 59,742 $ 43,054 ======== ======== ======== ========
(a) Excluding straight-line rents for the three and twelve months ended December 31, 1996 and 1995, of $1,633 and $6,195 and $645 and $2,997, respectively. (b) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. (c) Charges related to early retirement of debt. 21 22 BREAKDOWN OF COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 (In thousands, except for per share amounts - Unaudited)
Original GGP/ Centers Homart CenterMark GGMI Total --------- ------- ---------- -------- --------- Revenues Minimum rents (a) $ 40,865 $ 13,610 $ 5,956 $ - $ 60,431 Tenant recoveries 17,142 5,452 1,657 - 24,251 Percentage rents 1,518 525 255 - 2,298 Other 1,051 676 191 - 1,918 Fees 992 - - 15,841 16,833 -------- -------- ------- -------- -------- Total revenues 61,568 20,263 8,059 15,841 105,731 Operating expenses (b) (23,639) (8,419) (2,527) (13,343) (47,928) General and administrative (728) - - - (728) -------- -------- ------- -------- -------- Net operating income 37,201 11,844 5,532 2,498 57,075 Interest expense, net (16,362) (4,787) (2,485) (1,483) (25,117) -------- -------- ------- -------- -------- Operating Partnership funds from operations $ 20,839 $ 7,057 $ 3,047 $ 1,015 $ 31,958 ======== ======== ======= ======== ======== Funds from operations per share/unit $ 0.68 ========
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 (In thousands, except for per share amounts - Unaudited)
Original GGP/ Centers Homart CenterMark GGMI Total --------- ------- ---------- -------- --------- Revenues Minimum rents (a) $136,476 $ 46,955 $ 26,699 $ - $ 210,130 Tenant recoveries 63,146 21,505 11,612 - 96,263 Percentage rents 5,409 1,448 929 - 7,786 Other 3,940 2,089 636 - 6,665 Fees 4,560 - - 37,984 42,544 -------- -------- -------- -------- --------- Total revenues 213,531 71,997 39,876 37,984 363,388 Operating expenses (b) (75,741) (31,199) (13,899) (32,226) (153,065) General and administrative (3,022) - - - (3,022) -------- -------- -------- -------- --------- Net operating income 134,768 40,798 25,977 5,758 207,301 Interest expense, net (66,499) (19,396) (10,057) (2,823) (98,775) -------- -------- -------- -------- --------- Operating Partnership funds from operations $ 68,269 $ 21,402 $ 15,920 $ 2,935 $ 108,526 ======== ======== ======== ======== ========= Funds from operations per share/unit $ 2.44 ========
(a) Excluding straight-line rent of $1,633 and $6,195 for the three and twelve months ended December 31, 1996. (b) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. 22 23 OTHER COMPANY PORTFOLIO DATA AS OF AND/OR FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 (In thousands, except for per square foot amounts - Unaudited)
Original GGP/ Total or Centers Homart(a) CenterMark(a) Average -------- --------- ------------- -------- Occupancy of centers not under redevelopment 84.5% 86.1% 90.4% 86.3% Tenant allowances $ 8,483 $ 5,676 $ 5,237 $ 19,396 Annualized sales per sq. ft. $ 237 $ 281 $ 270 $ 260 Average rent per sq. ft. of new/renewal leases $ 20.14 $ 25.72 $ 27.93 $ 23.71 Average rent per sq. ft. of expiring leases $ 18.70 $ 21.61 $ 16.15 $ 18.79 % change in total sales 3.3% 7.5% 3.6% 4.7% (a) Data is for 100% of the non-anchor GLA in each portfolio, including those centers that are owned in joint ventures with others.
TOTAL PORTFOLIO DEBT MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY AS OF DECEMBER 31, 1996 (Dollars in Thousands - Unaudited)
Original Centers(a) GGP/Homart(b) Total Portfolio Debt ------------------- ------------------------ -------------------- Current Current Current Maturing Average Maturing Average Maturing Average Year Amount (c) Rate Amount (c) Rate Amount (c) Rate - ---------------- ---------- ------- ---------- ------- ---------- -------- 1997 $ 301,441 6.71% $ - - $ 301,441 6.71% 1998 111,739 7.50% 34,380 7.18% 146,119 7.42% 1999 125,588 8.90% 125,077 7.70% 250,665 8.30% 2000 - - 11,460 7.15% 11,460 7.15% 2001 152,000 6.41% - - 152,000 6.41% Subsequent 486,375 7.20% 153,447 7.46% 639,822 7.26% ---------- ------- ---------- ------- ---------- -------- Totals $1,177,143 7.18% $ 324,364 7.51% $1,501,507 7.25% ========== ======= ========== ======= ========== ======== Floating Rate(d) $ 401,739 6.88% $ 110,327 7.71% $ 512,066 7.06% Fixed Rate 775,404 7.32% 214,037 (e) 7.41% 989,441 7.34% ---------- ------- ---------- ------- ---------- -------- Totals $1,177,143 7.18% $ 324,364 7.51% $1,501,507 7.25% ========== ======= ========== ======= ========== ======== (a) Includes the Company's 50% share ($8,620) of Quail Springs debt. (b) GGP/Homart debt reflects the Operating Partnership's share of its total portfolio debt. (c) Maturing amount reflects the December 31, 1996 balance as if it was due on the final maturity date. (d) The interest rate used for floating rate debt is the rate as of December 31, 1996. (e) Includes $34,381 of floating rate debt with a 9% cap on the all-in rate through maturity in December 1998.
-23- 24 COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS (FFO) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 In order to portray the sources of the Operating Partnership's FFO in a more meaningful and expansive manner, the Company portfolio results depicted below reflect 100% of the revenues and expenses of the thirty properties which are wholly-owned by the Operating Partnership combined with the operating results of GGMI, 38.2% of GGP/Homart's portfolio results, the Company's share (see Note 3) of CenterMark's portfolio results and 50% of Quail Springs Mall, all from the respective dates of acquisition. In effect, the Company portfolio results are a line item pro rata consolidation of 100% of the revenues and expenses from its wholly-owned properties, GGMI, 38.2% of the comparable revenues and expenses of the wholly-owned GGP/Homart properties, its share of GGP/Homart's various percentage interests in the revenues and expenses of its unconsolidated affiliates, the Company's share of the comparable revenues and expenses of the wholly-owned CenterMark properties and the Company's share of CenterMark's various percentage interests in the revenues and expenses of its unconsolidated affiliates and 50% of the revenues and expenses of Quail Springs Mall.
PORTFOLIO RESULTS (A) AND FUNDS FROM OPERATIONS - ----------------------------------------------- (Dollars in thousands, except Per Share Amounts - Unaudited) 1996 1995 1994 --------- --------- --------- Revenues Minimum rents $ 210,130 $ 144,520 $ 134,426 Tenant recoveries 96,263 72,381 70,199 Percentage rents 7,786 5,745 5,917 Other 6,665 5,874 3,689 Fees 42,544 613 --------- --------- --------- Total revenues 363,388 229,133 214,231 Operating expenses (b) (156,087) (85,855) (87,322) --------- --------- --------- Net operating income 207,301 143,278 126,909 Interest expense, net (98,775) (62,064) (57,299) --------- --------- --------- Funds from operations (c) $ 108,526 $ 81,214 $ 69,610 ========= ========= ========= Funds from operations per share (c) (d) $ 2.44 $ 1.97 $ 1.83 ========= ========= ========= RECONCILIATION OF FFO TO NET INCOME DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: - ----------------------------------------- Funds from operations (from above) $ 108,526 $ 81,214 $ 69,610 Depreciation and amortization (62,083) (48,698) (45,733) Pro forma adjustments (a) 499 Straight line rents 6,195 2,997 Gain on sales 43,975 33,397 Allocations to Operating Partnership Unitholders (34,580) (25,856) (9,518) Extraordinary item - charges related to early retirement of debt (2,291) (693) --------- --------- ---------- Net income $ 59,742 $ 43,054 $ 14,165 ========= ========= ========== Net income - per share (d) $ 2.12 $ 1.69 $ .62 ========= ========= ========== (a) Portfolio results for 1994 include adjustments to account for the acquisition of 40% of CenterMark as though it occurred on January 1, 1994. (b) All expenses other than depreciation and amortization of real estate assets. (c) No income from straightlining rents or gains on outparcel sales is included in funds from operations. (d) Assuming full conversion of the Operating Partnership units into shares of the Company's common stock for a total of 44,470,761, 41,209,291 and 38,040,085 weighted average shares outstanding for the years ended December 31, 1996, 1995 and 1994 respectively.
-24- 25 LIQUIDITY AND CAPITAL RESOURCES The principal sources of funding for development, acquisitions, expansion, and renovation programs at the Portfolio Centers have historically been funds from operations, construction loans, intermediate and permanent debt financing and proceeds from equity offerings. On April 15, 1993, the Company completed its IPO, resulting in net cash proceeds to the Company of approximately $383 million, most of which was used to repay outstanding debt. In January 1994, the Operating Partnership established a $208.5 million line of credit, and approximately $140 million of it was used, in addition to $42 million of cash on hand, to acquire 40% of the stock of CenterMark. On May 23, 1995, the Company completed a follow-on stock offering of 4.5 million shares of its Common Stock at $20.75 per share. Net proceeds after underwriting discounts and other costs were approximately $88 million. On July 1, 1995, the Operating Partnership issued an additional 832,936 units in connection with the acquisition of Piedmont Mall. During 1996, 1,833,949 additional units were issued as consideration (net of conversions from operating partnership units to common stock). The Bucksbaums received an additional 453,791 units when the Company purchased GGMI. On December 6, 1996, 1,445,000 units were issued as a portion of the purchase price for Lakeview Square, Lansing Mall and Westwood Mall (see Note 5 of notes to consolidated financial statements). During 1996, 64,842 units that were issued during 1995 in connection with the acquisition of Piedmont Mall, were converted to a like amount of shares of Common Stock. The Company issued a total of 3,516,625 common shares during 1996. During the year 64,842 units were converted to common shares and 1,555,855 and 1,895,928 common shares were issued in connection with the acquisition of GGMI and ownership interests in two malls. After these transactions, there were 30,789,185 shares of common stock outstanding and 17,934,410 units outstanding as of December 31, 1996. Assuming full conversion of the Operating Partnership units into shares of the Company, there would be 48,723,595 shares of common stock outstanding. During 1995, the Company opened a $120 million construction loan facility to complete the development of new malls in Tracy, California (West Valley Mall) and Winter Haven, Florida (Eagle Ridge Mall). Approximately $111.7 million of this facility was drawn as of December 31, 1996. The remaining available loan proceeds will be sufficient to fund the additional leasing costs for both projects. On December 19, 1995, the Operating Partnership sold 25% of its interest in CenterMark for $72.5 million. Concurrently with the sale of stock, the Operating Partnership granted the buyer an option to purchase its remaining CenterMark stock for $217.5 million. On June 28, 1996, the buyer's option to purchase the Operating Partnership's remaining interest in CenterMark was exercised. The first payment of $87 million was received in July and was used to retire the interim loan arranged as part of the GGP/Homart acquisition. The second installment of $130.5 million was received on January 2, 1997, and was used to pay down existing loans (see Note 7 of notes to consolidated financial statements). Effective on December 22, 1995, the Operating Partnership purchased a 38.2% interest in GGP/Homart and 100% of Natick Mall. The equity investment made for both acquisitions was approximately $261 million. In addition, a $183 million 7 year loan with interest at 6% was obtained for Natick Mall. There were three sources of funds for the $261 million of year-end investments, namely a $125 million interim bank loan, a $63.5 million draw on the Company's line of credit and the $72.5 million of proceeds from the sale of CenterMark stock. On January 31, 1996, the interim loan was reduced to $75 million when the Company closed on a $340 million permanent nonrecourse loan on nine properties. Existing loans on the properties totaled $290 million, and the $50 million of excess loan proceeds were used to reduce the aforementioned interim loan. On October 15, 1996, approximately $200 million of mortgage debt on seven of the Original Centers matured. These mortgages were replaced with a $250 million short term, floating rate loan at LIBOR plus 100 basis points. The excess proceeds were used to pay down a credit facility arranged by the Company during 1996. -25- 26 The GGP/Homart and Quail Springs Mall investments are accounted for on the equity method. Accordingly, indebtedness on the books of those entities is not reflected on the Company's balance sheet. The Operating Partnership's 38.2% share of GGP/Homart's debt at December 31, 1996, was approximately $324 million and its 50% share of Quail Springs Mall debt at December 31, 1996, was $8.6 million. Accordingly, together with its direct mortgage debt of $1,169 million, total "consolidated pro rata debt" at December 31, 1996, was approximately $1,502 million. At December 31, 1996, the stock market value of the common stock and partnership units outstanding (48,723,595 x $32.25 share) was approximately $1,571 million. The Company is comfortable with this level of debt given that a substantial majority of the financing is (or is presently expected to be converted to) long-term fixed rate debt. EBITDA to interest expense coverage is expected to be at least 2.0 times, leaving a substantial cushion for unanticipated costs. There are no current plans to raise additional equity capital. However, if additional capital is required, the Company believes that it will be able to obtain an interim bank loan, obtain mortgage financing on unencumbered assets or raise additional equity capital. The Company will continue to constantly monitor its capital structure and plans to make new investments if they can be acquired and financed in a manner that is likely to increase stockholder value. In order to remain qualified as a real estate investment trust for federal income tax purposes, the Company must distribute 100% of capital gains and at least 95% of its taxable income to stockholders. The following factors, among others, will affect funds from operations and, accordingly, influence the decisions of the Board of Directors regarding distributions: (i) scheduled increases in base rents of existing leases; (ii) changes in minimum base rents and/or percentage rents attributable to replacement of existing leases with new or replacement leases; and (iii) changes in occupancy rates at existing Portfolio Centers and procurement of leases for newly developed Portfolio Centers. The Company anticipates that its funds from operations, together with existing loan facilities and additional borrowing capacity, will provide adequate liquidity to conduct its operations, fund administrative and operating costs and interest payments and allow distributions to the Company's stockholders in accordance with the Internal Revenue Code's requirements for qualification as a real estate investment trust and to avoid any Company or entity level federal income or excise tax. During 1996, the Company distributed approximately 70% of its funds from operations. Of the distributions paid to Company stockholders in 1996, approximately 47.0% were taxable as ordinary income and approximately 53.0% were taxable as long-term capital gain, due to the sale of a portion of the CenterMark stock. The Company currently plans to maintain its policy of increasing its distributions at a slower rate of growth than increases, if any, in Funds from Operations. Despite this general policy, the Company's Board of Directors will continue to evaluate the level of distributions on a quarterly basis and will typically consider increasing the quarterly distribution after the results of each year's operations have been reviewed. Given the critical importance of the holiday selling season, the Board of Directors plans to make its typical annual evaluation of a possible distribution increase on or about the end of the first quarter of each year, after the results of the previous year's holiday selling season have been thoroughly analyzed. ECONOMIC CONDITIONS Since April 1993, inflation has been relatively low and has not had a significant detrimental impact on the Company. Should inflation rates increase in the future, substantially all of the tenants' leases contain provisions designed to mitigate the negative impact of inflation. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years which may enable the Company to replace or renew expiring leases with new leases at higher base and/or percentage rents, if rents of the existing leases are below the then-existing market rates. Finally, most of the leases require the tenants to pay their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. A number of local, regional and national retailers filed for bankruptcy protection during the last three years. During 1996, more stores closed due to bankruptcy and/or poor performance than in the prior year. Most of the bankrupt retailers reorganized their operations and/or sold stores to stronger operators. Although some leases were terminated by virtue of the lease cancellation rights afforded by the bankruptcy laws, the -26- 27 impact on Company earnings was negligible. Over the last three years, the provision for doubtful accounts has averaged only $1.8 million per year, which represents approximately 1% of average total revenues of $179 million. The difficult retail sales climate has probably contributed to the relatively flat average occupancy. The Company may be able to increase earnings if retail sales improve, market rental rates rise and currently vacant space can be leased. At the end of 1996, the Company had approximately $1.5 billion of consolidated pro rata debt (including the Company's share of GGP/Homart's debt). The weighted average interest rate on the consolidated pro rata debt was approximately 7.25% at year end, a 50 basis point reduction from the prior year. During 1996, the Company decreased its ratio of floating rate debt to total debt by approximately 10% to 34%. The Company continues to seek fixed rate loans in an effort to capitalize on the relatively low current fixed interest rate environment. Approximately $512 million of the total consolidated pro rata debt at year end bears interest at various floating rates. Construction financing accounts for $137 million of the $512 million of floating rate debt. On January 2, 1997, the Company retired $110 million of the floating rate debt with the proceeds from the CenterMark transaction (see Note 3 of notes to consolidated financial statements). The Company is in the process of arranging permanent fixed rate financing for approximately half of the remaining floating rate debt. On December 22, 1995, the Company acquired 38.2% of GGP/Homart which currently has interests in twenty-six malls and one under development. The Company currently has an interest in 75 shopping centers. The Company's portfolio has been diversified both geographically and by property type (both major and middle market properties) and this may mitigate the impact of a potential downturn at a particular property or in a particular region of the country. The shopping center business is still seasonal in nature. Mall stores typically achieve higher sales levels during the fourth quarter because of the holiday selling season. Although the Company has a year-long temporary leasing program, most of the rents received from short-term tenants are collected during the months of November and December. Thus, occupancy levels and revenue production are generally highest in the fourth quarter of each year and lower during the first and second quarters of each year. Total sales reported by retailers at the Company's properties increased by almost 3.4% in 1995 and 4.7% in 1996, indicating that the centers are maintaining their respective share of sales dollars in the finite retail market. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedules for the required information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY There is hereby incorporated by reference the information which appears under the captions "Election of Directors" and "Executive Officers" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information which appears under the caption "Compensation of Executive Officers" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders; -27- 28 provided, however, that neither the Report of the Compensation Committee of the Board of Directors on Executive Compensation nor the Performance Graph set forth therein shall be incorporated by reference herein, in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is hereby incorporated by reference the information which appears under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership of Management" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information which appears under the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules. The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K. (b) Exhibits. See Exhibit Index on page S-1 -28- 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL GROWTH PROPERTIES, INC. By: /s/ Matthew Bucksbaum ------------------------------------- Matthew Bucksbaum, Chairman of the Board and Chief Executive Officer Date: March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Robert Michaels President and Director March 27, 1997 - -------------------------- Robert Michaels /s/ John Bucksbaum Executive Vice President - March 27, 1997 - -------------------------- Director John Bucksbaum /s/ Bernard Freibaum Executive Vice President - March 27, 1997 - -------------------------- Chief Financial Officer and Bernard Freibaum Principal Accounting Officer /s/ Anthony Downs Director March 27, 1997 - -------------------------- Anthony Downs /s/ Morris Mark Director March 27, 1997 - -------------------------- Morris Mark /s/ Beth Stewart Director March 27, 1997 - -------------------------- Beth Stewart /s/ Lorne Weil Director March 27, 1997 - --------------------------- A. Lorne Weil -29- 30 INDEX TO CONSOLIDATED FINANCIAL STATEMENT AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE The following financial statements and financial statement schedule are included in Item 8 of this Annual Report on Form 10-K: General Growth Properties, Inc.
Financial Statements Page(s) -------------------- ------- Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994. F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 to F-21 Financial Statement Schedule ---------------------------- Report of Independent Accountants F-22 Schedule III - Real Estate and Accumulated Depreciation F-23 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes hereof.
F-1 31 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders General Growth Properties, Inc. We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects the consolidated financial position of General Growth Properties, Inc. as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Chicago, Illinois Coopers & Lybrand L.L.P. February 11, 1997 F-2 32 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, except for Per Share Amounts) ASSETS
DECEMBER 31, December 31, 1996 1995 ------------ ------------ Investment in real estate: Land $ 173,263 $ 144,517 Buildings and equipment 1,337,366 1,054,695 Less accumulated depreciation (188,744) (153,275) Developments in progress 44,439 49,680 ------------- ------------ Net property and equipment 1,366,324 1,095,617 Investment in Quail Springs Mall 15,077 Investment in CenterMark 64,769 120,082 Investment in GGP/Homart 193,270 178,647 ------------- ------------ Net investment in real estate 1,639,440 1,394,346 Cash and cash equivalents 15,947 18,298 Tenant accounts receivable, net 25,384 14,831 Deferred expenses, net 30,078 24,752 Investment in and note receivable from General Growth Management, Inc. 37,737 Prepaid and other assets 9,131 3,755 ------------- ------------ $ 1,757,717 $ 1,455,982 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $ 1,168,522 $ 1,025,130 Notes and contracts payable 971 2,802 Distributions payable 20,744 18,650 Accounts payable and accrued expenses 44,747 43,389 Accounts payable and accrued expenses - affiliates 89 1,211 ------------- ------------ 1,235,073 1,091,182 ------------- ------------ Minority interest in Operating Partnership 192,377 135,417 ------------- ------------ Commitments and contingencies Stockholders' equity: Preferred stock: $100 par value; 5,000,000 shares authorized; none issued Common stock: $.10 par value; 70,000,000 shares authorized; 30,789,185 shares issued and outstanding (27,272,560 as of December 31, 1995) 3,079 2,727 Additional paid-in capital 595,628 506,107 Retained earnings (deficit) (268,440) (279,451) ------------- ------------ Total stockholders' equity 330,267 229,383 ------------- ------------ $ 1,757,717 $ 1,455,982 ============= ============ The accompanying notes are an integral part of the consolidated financial statements.
F-3 33 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, except for Per Share Amounts)
YEAR ENDED DECEMBER 31, 1996 1995 1994 --------- --------- --------- Revenues: Minimum rents $ 140,468 $ 103,915 $ 94,931 Tenant recoveries 63,040 54,072 50,085 Percentage rents 5,412 4,793 4,266 Other 3,925 3,811 3,301 Fee Income 4,560 805 --------- --------- --------- Total revenues 217,405 167,396 152,583 --------- --------- --------- Expenses: Real estate taxes 16,332 13,012 12,140 Management fees to affiliate 2,713 2,463 4,362 Property operating 51,466 45,075 41,605 Provision for doubtful accounts 2,421 607 2,266 General and administrative 3,022 2,811 2,745 Depreciation and amortization 39,809 30,855 28,190 --------- --------- --------- Total expenses 115,763 94,823 91,308 --------- --------- --------- Operating income 101,642 72,573 61,275 Interest expense (70,272) (46,852) (43,612) Interest income 3,833 518 617 Equity in net income (loss) of unconsolidated affiliates: Quail Springs Mall 110 CenterMark 9,397 8,628 6,096 GGP/Homart 9,355 646 General Growth Management, Inc. (1,273) Gain on the sale of a portion of CenterMark stock 43,821 33,397 --------- --------- --------- Income before allocation to minority interest and extraordinary item 96,613 68,910 24,376 Income allocated to minority interest (34,580) (25,856) (9,518) --------- --------- --------- Income before extraordinary item 62,033 43,054 14,858 Extraordinary item (2,291) (693) --------- --------- --------- Net income $ 59,742 $ 43,054 $ 14,165 ========= ========= ========= Earnings per share before extraordinary item $ 2.20 $ 1.69 $ .65 Extraordinary item (.08) (.03) --------- --------- --------- Net earnings per share $ 2.12 $ 1.69 $ .62 ========= ========= ========= The accompanying notes are an integral part of the conolidated financial statements.
F-4 34 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands, except for Per Share Amounts)
Additional Retained Total Common Stock Paid-in Earnings Stockholders' Shares Amount Capital (Deficit) Equity ---------- ------- --------- ----------- ------------ Balance, December 31, 1993 22,772,560 $ 2,277 $ 427,997 $ (257,261) $ 173,013 Net income 14,165 14,165 Capital contribution, net of minority interest 3,229 3,229 Cash distributions declared ($1.58 per share) (35,981) (35,981) ---------- ------- --------- ----------- ------------ Balance, December 31, 1994 22,772,560 2,277 431,226 (279,077) 154,426 Net income 43,054 43,054 Issuance of common stock: Follow-on offering, less $5,482 of offering costs 4,500,000 450 87,443 87,893 Cash distributions declared ($1.66 per share) (43,428) (43,428) Adjustment for minority interest in operating partnership (12,562) (12,562) ---------- ------- --------- ----------- ------------ Balance, December 31, 1995 27,272,560 $ 2,727 $ 506,107 $ (279,451) $ 229,383 Exercise of stock options 66,667 7 1,381 1,388 Purchase and retirement of common stock (66,667) (7) (1,443) (1,450) Net income 59,742 59,742 Cash distributions declared ($1.72 per share) (48,731) (48,731) Acquisitions: General Growth Management, Inc. less $38 of issuance costs 1,555,855 156 39,675 39,831 Real estate investments 1,895,928 190 49,511 49,701 Conversion of operating partnership units to common stock 64,842 6 1,315 1,321 Adjustment for minority interest in operating partnership (918) (918) ---------- ------- --------- ----------- ------------ Balance, December 31, 1996 30,789,185 $ 3,079 $ 595,628 $ (268,440) $ 330,267 ========== ======= ========= =========== ============ The accompanying notes are an integral part of the consolidated financial statements.
F-5 35 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1996 1995 1994 ------------ ---------- ----------- Cash flows from operating activities: Net income $ 59,742 $ 43,054 $ 14,165 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 34,580 25,856 9,518 Gain on the sale of a portion of CenterMark stock (43,821) (33,397) Extraordinary items 2,291 693 Equity in net income of unconsolidated affiliate (17,589) (9,274) (6,096) Provision for doubtful accounts 2,421 607 2,266 Depreciation 35,469 26,104 24,324 Amortization 4,340 4,751 3,867 Net changes in: Tenant accounts receivable (12,974) (6,723) (1,510) Prepaid and other assets (20,258) (1,963) 9,282 Accounts payable and accrued expenses 8,487 11,645 (7,573) ------------ ---------- ----------- Net cash provided by operating activities 52,688 60,660 48,936 ------------ ---------- ----------- Cash flows from investing activities: Acquisition/development of real estate and improvements and additions to properties (121,138) (379,976) (37,100) Decrease in short-term investments 61,832 Collection of notes receivable from affiliates 12,649 Proceeds from the sale of a portion of CenterMark stock 87,000 72,500 Distributions received from CenterMark 21,531 23,462 14,600 Distributions received from GGP/Homart 13,791 Investment in CenterMark (181,521) Investment in GGP/Homart (19,058) (178,001) Increase in deferred expenses (9,546) (7,189) (3,064) ------------ ---------- ----------- Net cash used in investing activities (14,771) (469,204) (145,253) ------------ ---------- ----------- Cash flows from financing activities: Cash distributions paid to common stockholders (47,604) (41,037) (35,070) Cash distributions paid to minority interest (27,861) (25,494) (23,511) Gross proceeds from sale of common stock 93,375 Payment of stock issuance costs (38) (5,482) Proceeds from issuance of mortgage and other notes payable 705,815 506,450 190,000 Principal payments on mortgage and other notes payable (668,107) (105,728) (35,876) Retirement of common stock (net of sale proceeds) (62) Increase in deferred financing costs (2,411) (859) (3,895) Prepayment penalty on early retirement of debt (693) Capital contribution 5,425 ------------ ---------- ----------- Net cash provided by financing activities (40,268) 421,225 96,380 ------------ ---------- ----------- Net change in cash and cash equivalents (2,351) 12,681 63 Cash and cash equivalents at beginning of year 18,298 5,617 5,554 ------------ ---------- ----------- Cash and cash equivalents at end of year $ 15,947 $ 18,298 $ 5,617 ============ ========== =========== Supplemental disclosure of cash flow information: Interest paid $ 73,386 $ 51,310 $ 42,985 Interest capitalized 5,947 5,409 913 Supplemental schedule of non-cash investing and financing activities: Acquisition of real estate and General Growth Management, Inc. (1996) 244,787 37,558 Operating partnership units and stock issued as consideration for additional real estate investments 89,438 17,908 acquisition of General Growth Management, Inc. 51,497 Mortgage debt assumed as consideration for additional real estate investments 103,852 19,650 The accompanying notes are an integral part of the consolidated financial statements.
F-6 36 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION General Growth Properties, Inc. (the "Company"), a Delaware corporation, was formed in 1986 to own and operate enclosed mall shopping centers. On April 15, 1993, the Company completed its initial public offering of 18,975,000 shares of common stock and a business combination involving entities under varying common ownership. Proceeds from the initial public offering were used to acquire a majority interest in GGP Limited Partnership (the "Operating Partnership") which was formed to succeed to substantially all of the interests in eighteen enclosed mall general partnerships (the "Property Partnerships") owned and controlled by the Company and its original stockholders, Martin and Matthew Bucksbaum, and trusts established for the benefit of the stockholders' families (the "Bucksbaums"). The proceeds were used to repay existing indebtedness and acquire three additional centers (the "IBM Centers"). In May of 1995, the Company completed a follow-on stock offering of 4,500,000 common shares. Net proceeds were used to reduce the outstanding balance of the Company's credit facility. OPERATING PARTNERSHIP The Operating Partnership commenced operations on April 15, 1993 and at December 31, 1996, owned a 99% general partnership interest in the eighteen Property Partnerships, two recently developed properties, Natick Mall and four properties acquired during 1996 (see Note 5). In addition, the Operating Partnership owned the three IBM Centers, Piedmont Mall and Park Mall (see Note 5). At December 31, 1996, the Operating Partnership also owned a 14% interest in CenterMark Properties, Inc. (see Note 3), a 38.2% interest in GGP/Homart, Inc. (see Note 4), a 100% economic interest in General Growth Management, Inc. (see Note 6) and a 50% interest in Quail Springs Mall (see Note 5). At December 31, 1996, the Company owned a 63% general partnership interest in the Operating Partnership and various minority interests own the remaining 37% limited partnership interest. The minority interest in the Operating Partnership is held primarily by trusts for the benefit of families of the original stockholders which initially owned and controlled the Company and is represented by units of limited partnership interests ("Units"). The Units can be exchanged, with certain restrictions, for shares of the Company on a one-for-one basis. The Bucksbaum's Units can be exchanged for cash, at the Company's election, if the Bucksbaums own 25% or more of the outstanding common stock of the Company at the time of the exchange. The Unitholders also share equally with the stockholders on a per share basis in any distributions by the Operating Partnership. F-7 37 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) Changes in Operating Partnership Units for the three years ending December 31, 1996, are as follows:
Units ----------- December 31, 1993 15,267,525 ----------- December 31, 1994 15,267,525 Acquisition of Piedmont Mall 832,936 ----------- December 31, 1995 16,100,461 Acquisition of General Growth Management, Inc. (issued to Bucksbaums) 453,791 Acquisition of Lakeview Square, Lansing and Westwood Malls 1,445,000 Conversion to common stock (64,842) ----------- December 31, 1996 17,934,410 ===========
BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership consisting of the twenty-five Property Partnerships, five directly owned centers and the unconsolidated investments in CenterMark Properties, Inc., GGP/Homart, Inc., General Growth Management, Inc. and Quail Springs Mall. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Minimum rent revenues are recognized on an accrual basis over the terms of the related leases which approximates a straight-line basis. Percentage rents are recognized on an accrual basis. Recoveries from tenants for taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. The Company provides an allowance for doubtful accounts against the portion of accounts receivable which is estimated to be uncollectible. Accounts receivable in the accompanying consolidated balance sheets are shown net of an allowance for doubtful accounts of $5,117 and $2,259 as of December 31, 1996 and 1995, respectively. CASH AND CASH EQUIVALENTS For purposes of the consolidated statements, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The carrying amount approximates fair value due to the short maturity of these investments. DEFERRED EXPENSES Deferred expenses consist principally of financing fees and leasing commissions which are amortized over the terms of the respective agreements. Deferred expenses in the accompanying consolidated balance sheets are shown net of accumulated amortization of $21,996 and $20,827 as of December 31, 1996 and 1995, respectively. F-8 38 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) PROPERTIES Real estate assets are stated at cost. Interest and real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets. Statement of Financial Accounting Standards No. 121, "Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of" was issued in 1995 and requires the real estate assets of the Company to be reviewed for impairment. Based principally on a review of cash flows, management has determined that the fair value of its real estate assets exceeds their carrying value. Depreciation expense is computed using the straight-line method based upon the following estimated useful lives:
YEARS ----- Buildings and Improvements 40 Equipment and fixtures 10
Construction allowances paid to tenants are capitalized and depreciated over the average lease term. Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are capitalized. INVESTMENT IN AFFILIATES The Company acquired a 40% interest in CenterMark Properties, Inc. ("CenterMark") in February 1994 and a 38.2% interest in GGP/Homart, Inc. ("GGP/Homart") in December 1995. In December 1995, and July 1996 the Company sold 25% and 40%, respectively, of its 40% interest in CenterMark resulting in a 14% interest at December 31, 1996. During 1996, the Company acquired a 95% non-voting preferred stock interest in General Growth Management, Inc. ("GGMI") and a 50% interest in Quail Springs Mall. The Company accounts for its investment in affiliates using the equity method whereby the cost of an investment is adjusted for the Company's share of equity in net income or loss from the date of acquisition and reduced by distributions received. Due to currently unpaid and accrued preferences on the preferred stock, the Operating Partnership was entitled to 100% of the earnings and cash flow generated by GGMI in 1996. Subsequent to the July 1996 sale, the investment in CenterMark is accounted for using the cost method whereby distributions received are included in income instead of its share of equity in net income or loss. INCOME TAXES The Company elected to be taxed as a real estate investment trust under sections 856-860 of the Internal Revenue Code of 1986, commencing with its taxable year beginning January 1, 1993. In order to qualify as a real estate investment trust, the Company is required to distribute at least 95% of its ordinary taxable income and 100% of capital gains to stockholders and to meet certain asset and income tests as well as certain other requirements. As a real estate investment trust, the Company will generally not be liable for Federal income taxes, provided it satisfies the necessary requirements. As a result, Federal income taxes on the net income of the Company are payable personally by the stockholders of the Company. Accordingly, the consolidated statements of operations do not reflect a provision for income taxes. State income taxes are not significant. The Property Partnerships were not liable for Federal income taxes, as each partner recognized its proportionate share of the Property Partnerships' income or loss in its tax return. During 1996, the Operating Partnership acquired control of GGMI, a taxable subchapter C Corporation. As a result, state and Federal income taxes on its net taxable income are payable by GGMI. F-9 39 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) EARNINGS PER SHARE Per share amounts are based on the weighted average of common and common equivalent shares (stock options) outstanding of 28,145,091 for 1996, 25,521,875 for 1995 and 22,772,560 for 1994. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MINORITY INTEREST Income before minority interest is allocated to the limited partners (the "Minority Interest") based on their ownership percentage of the Operating Partnership. The ownership percentage is determined by dividing the numbers of Operating Partnership Units held by the Minority Interest by the total Operating Partnership Units outstanding. The issuance of additional shares of common stock or Operating Partnership Units changes the percentage ownership of both the Minority Interest and the Company. Since a Unit is convertible into common stock and thus equivalent to a common share, such transactions are treated as capital transactions and result in an allocation between stockholders' equity and Minority Interest in the balance sheet to account for the change in the ownership of the underlying equity in the Operating Partnership. 3. CENTERMARK ACQUISITION AND DISPOSITION On February 11, 1994, the Company, jointly with two other unaffiliated parties, acquired 100% of the stock of CenterMark from The Prudential Insurance Company of America. The Company and Westfield U.S. Investments Pty. Limited each acquired 40% of the stock of CenterMark and several real estate investment funds sponsored by Goldman Sachs & Co. acquired the remaining 20%. The Company's portion of the cash purchase price for the CenterMark stock, including certain transaction costs, was approximately $182,000. CenterMark elected real estate investment trust status for income tax purposes. The CenterMark portfolio includes interests in several major regional shopping malls and power centers. The Company sold 25% of its interest in CenterMark on December 19, 1995, to Westfield U.S. Investments Pty. Limited for a purchase price of $72,500. As a result of the sale, the Company's ownership was reduced to 30% of the outstanding CenterMark stock. Concurrently with the sale of the stock, the Company also granted Westfield U.S. Investments Pty. Limited an option to purchase the remainder of the Company's CenterMark stock ("Option Stock") for $217,500. On June 28, 1996, Westfield U.S. Investments, Pty. Limited exercised its option to acquire the remaining 30% of the outstanding CenterMark stock in two transactions. The first payment in the amount of $87,000 was received on July 1, 1996, and the second payment in the amount of $130,500 was received on January 2, 1997. Proceeds from the first payment were used to repay the remaining balance outstanding on the Company's interim loan facility that was utilized in connection with the acquisition of GGP/Homart (see Note 4). The proceeds received from the second payment were primarily used to repay existing indebtedness (see Note 7) in 1997 and will result in a gain of approximately $66,000. F-10 40 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 4. GGP/HOMART ACQUISITION On December 22, 1995, the Company jointly with four other investors acquired 100% of the stock of GGP/Homart, Inc. ("GGP/Homart") from Sears, Roebuck and Co. The other investors in GGP/Homart are the New York State Common Retirement Fund, the Equitable Life Insurance Company of Iowa, USG Annuity & Life Company and The Trustees of the University of Pennsylvania. The Company acquired 38.2% of GGP/Homart for approximately $179,000 including certain transaction costs. The stockholders of GGP/Homart agreed to contribute up to $80,000 of additional capital as required, through the end of 1997. As of December 31, 1996, the stockholders had contributed $45,000 of additional capital. On January 21, 1997, an additional $15,000 of capital was contributed by the stockholders. GGP/Homart owns interests in twenty-six regional shopping malls and one property currently under development. The Operating Partnership arranged a $125,000 interim loan facility in conjunction with the acquisition of GGP/Homart. On July 1, 1996, the interim loan facility was retired with proceeds from the sale of a portion of the CenterMark stock (see Note 3). GGP/Homart elected real estate investment trust status for income tax purposes. On October 2, 1996, GGP/Homart opened West Oaks Mall, a new development, located in Ocoee, (Orlando) Florida. GGP/Homart currently has one property under development, Brass Mill Center and Commons. Brass Mill Center is located in Waterbury, Connecticut, and is scheduled to open in the fall of 1997. The following is summarized financial information for GGP/Homart since the date of acquisition.
DECEMBER 31, December 31, Balance Sheet as of 1996 1995 - ------------------- ------------ ------------ Assets: Net investment in real estate $ 1,007,008 $ 832,910 Investment in real estate partnerships 179,228 229,128 Other assets 55,957 45,689 ------------ ------------ $ 1,242,193 $ 1,107,727 ============ ============ Liabilities and Stockholders' Equity: Mortgage and other notes payable $ 689,773 $ 546,505 Accounts payable and accrued expenses 83,547 111,869 Stockholders' equity 468,873 449,353 ------------ ------------ $ 1,242,193 $ 1,107,727 ============ ============ Period from YEAR ENDED December 22 through DECEMBER 31, 1996 December 31, 1995 ----------------- ------------------- Summary of Operations Revenues $ 145,689 $ 4,782 Operating costs (62,002) (2,040) Depreciation and amortization (20,824) (455) Interest expense (40,575) (1,248) Equity in net income of real estate partnerships 2,434 314 Minority interest (239) - ----------------- ---------------- Net income $ 24,483 $ 1,353 ================= ================ Significant accounting policies used by GGP/Homart are the same as those used by the Company.
F-11 41 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 5. PROPERTY ACQUISITIONS AND DEVELOPMENTS ACQUISITIONS During the fourth quarter of 1996, the Company acquired 100% ownership in five properties, Park Mall, Sooner Fashion Mall, Lakeview Square, Lansing Mall and Westwood Mall, and a 50% interest in Quail Springs Mall. On October 4, 1996, Park Mall in Tucson, Arizona was acquired for one million shares of newly issued common stock and the payment of $23,995 in cash. Sooner Fashion Mall and 50% of Quail Springs Mall, in Norman and Oklahoma City, Oklahoma, respectively, were acquired on November 27, 1996, for 895,928 newly issued common shares, the assumption of $8,636 of mortgage debt and the payment of $16,695 in cash. On December 6, 1996, the Company acquired Lakeview Square, Lansing Mall and Westwood Mall, all located in south central Michigan for an aggregate purchase price of $132,148. The purchase price consisted of $92,411 of mortgage debt assumption, of which $4,436 was retired at closing, and 1,445,000 newly issued Operating Partnership Units. During 1995, the Operating Partnership acquired 100% ownership interests in two enclosed regional malls, Piedmont Mall in Danville, Virginia and Natick Mall in Natick, Massachusetts. Piedmont Mall was acquired on July 1, 1995, by assuming $19,650 of mortgage debt, issuing $17,908 (832,936 Units) of Operating Partnership Units and the payment of approximately $1,700 in cash. Natick Mall was acquired on December 22, 1995, in conjunction with the GGP/Homart transaction, for an aggregate purchase price of approximately $265,000 consisting of $82,000 in cash and a mortgage loan for $183,000. The acquisitions were accounted for utilizing the purchase method and accordingly, are included in the Operating Partnership's results of operations from the dates of acquisition. DEVELOPMENTS During 1996, the Company acquired two new development sites located in Iowa City, Iowa, and Grand Rapids, Michigan. The Iowa City site is currently under development and is scheduled to open in the summer of 1998. The Company had two properties under development during 1995, West Valley Mall in Tracy, California and Eagle Ridge Mall in Winter Haven, Florida. West Valley opened during the fourth quarter of 1995 and Eagle Ridge opened in February of 1996. In September of 1995, the Company arranged a $120,000 construction loan facility for both developments, collateralized in part by mortgages on West Valley and Eagle Ridge. 6. ACQUISITION OF GENERAL GROWTH MANAGEMENT, INC. On December 22, 1995, the Company formed GGP Management, Inc. to manage, lease, develop and operate enclosed malls. In August 1996, the Operating Partnership, acting through GGP Management, completed the acquisition of GGMI for approximately $51,500. The Operating Partnership issued approximately $11,600 (453,791 Units) of Operating Partnership Units and sold $39,900 of common stock (1,555,855 shares) to GGP Management in order to acquire GGMI. A loan from the Operating Partnership to GGP Management to purchase the Company's common stock bears interest and is reflected on the consolidated balance sheet. In connection with the acquisition, GGP Management was merged into GGMI at closing. GGMI manages, leases, and performs various other services for the Original Centers, GGP/Homart and other properties owned by unaffiliated parties. F-12 42 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 7. MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995, consisted of the following:
Carrying Amount Of Notes December 31, Period Estimated Final Property Pledged ------------------------ Interest Payment Balloon Payment Maturity as Collateral 1996 1995 Rate Terms at Maturity Date - ---------------------------------------------------------------------------------------------------- Bellis Fair(a) $ 73,000 $ - 7.340% (b) $ 45,380 02/15/16 Birchwood 39,549 39,940 8.750% 323 (c) 38,323 09/01/99 Colony Square (l) 22,614 Columbia (l) 45,277 Eagle Ridge(d) 55,584 37,167 (e) (f) 55,584 09/30/98 Fallbrook (l) 41,429 Fox River (l) 58,088 Gateway (o) 41,676 Grandville 11,441 8.500% (f) 11,441 (g) Knollwood 15,561 15,814 (h) 149 (c) 06/01/16 Lakeview Square 27,561 10.000% 268 (c) 23,430 06/15/06 Lansing 1,096 13.250% 19 (c) 841 07/01/99 Lansing 125 9.750% 3 (c) 01/01/02 Lansing 13,648 9.250% 146 (c) 8,240 09/01/04 Lansing 787 9.880% 9 (c) 10/01/10 Lansing 31,957 9.350% 281 (c) 06/15/20 Lockport (l) 6,990 6.500% Mall of the Bluffs 36,655 37,018 8.750% 299 (c) 35,510 09/01/99 Natick 183,000 183,000 6.000% (i) 177,463 12/22/02 Oakwood 35,691 36,044 8.750% 291 (c) 34,584 09/01/99 Piedmont 14,075 14,075 8.000% (j) 11/15/17 Piedmont 3,040 3,115 8.000% (k) 11/15/13 Piedmont 2,224 Rio West (l) 13,470 River Falls (o) 40,000 SouthShore (l) 9,931 West Valley(d) 56,155 43,758 (e) (f) 56,155 09/30/98 Westwood 12,597 9.850% 102 (c) 11,930 11/01/99 Interim Loan Facility 125,000 Credit Facility 40,000 (e) (f) 40,000 02/01/97 Six properties 208,500 Seven properties(l) 250,000 (m) (f) 250,000 10/15/97 Three properties(n) 115,000 6.880% (b) 104,877 02/15/06 Five properties(o) 152,000 6.410% (f) 152,000 02/15/01 ---------- ---------- $1,168,522 $1,025,130 ========== ==========
(a) Bellis Fair is cross collateralized with the properties in notes (n) and (o). (b) The loan requires payments of interest only through February 15, 2001. After this date payments of principal and interest are required through maturity. (c) Amount represents the monthly payment of interest plus principal. (d) Each of these two properties has a $60,000 construction loan. (e) The interest rate is 150 basis points above LIBOR (LIBOR was 5.375% at December 31, 1996). (f) The loan requires monthly payments of interest only. (g) Note is due and payable when a construction loan is arranged for the project. (h) This mortgage consists of two notes: one with an original principal balance of $16,175 that bears interest at 9.75% and a second note with an original principal balance of $1,500 that bears interest at 10.375%. (i) The loan requires monthly payments of $915 of interest for the first five years and payments of $1,179 of principal and interest for the remaining two years. (j) The bond requires monthly payments of $94 of interest through 11/30/16, the principal amount will amortize over the last 12 months. (k) The bond requires monthly payments of interest and principal that vary from $13 to $32. (l) Seven properties are cross collateralized for the non recourse facility; Colony Square, Columbia, Fallbrook, Fox River, Lockport, Rio West and SouthShore. (m) The interest rate is 100 basis points above LIBOR (LIBOR was 5.375% at December 31, 1996). (n) The three properties are Chapel Hills, Grand Traverse and Pines Mall. The loans are cross-collateralized with the properties in notes (a) and (o). (o) The five properties are Bayshore, Capital, Gateway, Greenwood and River Falls Mall. The loans are cross- collateralized with the properties in notes (a) and (n). F-13 43 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) Based on borrowing rates available to the Company at the end of 1996 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes payable approximates carrying value at December 31, 1996 and 1995. Principal amounts due under mortgage notes payable mature as follows:
Year Amount Maturing ---- --------------- 1997 $ 304,531 1998 115,138 1999 125,047 2000 2,391 2001 154,637 Subsequent 466,778 --------------- Total $1,168,522 ===============
Land, buildings and equipment related to such mortgages, with an aggregate cost as of December 31, 1996, of approximately $1,527,754, have been pledged as collateral for the above debt. Certain property partnership assets are cross-collateralized or cross-defaulted pursuant to certain mortgage notes. CREDIT FACILITY In January 1994, the Operating Partnership arranged a $208,500 credit facility collateralized in part by six original centers, with an initial term of two years and two one-year extension options. Approximately $140,000 was borrowed as the initial draw on this facility to fund a portion of the cash purchase price paid by the Operating Partnership for its interest in CenterMark (see Note 3). In May 1995, the outstanding balance of the credit facility was reduced with the proceeds of the Operating Partnership's follow-on stock offering. The facility was retired on January 31, 1996 with the proceeds from a permanent mortgage financing. In December 1995, the Operating Partnership arranged a $125,000 interim loan facility to complete the GGP/Homart transaction. The interim loan facility was retired during 1996 with a permanent mortgage financing and proceeds of the CenterMark sale (see Note 3). CONSTRUCTION LOAN FACILITY In September 1995, the Operating Partnership closed a $120,000 construction loan facility collateralized in part by two new developments in Winter Haven, Florida and Tracy, California. The loan proceeds will be used to pay for construction and all other development costs of both projects. PERMANENT MORTGAGE FINANCING On January 31, 1996, the Operating Partnership closed a $340,000 multi-property loan package with Principal Mutual Life Insurance Company. The financing is non recourse and consists of cross collateralized first mortgages on nine wholly owned Original Centers as described in notes (a), (n) and (o) in the above table. The five year loans can be extended for five additional years. Proceeds were used to repay $340,000 of floating rate debt, consisting of approximately $290,000 of existing loans related to the credit facility, Gateway and River Falls mortgages, and $50,000 of interim financing which was used in connection with the acquisition of GGP/Homart. F-14 44 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) UNSECURED LINE OF CREDIT In August 1996, the Operating Partnership established a short-term revolving line of credit of $40,000. The unsecured line of credit was arranged for new developments, expansions, working capital and potential acquisitions. NON RECOURSE BRIDGE LOAN FACILITY On October 15, 1996, the Operating Partnership arranged a $250,000 one year bridge loan facility from Goldman Sachs Mortgage Company. The proceeds from this loan were used to pay off approximately $197,000 of maturing loans on seven wholly owned properties and to pay down the Operating Partnership's unsecured line of credit. The Operating Partnership is in the process of arranging a permanent loan to replace the bridge loan prior to its maturity on October 15, 1997. SUBSEQUENT FINANCING ACTIVITY On January 2, 1997, the Operating Partnership received $130,500 of proceeds from the sale of CenterMark (see Note 3). The proceeds were used to payoff and/or reduce a $12,597 mortgage collateralized by Westwood Mall, the unsecured line of credit balance of $40,000 and $70,000 of the $250,000 non recourse bridge facility. The remaining proceeds were used for working capital. 8. NOTES AND CONTRACTS PAYABLE Notes and contracts payable as of December 31, 1996, consist of notes totaling $971 payable in connection with certain real estate tax special assessments. The special assessment notes require periodic payment of interest at rates between 6% and 12.75% and mature at varying dates between 1997 and 2004. The special assessment notes and land contract represent insignificant amounts, and it is not practical to estimate the fair value due to lack of market information. As of December 31, 1996 and 1995, the Operating Partnership had outstanding letters of credit of $6,200 and $6,247, respectively, in connection with special assessments and liability insurance requirements. F-15 45 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 9. RENTALS UNDER OPERATING LEASES The Company receives rental income from the leasing of retail shopping center space under operating leases. The minimum future rentals based on operating leases held as of December 31, 1996, are as follows:
Year Amount ---- -------- 1997 $138,322 1998 132,169 1999 124,370 2000 116,715 2001 105,477 Thereafter 513,714
Minimum future rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales or as reimbursement of shopping center operating expenses. No single tenant collectively accounts for more than 10% of the Company's total revenues. The tenant base includes national and regional retail chains and local retailers, and consequently the Company's credit risk is concentrated in the retail industry. 10. TRANSACTIONS WITH AFFILIATE GGMI has been contracted to provide management, leasing, development and construction management services to the property partnerships. In addition, certain shopping center advertising and payroll costs of the property partnerships are paid by GGMI and reimbursed by the Company. Total costs included in the consolidated financial statements related to agreements with GGMI are as follows:
Year Ended December 31, 1996 1995 1994 -------- -------- -------- Management and Leasing Fees $ 7,956 $ 8,514 $ 7,015 Cost Reimbursements 23,641 20,049 18,763 Development Costs 1,529 1,637 1,204
Interest paid and accrued to GG Development, including amounts capitalized, was $1,169 for the year ended December 31, 1994. In December 1996, the Operating Partnership acquired a development site located in Grand Rapids, Michigan from GG Development for $11,441. GG Development was liquidated subsequent to the acquisition. 11. GROUND LEASES The Company leases the Knollwood Mall land, Rio West Mall land, a portion of the Fallbrook Mall building and land and a portion of the SouthShore and Bayshore parking areas from third parties. The leases generally require fixed annual payments plus participation rentals. Rental expense including participation rent related to these leases was $590, $526 and $525 for the years ended December 31, 1996, 1995 and 1994, respectively. The leases provide for a right of first refusal in favor of the Company in the event of a proposed sale of the property by the landlord. F-16 46 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 12. STOCK INCENTIVE PLAN The Company's Stock Incentive Plan provides incentives to attract and retain officers and key employees. The Stock Incentive Plan originally consisted of 1,000,000 shares of common stock available for grant. On May 21, 1996, the number of shares under the plan were increased to 2,000,000. Options are granted by the Compensation Committee of the Board of Directors at an exercise price of not less than 100% of the fair market value of the Common Stock on the date of grant. The term of the option is fixed by the Compensation Committee, but no option shall be exercisable more than 10 years after the date of the grant. Options granted to employee-officers are for 10-year terms and are exercisable in either 33 1/3% or 20% annual increments from the date of the grants. Options granted to non-employee directors are exercisable in full commencing on the date of grant and expire on the tenth anniversary of the date of the grant. A summary of the status of the Company's stock options as of December 31, 1996, 1995 and 1994 and changes during the year ended on those dates is presented below.
1996 1995 1994 ---------------------- ------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ------------------- -------------------- Outstanding at beginning of year 425,500 $ 19.50 173,500 $ 20.89 160,000 $ 21.58 Granted 502,000 $ 27.97 312,000 $ 19.02 163,500 $ 20.81 Exercised (66,667) $ 20.81 Forfeited (33,333) $ 20.81 Cancelled (60,000) $ 21.03 (150,000) $ 21.54 ----------------------- ------------------- -------------------- Outstanding at end of year 827,500 $ 24.48 425,500 $ 19.50 $ 173,500 $ 20.89 ======================= =================== ==================== Exercisable at end of year 267,500 161,500 55,500 Options available for future grants 1,105,833 574,500 826,500 Weighted average per share fair value of options granted during the year $ 2.28 $ 1.53
The fair value of each option grant for 1996 and 1995 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1996 1995 --------- --------- Risk free interest rate 5.78% 5.68% Dividend yield 7.75% 7.75% Expected life 4.0 years 4.0 years Expected volatility 18.8% 18.8%
F-17 47 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------- ----------------------- Weighted Average Weighted Weighted Number Remaining Average Options Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/96 Life Price at 12/31/96 Price - --------------- ----------- ----------- -------- ----------- ---------- $19.00 - $28.00 827,500 9.3 years $24.48 267,500 $22.46
The Company has applied Accounting Principles Board Opinion 25 and selected interpretations in accounting for its plan. Accordingly, no compensation costs have been recognized. Had compensation costs for the Company's Plan been determined based on the fair value at the grant date for options granted in 1996 and 1995 in accordance with the method required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been reduced to the pro forma amounts as follows:
Year Ended December 31, 1996 1995 ------------ ------------ Net Income As Reported $59,742 $43,054 Pro Forma $59,536 $42,991 Net Income per share As Reported $ 2.12 $ 1.69 Pro Forma $ 2.12 $ 1.69
F-18 48 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 13. EXTRAORDINARY ITEMS The extraordinary items resulted from prepayment costs and unamortized deferred financing costs related to the early extinguishment of mortgage notes payable. 14. DISTRIBUTIONS PAYABLE On December 17, 1996, the Company declared a cash distribution of $.43 per share payable January 31, 1997, to stockholders of record on December 31, 1996, totaling $13,239. In addition, a distribution of $7,505 will be paid to the limited partners of the Operating Partnership. On December 15, 1995, the Company declared a cash distribution of $.43 per share payable January 31, 1996, to stockholders of record on December 29, 1995, totaling $11,727. In addition, a distribution of $6,923 was paid to the limited partners of the Operating Partnership. On December 30, 1994, the Company declared a cash distribution of $.41 per share payable January 31, 1995, to stockholders of record on January 17, 1995, totaling $9,337. In addition, a distribution of $6,259 was paid to the limited partners of the Operating Partnership. The allocations of the distributions declared and paid for income tax purposes are as follows: YEAR ENDED DECEMBER 31, 1996 1995 1994 -------- -------- -------- Ordinary Income 47.0% 51.6% 53.2% Capital Gain 53.0 48.4 - Return of Capital - - 46.8 ------- ------- ------- 100.0% 100.0% 100.0% ======= ======= =======
15. COMMITMENTS AND CONTINGENCIES In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position, results of operations or liquidity of the Company. The Company has entered into several contingent agreements for the acquisition of properties. Each acquisition is subject to satisfactory completion of due diligence and, in the case of developments, completion and occupancy of the project. F-19 49 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 16. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Due to the impact of the acquisition of 100% of Lakeview Square Mall, Lansing Mall, Westwood Mall, Park Mall, and Sooner Mall and 50% of Quail Springs Mall, which occurred in the fourth quarter of 1996, the follow-on stock offering in 1995, acquisitions of Natick Mall and 38.2% of GGP/Homart in 1995, the acquisition of 40% of CenterMark in 1994 and the sale of 25% and 40% of the Company's interest in CenterMark during 1995 and 1996, historical results of operations may not be indicative of future results of operations. The pro forma condensed consolidated statements of operations for 1996 include adjustments for the acquisition of 100% of the five operating properties, 50% of Quail Springs Mall and the disposition of 40% of the original 40% interest in CenterMark Properties as if they had occurred on January 1, 1996. The pro forma condensed consolidated statements of operations for 1995 include adjustments for the acquisition of 100% of the five operating properties, 50% of Quail Springs Mall, GGP/Homart, the follow-on stock offering, Natick Mall and the disposition of 65% of the original 40% interest in CenterMark Properties as if they had occurred on January 1, 1995. The pro forma condensed consolidated statements of operations for 1994 include adjustments for the follow-on stock offering, the acquisitions of Natick Mall, 38.2% of GGP/Homart and the sale of 25% of the Company's interest in CenterMark as if these transactions had occurred on January 1, 1994. The pro forma information is based upon the historical consolidated statements of operations and does not purport to present what actual results would have been had the offerings, acquisitions, sale and related transactions, in fact, occurred at the previously mentioned dates, or to project results for any future period.
1996 1995 1994 ---------- ---------- --------- Total revenues $ 242,633 $ 228,030 $ 159,646 ---------- ---------- --------- Expenses: Property operating 80,700 76,188 61,088 Management fees 3,130 4,208 4,671 Depreciation and amortization 43,687 40,423 29,230 ---------- ---------- --------- Total expenses 127,517 120,819 94,989 ---------- ---------- --------- Operating income 115,116 107,211 64,657 Interest expense, net (72,997) (74,168) (49,496) Equity in net income/(loss) of unconsolidated affiliates Quail Springs Mall 998 927 CenterMark 10,350 8,023 4,573 GGP/Homart 9,355 9,075 7,924 General Growth Management, Inc. (1,273) ---------- ---------- --------- 61,549 51,068 27,658 Minority interest in operating partnership 22,952 19,202 9,929 ---------- ---------- --------- Pro forma net income (a) $ 38,597 $ 31,866 $ 17,729 ========== ========== ========= Pro forma earnings per share (b) $ 1.30 $ 1.09 $ 0.65 ========== ========== =========
(a) The pro forma adjustments include management fee and depreciation modifications and acquisition and disposition activity described in the above paragraph. The equity income from CenterMark reflects the reductions in ownership interest offset by the change from the equity method of accounting to the cost method in 1996 and 1995. Pro forma net income is before extraordinary item. (b) Earnings per share are based upon 29,717,353, 29,168,488 and 27,272,560 pro forma average shares of common stock outstanding for the years ended December 31, 1996, 1995 and 1994, respectively. F-20 50 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended First Second Third Fourth December 31, 1996 Quarter Quarter Quarter Quarter Total - --------------------------------------------------------------------------------------------------------------------------------- Total Revenues $ 56,367 $ 56,934 $ 51,569 $ 52,535 $217,405 Income before minority interest 9,810 11,607 58,275 16,921 96,613 Net income applicable to common shares 4,705 7,275 36,667 11,095 59,742 Net earnings per share(a) 0.18 0.27 1.33 0.36 2.12 Distributions declared per share 0.43 0.43 0.43 0.43 1.72 Weighted average shares outstanding (in thousands) 27,273 27,273 27,554 30,180 28,221
(a) Earnings per share for the four quarters do not add up to the annual earnings per share due to the issuance of additional stock and the gain on the sale of a portion of CenterMark stock in the third quarter.
Year Ended First Second Third Fourth December 31, 1995 Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------------------------------------------------- Total Revenues $ 39,180 $ 38,490 $ 42,509 $ 47,217 $167,396 Income before minority interest 6,420 7,659 10,033 44,798 68,910 Net income applicable to common shares 3,836 4,733 6,262 28,223 43,054 Net earnings per share 0.17 0.19 0.23 1.03 1.69 Distributions declared per share(b) 0.41 0.41 0.41 0.43 1.66 Weighted average shares outstanding (in thousands) 22,773 24,701 27,273 27,273 25,522
(b) Earnings per share for the four quarters do not add up to the annual earnings per share due to the issuance of additional stock and the gain on the sale of a portion of CenterMark stock in the fourth quarter. F-21 51 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders General Growth Properties, Inc. Our report on the consolidated financial statements of General Growth Properties, Inc. is included as page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index to Consolidated Financial Statements on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Chicago, Illinois Coopers & Lybrand L.L.P. February 11, 1997 F-22 52 General Growth Properties, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 1996
Col. A Col. B Col. C Col. D Col. E Costs Capitalized Gross Amounts at Which Initial Cost Subsequent to Acquisition Carried at Close of Period ---------------------- ------------------------ ---------------------------------- Building and Carrying Building and Description Encumbrances (a) Land Improvements (b) Improvements Costs (c) Land Improvements Total(d)(e) - ---------------- ---------------- ------ --------------- ------------ ----------- ----- ------------- ----------- Bayshore Mall, Eureka, CA $ 37,250 $3,004 $27,399 $19,478 $ 2,887 $3,005 $49,764 $52,769 Bellis Fair Mall, Bellingham, WA 73,000 7,616 47,040 5,752 6,122 7,485 58,914 66,399 Birchwood Mall, Port Huron, MI 39,549 1,769 34,575 4,621 1,967 3,043 41,163 44,206 Capital Mall Jefferson City, MO 16,500 4,200 14,201 2,340 0 3,913 16,541 20,454 Chapel Hills Colorado Springs, CO 36,750 4,300 34,017 10,159 37 4,300 44,213 48,513 Colony Square Mall Zanesville, OH 27,000 1,000 24,500 8,112 0 1,243 32,612 33,855 Columbia Mall Columbia, MO 56,000 5,383 19,663 6,263 1,369 5,383 27,295 32,678 Eagle Ridge Mall Lake Wales, FL 55,584 7,620 49,561 0 4,626 7,620 54,187 61,807 Developments in Progress 11,441 41,051 3,388 0 0 41,051 3,388 44,439 Fallbrook Mall, West Hills, CA 51,000 6,117 10,076 53,939 1,628 6,117 65,643 71,760 Fox River Mall Appleton, WI 88,000 2,701 18,291 21,041 1,820 2,701 41,152 43,853 Gateway Mall, Springfield, OR 30,750 8,728 34,707 4,910 7,521 8,728 47,138 55,866 General Growth Properties Chicago, IL 40,000 0 1,035 (946) 0 0 89 89 Grand Traverse Mall, Grand Traverse, MI 51,500 3,530 20,776 17,987 3,644 3,534 42,407 45,941 Greenwood Mall Bowling Green, KY 39,500 3,200 40,202 9,595 0 3,200 49,797 52,997 Knollwood Mall, St. Louis Park, MN 15,561 0 9,748 21,680 1,767 0 33,195 33,195 Lakeview Square Mall Battle Creek, MI 27,561 3,579 32,210 0 0 3,579 32,210 35,789 Col. F Col. G Col. H Col. I Accumulated Date of Date Life Upon Which Description Depreciation Construction Acquired Depreciation is Computed - --------------- ------------ ------------- ---------- ------------------------ Bayshore Mall, $11,374 1986-1987 (f) Eureka, CA Bellis Fair Mall, 15,369 1987-1988 (f) Bellingham, WA Birchwood Mall, 8,153 1989-1990 (f) Port Huron, MI Capital Mall 1,599 1993 (f) Jefferson City, MO Chapel Hills 3,619 1993 (f) Colorado Springs, CO Colony Square Mall 8,837 1986 (f) Zanesville, OH Columbia Mall 9,468 1984-1985 (f) Columbia, MO Eagle Ridge Mall 476 1995-1996 (f) Lake Wales, FL Developments in Progress 0 (f) Fallbrook Mall, 17,615 1984 (f) West Hills, CA Fox River Mall 11,461 1983-1984 (f) Appleton, WI Gateway Mall, 10,066 1989-1990 (f) Springfield, OR General Growth Properties 58 (f) Chicago, IL Grand Traverse Mall, 6,639 1990-1991 (f) Grand Traverse, MI Greenwood Mall 4,426 1993 (f) Bowling Green, KY Knollwood Mall, 10,422 1978 (f) St. Louis Park, MN Lakeview Square Mall 137 1996 (f) Battle Creek, MI
F-23 53 General Growth Properties, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 1996
Col. A Col. B Col. C Col. D Col. E Costs Capitalized Gross Amounts at Which Initial Cost Subsequent to Acquisition Carried at Close of Period ---------------------- ------------------------ ---------------------------------- Building and Carrying Building and Description Encumbrances (a) Land Improvements (b) Improvements Costs (c) Land Improvements Total(d)(e) - ---------------- ---------------- ------ --------------- ------------ ----------- ----- ------------- ----------- Lansing Mall Lansing, MI 47,613 6,978 62,800 0 0 6,978 62,800 69,778 Lockport Mall, Lockport, NY 7,000 800 10,000 3,449 24 800 13,473 14,273 Mall of the Bluffs, Council Bluffs, IA 36,655 1,860 24,016 6,101 2,529 2,084 32,646 34,730 Natick Mall Natick, MA 183,000 65,745 198,359 345 0 65,745 198,704 264,449 Oakwood Mall, Eau Claire, WI 35,691 3,267 18,281 11,426 1,712 3,267 31,419 34,686 Park Mall Tucson, AZ 0 4,996 44,994 0 10 4,996 45,004 50,000 Piedmont Mall, Danville, VA 17,115 2,000 38,000 530 21 2,000 38,551 40,551 The Pines, Pine Bluff, AR 26,750 1,489 17,627 6,002 1,365 1,276 24,994 26,270 Rio West Mall, Gallup, NM 9,000 0 19,500 2,852 0 0 22,352 22,352 River Falls Mall, Clarksville, IN 28,000 3,178 54,610 3,439 5,282 3,182 63,331 66,513 River Hills Mall, Mankato, MN 0 3,714 29,014 14,226 2,584 3,781 45,824 49,605 Sooner Fashion Mall Norman, OK 0 2,700 24,300 0 0 2,700 24,300 27,000 SouthShore Mall, 12,000 Aberdeen, WA 650 15,350 3,621 0 650 18,971 19,621 West Valley Mall, Tracy, CA 56,155 9,295 47,789 0 6,964 9,295 54,753 64,048 Westwood Mall Jackson, MI 12,597 2,658 23,924 0 0 2,658 23,924 26,582 ---------- -------- ---------- -------- ------- -------- ---------- ---------- Grand Totals $1,168,522 $213,128 $1,049,953 $236,922 $53,879 $214,314 $1,340,754 $1,555,068 ========== ======== ========== ======== ======= ======== ========== ========== Col. F Col. G Col. H Col. I Accumulated Date of Date Life Upon Which Description Depreciation Construction Acquired Depreciation is Computed - --------------- ------------ ------------- ---------- ------------------------ Lansing Mall Lansing, MI 264 1996 (f) Lockport Mall, Lockport, NY 3,317 1986 (f) Mall of the Bluffs, Council Bluffs, IA 10,016 1985-1986 (f) Natick Mall Natick, MA 5,124 1995 (f) Oakwood Mall, Eau Claire, WI 8,870 1985-1986 (f) Park Mall Tucson, AZ 141 1996 (f) Piedmont Mall, Danville, VA 1,281 1995 (f) The Pines, Pine Bluff, AR 7,355 1985-1986 (f) Rio West Mall, Gallup, NM 5,530 1986 (f) River Falls Mall, Clarksville, IN 13,396 1989-1990 (f) River Hills Mall, Mankato, MN 7,179 1990-1991 (f) Sooner Fashion Mall Norman, OK 60 1996 (f) SouthShore Mall, Aberdeen, WA 5,012 1986 (f) West Valley Mall, Tracy, CA 1,378 1995 (f) Westwood Mall Jackson, MI 102 1996 (f) -------- Grand Totals $188,744 ========
F-24 54 General Growth Properties, Inc. Notes to Schedule III (Dollars in Thousands) (a) See description of mortgage notes payable in Note 7 of Notes to Consolidated Financial Statements. (b) Initial cost for constructed malls is cost at end of first complete calendar year subsequent to opening. (c) Carrying costs consists of capitalized construction-period interest and taxes. (d) The aggregate cost of land, buildings and equipment for federal income tax purposes is approximately $1 billion.
(e) Reconciliation of Real Estate ------------------------------------------- 1996 1995 1994 ----------- ---------- ----------- Balance at begining of year $ 1,248,892 $ 823,108 $ 786,008 Additions 306,176 425,784 37,100 ----------- ---------- ----------- Balance at close of year $ 1,555,068 $1,248,892 $ 823,108 =========== ========== =========== Reconciliation of Accumulated Depreciation --------------------------------------------- 1996 1995 1994 ----------- ---------- ----------- Balance at begining of year $ 153,275 $ 127,170 $ 102,846 Depreciation Expense 35,469 26,105 24,324 ----------- ---------- ---------- Balance at close of year $ 188,744 $ 153,275 $ 127,170 =========== ========== ==========
(f) Depreciation is computed based upon the following estimated lives: Buildings, improvements and carrying costs 40 years Tenant allowances 10-40 years Equipment and fixtures 10 years F-25 55 EXHIBIT INDEX 2(a) Amended and Restated Stock Purchase Agreement, dated as of October 16, 1995, by and among Sears, Roebuck and Co., Homart Development Co., Homart Newco One, Inc. and GGP/Homart, Inc.(1) 2(b) Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co., Homart Newco One, Inc. and GGP/Homart, Inc.(1) 2(c) Real Estate Purchase Agreement, dated as of July 31, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc.(1) 2(d) Amendment No. 1 to Real Estate Purchase Agreement, dated as of October 16, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc.(1) 2(e) Amendment No. 2 to Real Estate Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc. (1) 2(f) Mall Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and General Growth Properties-Natick Limited Partnership.(1) 2(g) Contribution Agreement dated December 6, 1996, between Forbes/Cohen Properties, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 2(h) Contribution Agreement dated December 6, 1996, between Lakeview Square Associates, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 2(i) Contribution Agreement dated December 6, 1996, between Jackson Properties, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 3(a) Amended and Restated Certificate of Incorporation of the Company.(3) 3(b) Amendment to Amended and Restated Certificate of Incorporation of the Company.(5) 3(c) Certificate to Amended and Restated Certificate of Incorporation of the Company filed on December 21, 1995. 3(d) Bylaws of the Company.(5) 3(e) Amendment to Bylaws of the Company.(5) 4(a) Redemption Rights Agreement, dated July 13, 1995, by and among GGP Limited Partnership, General Growth Properties, Inc. and the persons listed on the signature pages thereof.(8) 4(b) Redemption Rights Agreement dated December 6, 1996, among GGP Limited Partnership, a Delaware corporation, Forbes/Cohen Properties, a Michigan general partnership, Lakeview Square Associates, a Michigan general partnership, and Jackson Properties, a Michigan general partnership.(2) 10(a) Amended and Restated Agreement of Limited Partnership of the Operating Partnership.(6) 10(b) First Amendment to Amended and Restated Agreement of Limited Partnership.(5) 10(c) Second Amendment to Amended and Restated Agreement of Limited Partnership.(5) 10(d) Third Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(e) Fourth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(f) Fifth Amendment to Amended and Restated Agreement of Limited Partnership.(9) S-1 56 10(g) Sixth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(h) Seventh Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(i) Eighth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(j) Rights Agreement between the Company and the Limited Partners of the Operating Partnership.(6) 10(k) Agreement Concerning Indemnification between the Company, the Operating Partnership and the Limited Partners of the Operating Partnership.(6) 10(l) Agreement of Limited Partnership of GG Development.(3) 10(m) Letter Agreement dated December 30, 1992, among the partners of GG Development with respect to assignment of interests to the Operating Partnership.(3) 10(n) Form of Management Agreement between the Property Manager and a Property Partnership.(3) 10(o) Form of Management Agreement between the Property Manager and the Operating Partnership.(3) 10(p) Real Estate Management Agreement dated July 1, 1996, between General Growth Management, Inc. and GGP Limited Partnership. 10(q)* General Growth Properties, Inc. 1993 Stock Incentive Plan, as amended.(5) 10(r) Forms of Cash Flow Support Agreements between the Operating Partnership and the partners of GG Development.(3) 10(s) Form of Amended and Restated Agreement of Partnership for each of the Property Partnerships.(3) 10(t) Sale-Purchase Agreement dated as of December 30, 1992, by and between Equitable and the Company.(3) 10(u) Sale-Purchase Agreement dated as of December 30, 1992, by and between GG Development and the Company.(3) 10(v) Form of Indemnification Agreement between the Company and its directors and officers.(3) 10(w) Form of Indemnification Agreement between the Operating Partnership, Martin Bucksbaum, Matthew Bucksbaum, Mall Investment L.P. and M. Bucksbaum Company.(3) 10(x) Form of Registration Rights Agreement between the Company and the Bucksbaums.(3) 10(y) Form of Registration Rights Agreement between the Company and certain trustees for the IBM Retirement Plan.(3) 10(z) Form of Incidental Registration Rights Agreement between the Company, Equitable, Frank Russell and Wells Fargo.(3) 10(aa) Form of Letter Agreements restricting sale of certain shares of Common Stock.(3) S-2 57 10(bb) Stock Purchase Agreement, as amended, by and among The Prudential Insurance Company of America, GGP Limited Partnership, Westfield U.S. Investment, Pty. Limited and Whitehall Street Real Estate Limited Partnership III dated as of December 13, 1993.(7) 10(cc)* Letter Agreement dated October 14, 1993, between the Company and Bernard Freibaum.(6) 10(dd) Form of Stock Purchase Agreement by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and Westfield Corporation, Inc.(2) 10(ee) Form of GGP Option Agreement by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and CenterMark Properties, Inc.(2) 10(ff) GGP Agreement, dated May 13, 1996, by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and CenterMark Properties, Inc.(4) 10(gg)* Form of Option Agreement between the Company and certain executive officers. 21 List of Subsidiaries. 23 Consent of Coopers & Lybrand L.L.P. - Independent Accountants. 24 Powers of Attorney 27 Financial Data Schedule *A compensatory plan or arrangement required to be filed. (1) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated January 5, 1996. (2) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated January 3, 1996. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 33-56640), incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated July 16, 1996. (5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (7) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated February 25, 1994. (8) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated July 17, 1996. (9) Previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 33-23035), incorporated herein by reference. S-3 EX-3.(C) 2 AMND. TO AMENDED AND REST. CERT. OF INCORPORATION 1 EXHIBIT 3(C) CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GENERAL GROWTH PROPERTIES, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON MAY 24, 1995 It is hereby certified that: 1. The name of the corporation (the "corporation") is General Growth Properties, Inc. 2. The Second Amended and Restated Certificate of Incorporation of the corporation, was filed by the Secretary of State of Delaware on May 24, 1995, and is hereby corrected, as permitted by Section 103(f) of the General Corporation Law of the State of Delaware. 3. Article IV D.(1) of said instrument, and more specifically, the definition of the term "Ownership Limit" set forth therein, currently contains an inaccuracy in that it establishes the initial Ownership Limit at 5%, rather than 7.5%, of the value of the outstanding Equity Stock of the Corporation. 4. The definition of "Ownership Limit" set forth in Article IV D.(1) of said instrument in its corrected form is as follows: "Ownership Limit" shall initially mean 7.5% of the value of the outstanding Equity Stock of the Corporation, and after any adjustment as set forth in subparagraph D(11) of the Article IV, shall mean such greater percentage (but not more than 9.8%) of the value of the outstanding Equity Stock as so adjusted. IN WITNESS WHEREOF, said General Growth Properties, Inc. has caused this certificate to be signed by MATTHEW BUCKSBAUM, its Chairman and CEO this 21st day of December, 1995. GENERAL GROWTH PROPERTIES, INC. By: ------------------------------ Its: Chairman and CEO Attest: - ------------------------------ Marshall E. Eisenberg, Secretary EX-10.(P) 3 REAL ESTATE MANAGEMENT AGREEMENT DATED 7-1-96 1 EXHIBIT 10(p) REAL ESTATE MANAGEMENT AGREEMENT THIS AGREEMENT is made this 1st day of July, 1996, between GGP Limited Partnership, a Delaware limited partnership, having an office at 55 West Monroe, Chicago, Illinois, 60603, ("Owner"), and GENERAL GROWTH MANAGEMENT, INC., a Delaware corporation, having a principal address at 55 West Monroe, Chicago, Illinois, 60603 ("Agent"). WITNESSETH In consideration of the Covenants herein contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I APPOINTMENT AND AUTHORITY OF AGENT 1.1 Owner owns the shopping centers (each individually referred to as the "Premises"), identified on Exhibit A attached hereto and made a part hereof. Owner hereby appoints Agent as the exclusive managing and leasing agent for the Premises, and hereby authorizes Agent to exercise such powers with respect to the Premises as is permitted herein, and as may be necessary for the performance of Agent's obligations under Article II, and Agent accepts such appointment on the terms and conditions hereinafter set forth for the term provided in Article V. Agent shall have no right or authority, express or implied, to commit or otherwise obligate Owner in any manner whatsoever except to the extent specifically provided herein and agrees that it shall not hold itself out as having authority to act on behalf of Owner in any manner which is beyond the scope of the terms of this Agreement. ARTICLE II AGENT'S AGREEMENT 2.1 Agent, on behalf of Owner, shall implement, or cause to be implemented, the decisions of Owner and shall conduct the ordinary and usual business affairs of Owner as provided in this Agreement. Agent shall at all times conform to the policies and programs established by Owner and the scope of Agent's authority shall be limited to said policies. Agent shall act in a fiduciary capacity with respect to the cash and cash equivalent assets of Owner which are within the custody or control of Agent. Agent shall deal at arm's length with all parties and serve Owner's interests at all times. All undertakings incurred by Agent on behalf of Owner in accordance with this Agreement shall be at the cost and expense of Owner unless otherwise provided for herein. Agent agrees to use diligent efforts in the management and operation of the Premises. Agent shall perform the following duties in connection with the management and operation of the Premises: 2 (a) Contract, for periods limited to Owner's possession of the Premises, but not in excess of one (1) year, in the name of Owner, for gas, electricity, water and such other services as are being currently furnished to the Premises. Service contracts shall be written to include a provision allowing termination by Owner upon 30 days' notice whenever possible. All service contracts in effect at the date hereof for the Premises, including the terms thereof (with cancellation right, if any), the services provided thereunder and the charges called for thereby, should be detailed in the annual budget package. No such contract, other than for water or utilities, which involves an expenditure in excess of the amount set forth in paragraph 3 of Exhibit A attached hereto shall hereinafter be entered into by Agent without the prior approval of Owner. (b) Select, employ, pay, supervise, direct and discharge all employees necessary for the proper, safe and economic operation and maintenance of the Premises, in number and at wages in accordance with industry practices and the annual budget, carry Worker's Compensation Insurance (and, when required by law, compulsory Non-Occupational Disability Insurance) covering such employees, and use reasonable care in the selection and supervision of such employees. Agent shall keep bi-weekly time sheets which shall be available for inspection by Owner. Agent shall prepare or cause to be prepared and timely filed and paid, all necessary returns, forms and # payments in connection with unemployment insurance, medical and life insurance policies, pensions, withholding and social security taxes and all other taxes relating to said employees which are imposed by any federal, state or municipal authority. Agent shall also provide usual management services in connection with labor relations and shall prepare, maintain and file all necessary reports with respect to the Fair Labor Standards Act and all other required statements and reports pertaining to labor employed at the Premises. Agent shall use diligent efforts to comply with all laws and regulations and collective bargaining agreements, if any, affecting such employment. Owner shall have the right to review and approve all collective bargaining agreements which affect the Premises prior to their implementation or acceptance by Agent. Agent shall be and shall continue throughout the term of this Agreement to be an equal opportunity employer. All persons employed in connection with the operation and maintenance of the Premises shall be employees of Agent or employees of contractors approved by Owner to provide contract services to the Premises. (c) Keep the Premises in a safe, clean, rentable and sightly condition and make and contract for all repairs, alterations, replacements, and installations, do all decorating and landscaping, and purchase all supplies necessary for the proper operation of the Premises or the fulfillment of Owner's obligations under any lease, operating agreement or other agreement or compliance with all governmental and insurance requirements, provided that, except as provided in Section 2.4 hereof, Agent shall not make any purchase or do any work, the cost of which shall exceed the approved budget or the amount set forth in paragraph 3 of Exhibit A attached hereto, without obtaining in each instance the prior approval of Owner, except in circumstances which Agent shall deem to constitute an emergency requiring immediate action for the protection of the Premises or of tenants or other persons or to avoid the suspension of necessary services or in order to cure any violation or other condition which would subject Owner or Agent to any criminal penalty or any civil fine in excess of $5,000.00. Agent shall notify Owner immediately of the necessity for, the nature of, and the cost of, any such emergency repairs or any action to cure any such violation or other condition. Agent shall arrange for and supervise, on behalf of Owner, the performance of all 3 alterations and other work to prepare or alter space in the Premises for occupancy by tenants thereof. If Owner shall require, Agent shall submit a list of contractors and subcontractors performing tenant work, repairs, alterations or services at the Premises under Agent's direction. It is understood that Agent shall not be required to undertake the making or supervision of extensive reconstruction of the Premises or any part thereof except after written agreement by the parties hereto as to any additional fee to be paid for such services. Owner shall receive the benefit of all discounts and rebates obtainable by Agent in its operation of the Premises, except that Agent shall be permitted to keep up to a five percent rebate for goods purchased for the Premises through Agent's central purchasing department. When requested by Owner, Agent agrees to obtain competitive bids for the performance of any work at the Premises, to furnish copies of such bids to Owner and to accept such bid as Owner may direct. If Agent desires to contract for repair, construction or other service described in this paragraph (c) (other than work done at the request of a tenant and at the tenant's sole cost and expense, hereinafter referred to as "Tenant Work") with a party with respect to which any partner or shareholder of Agent holds a beneficial interest, or with any subsidiary, affiliate or related corporation in which Agent shall have a financial interest, such interest shall be disclosed to, and approved by, Owner before such services are procured. The cost of any such services shall likewise be at competitive rates, notwithstanding that tenants of the Premises may be required to pay such costs. Agent, or the general contractor working under the supervision of Agent, is authorized to make and install Tenant Work, and Agent may collect from such tenant or such general contractor, for its sole account, its charge for supervisory overhead on all such Tenant Work. Agent shall hold Owner harmless from any claims which may be advanced by any such tenant in connection with Tenant Work performed by Agent or under Agent's supervision. Agent, however, shall not require any tenant to use Agent, its subsidiary, affiliate or related corporation or its general contractor to perform such Tenant Work. (d) Handle promptly complaints and requests from tenants and parties to reciprocal easement and/or operating agreements, notify Owner of any major complaint made by any such tenant or party and notify owner promptly (together with copies of supporting documentation) of: the receipt of any notice of violation of any governmental requirements; any known orders or requirements of insurers, insurance rating organizations, Board of Fire Underwriters or similar bodies; any known defect in the Premises; any known fire or other damage to the Premises, and, in the case of any serious fire or other serious damage to the Premises, Agent also shall immediately provide telephone notice thereof to Owner's General Insurance Of rice, so that an insurance adjuster can view the damage before repairs are started. and complete customary loss reports in connection with fire or other damage to the Premises. (e) Notify Owner's General Liability Insurance carrier and Owner promptly of any personal injury or property damage known to Agent occurring to or claimed by any tenant or third party on or with respect to the Premises and promptly forward to the carrier, completed insurance forms, any summons, subpoena, or other like legal document served upon Agent relating to actual or 4 alleged potential liability of Owner, Agent, or the Premises, with copies to Owner of all such documents. (f) Advise Owner of those exceptions in leases, operating agreements and other agreements in which the tenants or parties to such agreements do not agree to hold Owner harmless with respect to liability from any accidents. (g) At the option of Owner, receive and collect rent and all other monies payable to Owner by all tenants and licensees in the Premises and by all other parties including department stores under ground leases and reciprocal easement agreements and tenants under leases of free-standing stores. In this connection, Agent shall calculate all amounts due to Owner from such tenants, licensees and other parties, including annual or periodic adjustments where applicable, and shall, when appropriate, submit statements or invoices to such tenants, licensees and parties. Agent shall deposit the same promptly in the banks periodically designated by Owner (the "Bank") in accounts with title including a distinctive portion of Agent's name and such designation as Owner may direct (the "Bank Account"), which account shall be used exclusively for such funds. Owner's representative will be a signatory on all bank accounts maintained by Agent and such representative's signature shall be required on all checks in excess of $100,000.00 and for withdrawals in excess of $2,000,000.00 in any month. All amounts received by Agent for or on behalf of Owner shall be and remain the property of Owner. Checks may be drawn on the above-mentioned bank account only for purposes authorized under this Agreement. No funds of Agent or others shall be commingled with funds in any such bank account. Owner has the right to control the types of cash management accounts and dictate the specifics of said accounts with respect to disbursement and management of funds. (h) Serve notice of default upon tenants of space in the Premises and other parties which are in default in performing obligations under their leases, reciprocal easement and/or other agreements, with copies sent simultaneously to Owner, and attempt to cause such defaults to be cured. Agent shall, subject to Owner's consent with respect to any tenant who occupies more than 1,000 square feet, utilizing counsel theretofore approved by Owner, institute all necessary legal action or proceedings for the collection of rent or other income from the Premises or the ousting or dispossessing of tenants or other persons therefrom and all other matters requiring legal attention. Agent agrees to use its best efforts to collect rent and other charges from tenants and other occupants of the Premises in a timely manner, and to pursue Owner's legal remedies for nonpayment of same. Agent shall not terminate tenant leases in the Premises without Owner's consent. Owner reserves the right to designate or approve legal counsel and to control litigation affecting or arising out of the operation of the Premises, including without limitation the settlement of such litigation. (i) Bond Agent and all of Agent's employees who may handle or be responsible for monies or property of Owner with a "comprehensive 3-D" or "Commercial Blanket" bond, in an amount of $ 1,000,000.00. (j) Notify Owner immediately of any known fire, accident or other casualty, condemnation proceedings, rezoning or other governmental order, lawsuit or threat thereof involving the 5 Premises; and the receipt of any notice of violations relative to the leasing, use, repair and maintenance of the Premises under governmental laws, rules, regulations, ordinances or like provisions. (k) If Owner so directs, make timely payment of real estate and personal property taxes and assessments levied or assessed against the Premises or personal property used in connection therewith and any other charge that may become a lien against the Premises. Owner may direct that payment of such taxes and assessments either be made to the taxing authority or to a mortgage lender holding an escrow account for such items. Agent shall participate in Owner's tax review program and check tax assessments and, when so requested, Agent shall assist Owner in its efforts to reduce such taxes. Agent shall promptly furnish Owner with copies of all assessment notices and receipt tax bills. (l) Cooperate with Owner in attaining certain corporate objectives, including, purchase and reporting of goods and services furnished or supplied by minority groups. (m) Promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of all Federal, state and local governments, courts, departments, commissions, boards and offices, any national or local Board of Fire Underwriters or Insurance Services offices having jurisdiction, or any other body exercising functions similar to those of any of the foregoing ("Legal Requirements") which may be applicable to the Premises or any part thereof or to the leasing, use, repair, operation and management thereof, but only to the extent that such compliance is reasonably capable of being carried out by Agent and Agent has available the necessary funds therefor from collections or advances by Owner. Agent shall give prompt notice to Owner of any known violation or the receipt of notice of alleged violation of such laws and Agent shall not bear responsibility for failure of the Premises or the operation thereof to comply with such laws unless Agent has committed gross negligence or willful misconduct in the performance of Agent's obligations under this Agreement or in the performance of any other duties owed to Owner or third parties by Agent. If and when directed by Owner, Agent shall institute in its name, or in the name of Owner, using counsel selected by Owner, appropriate actions or proceedings to contest any such law, ordinance, rule, regulation, order, determination or requirement. (n) Promote the Premises and participate as Owner's representative in any Merchant's Associations or Advertising and Promotional Organizations (collectively, the "Promotional Organizations") established to promote the Premises. (o) Consent to and approve tenant alteration work and installations which are performed by tenants of leased space in the Premises and are provided for in the leases of such tenants. Agent is authorized to approve tenant alteration work and installations not provided for in leases if (i) such alteration work and installations are made solely at the expense of the tenant, and (ii) such alteration work and installations do not affect the structural or mechanical integrity of any building. Agent shall periodically monitor the progress of any tenant alteration work and installations that are visible to the public to confirm that the tenant work is being done in a good and workmanlike manner, and in substantial conformity with any plans and specifications approved by Owner or 6 Agent. Agent shall notify Owner of any material deficiencies or material variations from the approved plans and specifications of any tenant. (p) Provide, upon Owner's request in accordance with the provisions of Section 7 and Section 9 of Exhibit A, general contracting and construction management services ("Development Services") and consultation to Owner for the Premises, which shall include, without limitation, the management, supervision and administration of, and provisions for services for the improvement expansion (and in the event of damage or condemnation, the reconstruction) of the Premises, including advice, expertise and support of Agent provided and/or retained and/or coordinated by home office and on-site personnel including, without limitation, executive personnel, design and engineering personnel, clerical personnel, legal and accounting personnel. Such personnel shall perform consultation and various functions involved with Development Services including, without limitation, the following: design, planning, architectural, engineering, acquisition and negotiation, negotiations with department stores and other anchors for site acquisition and operation in the Premises; permits and licenses; preopening advertising and publicity; market research, site work; negotiations with public authorities; attendance of, public hearings; project management and all other activities necessary to accomplish the improvement, expansion or reconstruction of the Premises. It is understood that Development Services and consultation with Owner may or may not involve Agent's in-house personnel; by mutual agreement of Agent and Owner, outside professionals or other persons may be engaged to provide Development Services and consultation with Owner, provided that Agent agrees to require any contractor or subcontractor brought onto the Premises to have workers' compensation and employers liability insurance in the necessary statutory amounts and comprehensive general liability insurance for at least $ 1,000,000.00. (q) If Owner so directs, pay when due (i) all debt service and other amounts due under any mortgages which encumber the Premises or any part thereof, and (ii) all rent and other charges payable under any ground lease of land included in the Premises under which Owner is the tenant and give Owner notice of the making of each payment. (r) Carry out and comply with, directly or through a third party, all requirements on the part of Owner under all such mortgages and ground leases, all leases of space in the Premises, all ground leases and reciprocal easement agreements with department stores and all other agreements affecting or relating to the Premises which are known or made known to Agent, including, without limitation, the furnishing of all services and utilities called for therein, but only to the extent that such requirements are at the time reasonably capable of being carried out by Agent and Agent has available the necessary funds therefor from collections or advances by Owner, provided that Agent shall promptly notify Owner if Agent cannot carry out such requirements or has insufficient funds available to do so. Agent shall notify Owner promptly of any default under any such mortgage, lease, ground lease, reciprocal easement or other agreement on the part of Owner, the tenant or other party thereto of which Agent becomes aware. (s) Use its reasonable efforts to comply with and require compliance with the requirements of leases of space in the Premises, ground leases, reciprocal easement agreements and all other agreements affecting or relating to the Premises which are known or made known to Agent on the 7 part of tenants, department stores and other parties thereto and enforce compliance with the rules and regulations, sign criteria and like standards for the Premises adopted by Owner from time to time. (t) Furnish Owner with an executed copy of each lease, lease renewal, lease amendment, service contract and other agreement entered into on or after the date of this Agreement in connection with the operation, management and leasing of the Premises, and use reasonable efforts to secure from tenants and parties to reciprocal easement agreements, and furnish to Owner, any certificates of insurance and renewals thereof required to be furnished by the terms of their leases or agreements. All such executed copies of leases shall be maintained in Agent's office with additional lease copies together with Insurance Certificates maintained at each of the shopping center locations. (u) Inspect the Premises periodically and submit reports of findings and recommendations to Owner which shall include, without limitation, recommendations as to required repairs, replacements or maintenance. Agent shall keep and submit annual written reports of all material alterations made to the Premises, no matter by whom effected. (v) Erect barriers or chains for the purpose of blocking access to the common areas of and buildings included in the Premises as local law may require, or, as directed in writing by Owner, in order to avoid the dedication of the same for public use and furnish appropriate evidence of same to Owner. Agent shall give any advance notice of the erection of such barriers or chains which may be required under reciprocal easement agreements or ground leases with department stores. (w) Use its reasonable efforts to obtain from tenants of the Premises and department stores which are parties to reciprocal easement agreements or ground leases waivers of their insurers' rights of subrogation in respect to policies of fire and extended coverage and other property damage insurance carried by them in favor of Owner, Agent and any department store or tenant for which Owner is obligated to attempt to obtain such waivers under a ground lease, reciprocal easement agreement or space lease. (x) Assist Owner in preparing any statements required to be submitted by Owner under the terms of mortgages, ground leases, reciprocal easement agreements and leases. (y) Perform its duties in renting, managing, operating and maintaining the Premises applying prudent and reasonable business practices which are consistent with those followed in respect of the Premises prior to the date of this Agreement, using reasonable care and diligence in carrying out properly and efficiently its responsibilities under this Agreement. Agent shall maintain those portions of the common areas of the Premises which are Owner's obligation to maintain in a clean, safe and attractive condition, use reasonable efforts to enforce the provisions of applicable leases, ground leases and reciprocal easement agreements so as to cause tenants and department stores to maintain their premises and common areas, if any, in similar condition, arrange for necessary security for the Premises and their common areas and arrange for cleaning and snow removal for the parking areas and roadways of the Premises. Agent shall recommend to Owner from time to time such procedures with respect to the 8 Premises as Agent may deem advisable for the more efficient and economic management and operation thereof. (z) If leasing guidelines or any Legal Requirement (as defined in paragraph 2.1 (m) hereof) now or hereafter in effect require that tenant security deposits be maintained, a separate interest-bearing account for such security deposits (the "Security Deposit Account") shall be opened by Agent at a bank approved by Owner. The Security Deposit Account shall be maintained in the name of Agent in accordance with the relevant lease or Legal Requirement, as the case may be, and shall be used only for tenant security deposits. The bank shall be informed that the funds in the Security Deposit Account are held in trust for Owner. Agent shall have the authority to remit to tenants any interest to which they are entitled on their security deposit, in accordance with their leases, but Agent shall obtain the written approval of Owner prior to the return of such deposits or any other security (including letters of credit) to any tenant when the amount, in any single instance, exceeds $250,000.00. Owner recognizes and understands that Environmental Services (as hereinafter defined) are not actions or services that Agent is required to perform under this Agreement and Owner further recognizes and understands that Agent is not a consultant or a contractor that performs Environmental Services. Upon Owner's request, Agent agrees to obtain and coordinate for and on behalf of Owner, such Environmental Services that Owner may request or require. Owner shall reimburse Agent for its administrative costs in connection with the coordination of such Environmental Services as provided in Exhibit A, paragraph 11 of the Agreement. In addition, Owner shall reimburse Agent for the costs of outside professionals retained to perform Environmental Services. Environmental Services is defined to be those acts or actions involving the presence, use, exposure, removal, restoration, or introduction of Hazardous Materials (as hereinafter defined) and the investigation of and compliance with any and all applicable rules, laws, or regulations of local state or federal authorities which apply or regulate Hazardous Materials. Hazardous Materials means any hazardous, radioactive, or toxic substance, material or waste listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101); or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and amendments thereto; or such substances, materials and waste which are or become regulated under applicable local, state or federal law including, without limitation, materials, wastes or substances which are petroleum products, asbestos, polychlorinated biphenyls, or designated as hazardous substances under Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); or defined as hazardous waste under Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903); or defined as hazardous substances under Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. (42 U.S.C. Section 9601). 2.2 Agent agrees to render monthly reports relating to the management and operation of the Premises for the preceding calendar month on or before the fifteenth (15th) day of each month in form satisfactory to Owner in accordance with Exhibit B. Agent agrees that Owner shall have the right to require the transfer to Owner at any time of any funds in the Bank Account considered by Owner to be in excess of an amount reasonably required by Agent for disbursement in connection with the Premises. 9 Agent agrees to keep records with respect to the management and operation of the Premises as prescribed by Owner, and to retain those records for periods specified by Owner. Owner and any Partner in Owner shall have the right to inspect such records and audit the reports required by this Section during business hours for the life of this Agreement and thereafter during the period such records are to be retained pursuant to this Section. In addition, Agent agrees that such records may be examined from time to time during the period aforesaid by any of the supervisory or regulatory authorities having jurisdiction over Owner. 2.3 Agent shall ensure such control over accounting and financial transactions as is reasonably required to protect Owner's assets from loss or diminution due to gross negligence or willful misconduct on the part of Agent's associates or employees. Losses caused by gross negligence or willful misconduct shall be borne by Agent. 2.4 Agent shall establish and prepare, in the form authorized by Owner, with such additional changes as may be reasonably requested by Owner, operating and capital improvement budgets for the promotion, operation, repair and maintenance of the Premises for each calendar year (Annual Budget). Preliminary and final budgets will be due 120 and 75 days, respectively, prior to commencement of the calendar year to which they relate. Such budgets shall be prepared on both an accrual basis and a cash basis showing a month-by-month projection of income and expenses and capital expenditures. At least 45 days prior to the end of each year, Agent shall meet with Owner to review such budgets for the subsequent year. Upon receiving Owner's approval Agent shall use its best efforts to comply with such final budgets. (a) Agent shall meet with Owner on a regular basis, not less frequently than semi-annually and otherwise upon reasonable call by Owner, to review the operations of the Premises, to review and, if appropriate, revise in light of actual experience the operating and capital improvement budgets theretofore approved by Owner and to consider other matters which Owner may raise. (b) Upon approval of the operating budget by Owner, and unless and until revoked or revised by Owner, Agent shall have the right, without further consent or approval by Owner to incur and pay the operating expenses set forth in the approved operating budget, subject to paragraph 2.1(g) above. (c) At the request of Owner from time to time Agent shall prepare and submit to Owner (i) operating projections for the Premises for the ensuing five (5) years, such projections to be made on a year-by-year basis and to be based on Agent's best judgment as to the future, taking into consideration known circumstances and circumstances Agent can reasonably anticipate are likely to occur, and (ii) a schedule in reasonable detail of capital improvements, repairs and replacements not provided for in the current capital improvement budget which Agent reasonably anticipates will be required or should be made in the foreseeable future, with Agent's opinion as to the relative priority and cost of each thereof. 2.5 Agent shall also participate in Owner's property review programs to the extent requested by Owner. Such review shall include assets, investment, financial and strategy profiles in form satisfactory to Owner. Agent shall respond, within 10 days, to Owner's management evaluation reports concerning 10 actions to be taken by Agent to correct or modify its management standards for the operations, leasing or financial services provided for the Premises. If Owner shall request that Agent's home office or regional office personnel travel to the Premises to participate in Owner's property review programs or for any other reason (unless such reason is for normal supervision), the reasonable cost of meals, travel and hotel accommodations expenses incurred by such home office personnel in connection with such travel shall be reimbursed to Agent by Owner. Agent shall, however, bear the full cost and expenses incurred by its home office or regional office personnel in connection with their travel to the Premises to the extent such travel is required by the Agent for the normal supervision of the management and leasing of the Premises. 2.6 Agent agrees to use its best efforts to have all space within the Premises rented to desirable tenants, satisfactory to Owner, considering the nature of the Premises, and in connection therewith: (a) To negotiate, as the exclusive agent of Owner, all leases and renewals of leases, it being understood that all inquiries to Owner with respect to leasing any portion of the Premises shall be referred to Agent. All leases and renewals for lease terms in excess of ninety (90) days must be prepared in accordance with Exhibit C by Agent in accordance with the annual approved budget and be submitted to Owner's representative for execution by Owner. Agent is authorized to negotiate and execute leases and license agreements with lease terms or with durations of ninety (90) days or less (temporary tenant leases). If Agent shall receive a prospective tenant reference from a property other than the Premises which Agent or any subsidiary or affiliate manages (other than a property managed by Agent for Owner) Agent shall promptly declare its potential conflict of interest to Owner, and Owner shall determine if negotiations with such prospective tenant shall be undertaken by Agent, Owner or a third party approved by Owner. References of prospective tenants, as well as their varying use requirements, shall be investigated carefully by Agent. Agent also is authorized to negotiate and execute on Owner's behalf lease amendments which: (i) change a tenant's commencement date by sixty (60) days or less (or for such longer period as is approved by Owner); (ii) change a tenant's permitted use by allowing the sale of such additional items as are reasonably related to the tenant's primary and principle use, provided Agent has no reason to know of any lease at the center prohibiting such use; (iii) change a tenant's marketing charge or promotional charge or advertising obligation. Owner acknowledges and understands that Agent manages properties for third parties. Owner further acknowledges and understands that Agent routinely and customarily negotiates tenant leases for multiple locations involving two or more properties (one or more of which may be the Premises and one or more of which may be properties owned by others). Agent conducts such multiple location negotiations in good faith for the benefit and interests of Owner and other property owners. Agent shall be entitled to assume that such leasing practices are approved and acceptable to Owner, unless and until Owner specifically disapproves the practice and so notifies Agent in writing. (b) With Owner's prior approval, to advertise the Premises or portions thereof for rent, by means of periodicals, signs, plans, brochures and other means appropriate to the Premises. 11 (c) In no event shall Agent engage or utilize the services of an outside broker in connection with any lease without Owner's prior written consent. In any case in which Owner requests or gives such consent, Agent shall cause such broker to enter into a written agreement with Owner, on terms reasonably satisfactory to Owner, with respect to such broker's commission and Owner shall be responsible for the payment of such commission if earned pursuant to the terms of said agreement. (d) Agent will, in each instance, negotiate for the inclusion in all leases entered into by Owner a provision to the effect that recourse on such obligation shall be had only against the shopping center to which such obligation relates, and no recourse shall be sought against Owner or any other person holding, directly or indirectly, a beneficial interest in the shopping center. 2.7 Agent agrees, for itself and all persons retained or employed by Agent in performing its services, to hold in confidence and not to use or disclose to others any confidential or proprietary information of Owner heretofore or hereafter disclosed to Agent ("Confidential Information"), including, but not limited to, any data, information plans, programs, processes, costs, operations or the names of any tenants which may come within the knowledge of Agent in the performance of, or as a result of, its services, except if required by judicial or administrative order, or if Owner specifically gives Agent written authorization to disclose any of the foregoing to others or such disclosure as is required in the direct performance of Agent's duties hereunder. If Agent is required by a judicial or administrative order to disclose any Confidential Information, Agent shall promptly notify Owner thereof, consult with Owner on the advisability of taking steps to resist or narrow such request and cooperate with Owner in any attempt it may make to obtain an order or other assurance that confidential treatment will be accorded to the Confidential Information disclosed. 2.8 If at any time there shall be insufficient funds available to Agent from collections to pay any obligations of Owner required to be paid under this Agreement, Agent shall promptly notify Owner and Agent shall not be obligated to pay such obligations unless Owner furnishes Agent with funds therefor. 2.9 Center Advertising Agency ("Center"), an unincorporated division of Agent, directs, under Agent's supervision, the promotional activities for the Premises. Incident to such services, Center provides promotional directors for the Premises, places the advertising for the Promotional Organizations and contracts for income-producing promotional activities, Agent shall continue to use Center for such activities. All income relating to Center's contracts for promotional activities for the Premises shall belong to Owner. Owner acknowledges that Center may retain the customary trade discounts or rebates incident to its contracting for advertising for the Promotional Organizations, the cost of which advertising is borne by the Promotional Organizations. Owner acknowledges that Center's cost of providing promotional directors to the Promotional Organizations is reimbursed to Center by the Promotional Organizations at an annual rate equal to twenty percent (20%) of the applicable Marketing Fund. Owner agrees that Center shall be entitled to receive the fee set forth in Exhibit A attached hereto for its services incident to contracting for income-producing promotional activities. 2.10 Agent assumes no responsibility under this Agreement other than to render the services called for hereunder in good faith, and Owner shall make no claim against Agent on account of any alleged errors of judgment made in good faith in connection with the operation of the Premises. Agent shall not be liable to Owner or others except by reason of acts constituting willful misfeasance or gross 12 negligence on the part of Agent, and Owner agrees to indemnify, defend and hold harmless Agent and its shareholders, directors, officers and employees from and against all claims, actions, causes of action, costs and expenses (including, but not limited to reasonable attorneys' fees) directly or indirectly arising from the claims of any third party, except only those claims where liability arises from acts constituting willful misfeasance or gross negligence on the part of Agent. ARTICLE III OWNER'S AGREEMENTS 3.1 Owner, at its option, may pay directly all taxes, special assessments, ground rents, insurance premiums and mortgage payments. If Owner makes such election, Agent shall advise Owner of the due dates of such taxes assessments, insurance premiums and mortgage payments. 3.2 Owner shall self-insure or, at its option, carry insurance upon the Premises and shall look solely to such insurance for indemnity against any loss or damage to the Premises, and to the extent that policies shall be procured, Owner shall obtain waivers of subrogations against the Agent under such policies if available at no additional cost to Owner. Owner shall provide and maintain at Owner's sole cost and expense public liability insurance, including bodily injury, contractual liability (with respect to the indemnity set forth in Section 3.3 hereof) and broad form property damage liability, in connection with the ownership, use and occupancy of the Premises, in the amount of not less than $100,000,000. Agent shall be named in the public liability policies as an additional insured. 3.3 Owner agrees to indemnify and save harmless Agent and its shareholders, directors, officers and employees from and against all claims, losses and liabilities resulting from: (i) damage to property or injury to, or death of, persons from any cause whatsoever when Agent is carrying out the provisions of this Agreement or acting under the direction of Owner in or about the Premises; (ii) claims for defamation and false arrest when Agent is carrying out the provisions of this Agreement or acting under the direction of Owner, and (iii) claims occasioned by or in connection with or arising out of acts or omissions, other than criminal acts, of the Agent when Agent is carrying out the provisions of this Agreement or acting under the direction of Owner (except in cases of Agent's willful misconduct or gross negligence and to defend or cause to be defended, at no expense to Agent or such persons, any claim, action or proceeding brought against Agent or such persons or Agent and Owner, jointly or severally, arising out of the foregoing, and to hold Agent and such persons harmless from any judgment, loss or settlement on account thereof. Notwithstanding the foregoing, Owner shall not be responsible for indemnifying or defending Agent or such persons in respect of any matter, claim or liability in respect of which Agent is obligated to indemnify Owner as provided in the following sentence. Agent agrees to indemnify and save harmless Owner from and against all claims, losses and liabilities resulting from injury to, or death of, persons in or about the Premises or for defamation and false arrest in each case caused in whole or in part by the willful misconduct or gross negligence of Agent, and to defend, at no expense to Owner, any claim, action or proceeding brought against Owner or Owner and Agent, jointly or severally, arising out of the foregoing, and to hold Owner harmless from any judgments, loss or settlement on account thereof. 13 Notwithstanding the foregoing, Agent shall not be responsible for indemnifying or defending Owner in respect of any matter, claim or liability which is covered by any public liability insurance policies carried by Owner and under which Agent is named as an additional insured. The indemnification obligations of Owner and Agent under this Section 3.3 shall in each case be conditioned upon (a) prompt notice from the other party after such party learns of any claim or basis therefor which is covered by such indemnity, (b) such party's not taking any steps which would bar Owner or Agent, as the case may be, from obtaining recovery under applicable insurance policies or would prejudice the defense of the claim in question, and (c) such party's taking of all necessary steps which if not taken would result in Owner or Agent, as the case may be, being barred from obtaining recovery under applicable insurance policies or would prejudice the defense of the claim in question. The provisions of this Section 3.3 shall survive the expiration or termination of this Agreement. 3.4 Owner shall provide such office space on the Premises as may be necessary for Agent to properly perform its functions under this Agreement. Agent shall not be required to pay for utilities, telephone service or rent for the office area on the Premises occupied by Agent. Agent shall have the right to use the fixtures, furniture, furnishings and equipment, if any, which are the property of Owner in said office space. Owner shall also provide space on the Premises for use as community rooms and information and service centers where the use of such space is determined by Owner to be in the best interest of the Premises. All income derived from the utilization and/or operation of such community rooms and/or information or service centers shall belong to the Owner and all expenses relating thereto shall be borne by Owner. 3.5 Except as otherwise provided in this Agreement, everything done by Agent in the performance of its obligations under this Agreement and all expenses incurred pursuant hereto shall be for and on behalf of Owner and for its account. Except as otherwise provided herein, all debts and liabilities incurred to third parties in the ordinary course of business of managing the Premises as provided herein are and shall be obligations of Owner, and Agent shall not be liable for any such obligations by reason of its management, supervision or operation of the Premises for Owner. ARTICLE IV COMPENSATION 4.1 In addition to any other compensation provided to be paid to Agent under this Agreement, Owner agrees to pay to Agent as compensation for its management services hereunder, a fee at the rate specified in paragraph 5 of Exhibit A attached hereto. Said fee shall be payable monthly in equal installments of 1/12 each, on the 10th day of each calendar month, and shall be based on a fixed annual fee of $100,000 for each Premises. Agent shall withdraw said fee from the operating account for the Premises and shall account for same as provided for in Section 2.2 hereof. 14 4.2 The following expenses or costs incurred by or on behalf of Agent in connection with the management and leasing of the Premises shall be the sole cost and expense of Agent and shall not be reimbursable by Owner and Agent shall indemnify Owner for such expenses and costs: (a) cost of gross salary and wages, payroll taxes, insurance, worker's compensation, pension benefits and any other benefits of Agent's personnel except such cost pertaining to personnel employed by Agent in accordance with Paragraph 2.1 (b) hereof; (b) general accounting and reporting services, as such services are considered to be within the reasonable scope of Agent's responsibility to Owner; (c) costs of forms, stationery, ledgers, supplies, equipment and other "general overhead" items used in Agent's home office or regional offices; (d) cost or pro rata cost of telephone and general office expenses incurred in the Premises by Agent for the operation and management of properties not owned by Owner; (e) cost of all bonuses, incentive compensation, profit sharing, or any pay advances by Agent to Agent's employees, except such costs pertaining to employees employed by Agent in accordance with Paragraph 2.1 (b) hereof; (f) cost attributable to losses arising from criminal acts, gross negligence or fraud on the part of Agent or Agent's associates or employees; (g) cost of automobile purchase and/or rental, except if furnished or approved by Owner; (h) except as otherwise provided in Exhibit A attached hereto, expenses incurred in connection with the leasing of the Premises, it is being understood and agreed, however, that Agent shall be reimbursed for advertising expenses incurred in connection with the leasing of the Premises; (i) cost of liability or other insurance carried by Agent; and (j) cost of bonds purchased pursuant to Section 2.1(i) of this Agreement. ARTICLE V DURATION, TERMINATION, DEFAULT 5.1 This agreement shall become effective on the date hereof. 5.2 Subject to earlier termination as hereinafter provided, this Agreement shall terminate on December 31, 1997. Thereafter, this Agreement shall automatically be extended from month-to-month on the same terms and conditions as herein contained unless either party notifies the other at least thirty (30) days prior to the end of the term or any monthly extension thereof of its intention to terminate this Agreement. 15 5.3 Owner shall have the right to terminate this Agreement at any time upon 30 days written notice given to Agent, and upon the giving of such notice and the expiration of such 30-day period, this Agreement and the term hereof shall terminate without any obligation on the part of Owner to make any payments to Agent hereunder except as hereinafter provided. 5.4 If at any time during the term of this Agreement any involuntary petition in bankruptcy or similar proceeding shall be filed against Agent seeking its reorganization, liquidation or appointment of a receiver, trustee or liquidator for it or for all or substantially all of its assets, and such petition shall not be dismissed within 90 days after the filing thereof, or if Agent shall: (a) apply for or consent in writing to the appointment of a receiver, trustee or liquidator of all or substantially all of its assets; (b) file a voluntary petition in bankruptcy or admit in writing its inability to pay its debts as they become due; (c) make a general assignment for the benefit of creditors; (d) file a petition or an answer seeking reorganization or an arrangement with creditors or take advantage of any insolvency law; or (e) file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceedings; then upon the occurrence of any such event, Owner, at its option, may terminate this Agreement by written notice given to Agent, and upon the giving of such notice this Agreement and the term hereof shall terminate without any obligation on the part of Owner to make any payments to Agent hereunder except as hereinafter provided. 5.5 Owner shall have the additional right to terminate this Agreement on at least 10 days' written notice to Agent if (a) Agent, without Owner's prior written consent, shall assign or attempt to assign its rights or obligations under this Agreement or subcontract (except for normal service agreements or as otherwise specified in this Agreement) any of the services to be performed by Agent, (b) if the Premises shall be damaged or destroyed to the extent of 25% or more by fire or other casualty and Owner elects not to restore or repair such property or (c) there shall be a condemnation or deed in lieu thereof of 10% or more of the Premises. 5.6 It shall be an Event of Default under this Agreement on the part of Owner if Owner shall default in any material respect in performing any of its obligations under this Agreement and such default shall not be cured within 30 days after written notice thereof is given by Agent to Owner (or, if the default in question is curable but is of such nature that it cannot reasonably be completely cured within such 30-day period, if Owner does not promptly after receiving such notice commence to cure such default and thereafter proceed with reasonable diligence to complete the curing thereof). If an Event of Default by Owner shall occur, Agent shall have the right to terminate this Agreement by written notice given to Owner, and upon the giving of such notice this Agreement and the term hereof 16 shall terminate and Owner shall remain obligated to make the payments to Agent hereunder as provided in Section 5.9 hereof. 5.7 If at any time during the term of this Agreement any involuntary petition in bankruptcy or similar proceeding shall be filed against Owner seeking its reorganization, liquidation or appointment of a receiver, trustee or liquidator for it or for all or substantially all of its assets, and such petition shall not be dismissed within 90 days after the filing thereof, or if Owner shall: (a) apply for or consent in writing to the appointment of a receiver, trustee or liquidator of all or substantially all of its assets; (b) file a voluntary petition in bankruptcy or admit in writing its inability to pay its debts as they become due; (c) make a general assignment for the benefit of creditors; (d) file a petition or an answer seeking reorganization or an arrangement with creditors or take advantage of any insolvency law; or (e) file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceedings; then, upon the occurrence of any such event Agent, at its option, may terminate this Agreement by written notice given to Owner, and upon the giving of such notice this Agreement and the term hereof shall terminate and Owner shall remain obligated to make the payments to Agent hereunder as hereinafter provided. 5.8 Agent shall have the additional right to terminate this Agreement on at least 90 days written notice to Owner if at any time Owner assigns this Agreement and its rights and obligations hereunder. Notwithstanding the foregoing, Owner shall have the right to subordinate this Agreement in connection with any mortgage of the Premises and/or assign this Agreement in connection with such mortgages. Agent agrees to execute such further instruments as Owner or its mortgagee deems necessary to effectuate such subordination provided that in the event Owner's mortgagee becomes entitled to possession of the Premises and elects to retain Agent to manage the Premises, then Agent shall be entitled to the compensation set forth in this Agreement during all periods in which Agent is providing services to the Premises. 5.9 Upon any termination of this Agreement pursuant to the provisions of this Article V, Owner shall remain obligated to pay to Agent fees and other amounts due to Agent hereunder which accrued prior to the effective date of such termination. Nothing contained in this Section 5.9 shall be deemed to waive, affect or impair (a) Owner's rights to seek recourse against Agent for damages or other relief in the event of the termination of this Agreement by Owner pursuant to (i) Section 5.3, 5.4 or 5.5 hereof, and (b) Agent's right to seek recourse against Owner for damages or other relief in the event of the termination of this Agreement by Agent pursuant to Section 5.6 or 5.7 hereof. 5.10 Upon the expiration or earlier termination of this Agreement, Agent shall forthwith surrender and deliver to Owner any space in the Premises occupied by Agent and shall make delivery to Owner or 17 to Owner's designee or agent, at Agent's home or regional offices or at its offices at the Premises, of the following: (a) a final accounting, reflecting the balance of income from and expenses of the Premises as at the date of expiration or termination of this Agreement; (b) any funds of Owner or tenant security or advance rent deposits, or both, held by agent with respect to the Premises; and (c) all Confidential Information (in whatever medium stored) and all other records, contracts, leases, ground leases, reciprocal easement agreements, receipts for deposits, unpaid bills, lease summaries, canceled checks, bank statements, paid bills and all other records, papers and documents and any microfilm and/or computer disk of any of the foregoing which relate to the Premises and the operation, maintenance, management and leasing thereof; all such data, information and documents being at all times the property of the Owner. In addition, Agent shall furnish all such information and take all such action as Owner shall reasonably require to effectuate an orderly and systematic termination of Agent's duties and activities under this Agreement. 5.11 This Agreement shall terminate at the election of the Owner as to any of the properties set forth in Exhibit A upon thirty (30) days written notice to the Agent if such properties are sold by the Owner to a non-affiliated third party purchaser or automatically if such properties were acquired by the Owner on foreclosure of a mortgage and are subsequently redeemed. In the event such properties are sold by the Owner to a non-affiliated third party purchaser and this agreement is not thereby terminated by the Owner, the Agent shall have the right to terminate this Agreement as to such properties upon sixty (60) days prior written notice which notice must be given within (90) days after the date such sale is consummated. If such properties are sold, Agent will not be entitled to any sales commission unless the Agent has been retained by the Owner pursuant to a separate commission arrangement. This Agreement shall remain in full force and effect as to all properties not terminated pursuant to this Section 5.11. 5.12 The provisions of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI ASSIGNMENT 6.1 Agent, except for a transfer to a "Permissible Transferee", shall not assign its rights or obligations under this Agreement, either directly or by a transfer of stock or voting control either voluntarily or by operation of law. Any change other than to a "Permissible Transferee" shall constitute a breach of this Agreement by Agent and Owner may terminate this Agreement in accordance with Section 5.5. A "Permissible Transferee" shall mean any corporation, partnership, trust or other entity, 18 more than 50% of the outstanding stock of which, or more than 50% interest in which, is owned or controlled by Owner or General Growth Properties, Inc. or any combination thereof. 6.2 In the event of a sale or conveyance of the Premises, Owner shall have the right to cancel or assign this Agreement and its rights and obligations hereunder to any person or entity to whom or which Owner sells or conveys such property; (unless Agent elects to terminate this Agreement as provided in Section 5.8 hereof). Upon such assignment, Owner shall be relieved of its obligations under this Agreement which accrue from and after the date of such assignment, provided that the assignee shall assume the obligations of Owner under this Agreement and shall agree to perform and be bound by all of the terms and provisions hereof, effective from and after the date of such assignment and an executed copy of such assumption agreement shall be delivered to Agent. Agent shall not be entitled to a "termination fee" in connection with an assignment or cancellation as set forth in this Section 6.2, but otherwise shall be entitled to collect from Owner such fees and expenses as Agent has earned pursuant to this Agreement prior to the date of such assignment or cancellation. ARTICLE VII MISCELLANEOUS 7.1 Owner's Representative ("Owners Representative") whose name and address is set forth in paragraph 2 of Exhibit A attached hereto shall be the duly authorized representative of Owner for the purpose of this Agreement. Any statement, notice, recommendation, request, demand, consent or approval under this Agreement shall be in writing and shall be deemed given by Owner when made or given by Owner's Representative or any officer of Owner and delivered personally to an officer of Agent or mailed, addressed to Agent, at his address first above set forth . Either party may, by notice to the other, designate a different address for the receipt of the aforementioned communications and Owner may, by notice to Agent, from time to time, designate a different Owner's Representative to act as such. All communications mailed by one party to another shall be sent by first class mail, postage prepaid or Express Mail Service or other commercial overnight delivery service, except that notices of default shall be sent by registered or certified mail, return receipt requested, postage prepaid, Express Mail Service or other commercial overnight delivery service with receipt acknowledged in writing. Communications so mailed shall be deemed given or served on the date mailed. Notwithstanding the foregoing, any notices, requests, consents, approvals and other communications, other than notices of default or approvals of annual budgets, and other communications, approvals or agreements which are required by the express terms of other provisions of this Agreement to be in writing, may be given by telegram, telephonic communication or orally in person. Agent and Owner shall furnish to the other the names and telephone numbers of one or more persons who can be reached at any time during the term of this Agreement in the event of an emergency. 7.2 Agent shall, at its own expense, qualify to do business and obtain and maintain such licenses as may be required for the performance by Agent of its services. 7.3 Each provision of this Agreement is intended to be severable. If any term or provision hereof shall be determined by a court of competent jurisdiction to be illegal or invalid for any reason 19 whatsoever, such provision shall be severed from this Agreement and shall not affect the validity of the remainder of this Agreement. 7.4 In the event either of the parties hereto shall institute any action or proceeding against the other party relating to this Agreement, the unsuccessful party in such action or proceeding shall reimburse the successful party for its disbursements incurred in connection therewith and for its reasonable attorney's fees as fixed by the court. 7.5 No consent or waiver, express or implied, by either party hereto or of any breach or default by the other party in the performance by the other of its obligations hereunder shall be valid unless in writing, and no such consent or waiver shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligations of such party hereunder. Failure on the part of either party to complain of any act or failure to act of the other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. The granting of any consent or approval in any one instance by or on behalf of Owner shall not be construed to waive or limit the need for such consent in any other or subsequent instance. 7.6 The venue of any action or proceeding brought by either party against the other arising out of this Agreement shall be in the state or federal courts of the State of Illinois. 7.7 This Agreement may not be changed or modified except by an agreement in writing executed by each of the parties hereto. This Agreement constitutes all of the understandings and agreements between the parties in connection with the agency herein created. 7.8 If this Agreement shall remain in effect after the date of expiration hereof, unless the parties hereto otherwise agree in writing, this Agreement shall continue in effect on the same terms and conditions as are applicable during the original term, except that either party shall have the right to terminate this Agreement without payment to the other (except for fees and other amounts due to Agent hereunder which accrued prior to the effective date of such termination) on 30 days' written notice. 7.9 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns, but shall not inure to the benefit of, or be enforceable by, any other person or entity. 7.10 Nothing contained in this Agreement shall be construed as making Owner and Agent partners or joint ventures or as making either of such parties liable for the debts or obligations of the other, except as in this Agreement is expressly provided. 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. (Owner) GGP LIMITED PARTNERSHIP By: By: General Growth Properties, Inc. its general partner By: ---------------------------------------- John Bucksbaum, Executive Vice President (Agent) GENERAL GROWTH MANAGEMENT, INC. a Delaware corporation By: ---------------------------------------- Robert A. Michaels, President 21 EXHIBIT A 1. Premises (1.1): Selected Shopping Centers presently controlled by Owner, including: BayShore Mall Bellis Fair Birchwood Mall Capital Mall Chapel Hills Mall Colony Square Columbia Mall Eagle Ridge Mall Fallbrook Square Fox River Mall Gateway Mall Grand Traverse Mall Greenwood Mall Knollwood Mall Lockport Mall Mall of the Bluffs Oakwood Mall Piedmont Mall Pines Mall Rio West Mall River Falls Mall River Hills Mall SouthShore Mall West Valley Mall Selected future Shopping Centers to be constructed or acquired by Owner, as of the date of the opening or acquisition, including, but not limited to the following: Park Mall Sooner Fashion Mall Lansing Mall Lakeview Mall Westwood Mall 2. Name and Address of Owner's Representative (7.1): John Bucksbaum 55 West Monroe Chicago, Illinois 60603 3. Limit of amount authorized for non-emergency purchases and repairs (2.1(a) and (c)): $30,000.00 4. Name of Banks (2.1(g)): Banks and accounts as assigned by Owner 5. Management Commissions (4.1): Owner agrees to pay Agent as compensation for its management services hereunder an amount equal to $100,000 per year for each individual shopping center (Premises). Such management commission shall be payable monthly in equal installments of 1/12 of the annual fee. 6. Legal and Tenant Coordination Expenses: Management Commission is intended to fully compensate Agent for any costs related to in-house legal or tenant coordination expenses and no additional compensation is due for there or related services. 22 7. Temporarv Tenant Leases: Leasing Fees are intended to fully compensate Agent for services in connection with Temporary Tenant leasing activities and no additional specific compensation is due for these costs or activities. 8. Leasing Fees: Owner agrees to pay Agent as compensation for its leasing activities, in conjunction with both temporary and longer term tenants an amount equal to $150,000 per year for each individual shopping center (Premises). Such management commission shall be payable monthly in equal installments of 1/12 of the annual fee. No additional compensation shall be paid by Owner to Agent for services related to the sale of the acquisition of departments agreements, the sale of real estate, the arrangement of lease settlements or any other lease related activities, unless special fee arrangements are negotiated between the parties in advance. Not withstanding, Owner shall be obligated to reimburse Agent for third party brokerage costs, professional fees and similar out of pocket third party costs in connection with leasing activities if such compensation is approved in advance of incurring the cost. 9. Promotional Income Fee (2.9): Owner shall pay directly to Center a fee equal to twenty percent (20%) of all cash receipts received by Owner incident to promotional activities referred to in Section 2.9. No other fee shall be paid to Center for services rendered. Not withstanding this, Center is entitled, using arms length pricing, to sell promotion products, place advertising services and engage in other advertising and promotion activities provided payment is made from the promotion fund or merchants association of the shopping centers and further providing the purchasers expenditures are covered by their operating budgets and the purchases are approved by the Owner. 10. Excluded Services: Notwithstanding anything to the contrary contained herein, the parties acknowledge that it is not within the contemplation of this Agreement or the fee structure included herein that the Agent perform any services with respect to the following: any "due diligence" or similar efforts relating to any financing, refinancing or sale or disposition of the Premises; zoning of the Premises; performing or supervising any extensive alteration or renovation to the Premises; site acquisitions of additional ground for the expansion of the Premises; reconstruction after casualty or condemnation; leasing, management, or construction relating to any proposed or implemented expansion of the Premises or work generally classified as "development" work in connection with the same; renewals or renegotiation of leases or other agreements with department stores if such involves substantial changes from existing documents (including, without limitation, negotiation of new leases, renewal leases, operating covenants, renovation provisions, expansion rights, and like matters); or replacement of department store tenancies. If the Agent proposes to perform such work or if the Owner requests the Agent to perform any of the foregoing, prior to undertaking the performance thereof, the Agent shall submit to the Owner for its approval a written proposal indicating the nature, extent and cost thereof, including the Agent's fee and payment provisions thereof for so performing such work and upon acceptance of such proposal the Owner shall pay the Agent in accordance therewith. 11. Other Requested Services: If Owner requests Agent to provide its own personnel for non-routine services which Agent is not obligated elsewhere in this Agreement to perform, the compensation for which is not provided for 23 hereinabove, Owner shall pay Agent an amount equal to two and one-half (2 1/2) times the actual base cost of Agent's departmental personnel, as computed by Agent, for their time involved in performing such requested services, plus reimbursement for any out-of-pocket costs incurred incident to furnishing such requested services. Owner and Agent shall agree in advance as to the hourly base cost to be applicable for the specific services to be provided. Such amount or amounts shall be payable to Agent monthly within ten (10) days after Owner's receipt of Agent's statement setting forth the amount payable to Agent. 24 EXHIBIT B Form of Monthly Report Monthly Report Outline 1) Cover Page 2) Invoice Copies of Capital Expenditure Items 3) Aged Accounts Receivables and a summary of collection activities 4) Bank Reconciliation 5) Trial Balance 6) Income and Expense Statement (with comparison to budget) 7) Journal Entry Forms 8) Management Fee Schedule 9) Significant Operating Matters 10) Security Deposit Reports 11) Rent Rolls 12) Occupancy Reports Quarterly Report Outline 1) Leasing Activity 2) Competition 3) Variance Analysis 4) Government Activities 5) Tenant Sales Overview 6) Construction Activity 7) Significant Revisions to Forecast 8) Collection Analysis 25 EXHIBIT C Leasing Guidelines Agent shall use a form or forms of lease which have been prepared and submitted to Owner for Owner's prior review and approval. Agent shall negotiate and make modifications to such forms as directed by Owner, or as necessary or appropriate with respect to the needs of the particular transactions, utilizing methods and techniques consistent with prevailing practices employed in management and leasing of shopping centers. All essential financial and business terms and provisions of the lease, including construction and improvements of the leasehold, shall be presented for Owner's approval. Tenant-signed leases presented by Agent for Owner's review and execution shall be consistent with such terms and conditions previously approved by Owner, or with such deviations or modifications identified for Owner's review. Execution of tenant-signed leases that are presented by Agent for Owner's signature shall acknowledge Owner's approval of the lease, its form, its terms and provisions. No lease or other agreement shall be entered into, modified, canceled or extended if the consent of any mortgagee or ground lessor is required unless such consent has been obtained. Agent shall notify Owner when such consent is required. EX-10.(GG) 4 STOCK OPTION AGREEMENT 1 GENERAL GROWTH PROPERTIES, INC. EXHIBIT 10(GG) STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into as of the 2nd day of December, 1996, by and between GENERAL GROWTH PROPERTIES, INC., a Delaware corporation (the "Company") and __________________ (the "Employee"). WHEREAS, the Company desires to reward the Employee for his recent efforts on behalf of the Company by awarding him an incentive stock option to purchase shares of common stock $.10 par value, of the Company (the "Common Stock") pursuant to the General Growth Properties, Inc. 1993 Stock Incentive Plan, as amended (the "Plan"); and WHEREAS, the Employee wishes to acquire the right to purchase shares of Common Stock granted hereby. NOW, THEREFORE, for good and valuable consideration, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Grant of Option. In accordance with the terms and conditions of the Plan which are hereby incorporated herein, the Company hereby grants to the Employee an option (the "Option") to purchase _______ shares of Common Stock at a purchase price of $28.00 per share, the Fair Market Value (as defined in the Plan) per share on the date hereof. This Option is intended to qualify as an Incentive Stock Option as defined in, and subject to, Section 422 of the Code. 2. Time for Exercise of Options. (a) The Option is, as of the date of this Agreement (the "Grant Date"), exercisable for 20% of the shares of Common Stock subject hereto and shall become exercisable in increments of 20% of the shares of Common Stock subject hereto at the end of each of the first four anniversaries of the Grant Date. (b) The Option must be exercised if at all on or before the tenth anniversary of the Grant Date and only at such time as the Employee is employed by the Company or as provided in Paragraph 3 hereof. 3. Termination of Employment. (a) If the Employee's employment with the Company, an Affiliate or a Subsidiary terminates by reason of death then, notwithstanding the provisions of Section 2 of this Agreement, the Option may thereafter be exercised, to the extent then exercisable, or on such accelerated basis as the Committee may determine, for a period of one year from the date of such death or until the expiration of the term of the Option, whichever period is shorter. (b) If the Employee's employment with the Company, an Affiliate or a Subsidiary terminates by reason of Retirement then, notwithstanding the provisions of Section 2 of this Agreement, the Option may thereafter be exercised by the Employee, to the extent exercisable at the time of such Retirement, or on such accelerated basis as the Committee may determine, for a period of three years from the date of such termination of employment or until the expiration of the term hereof, whichever period is shorter; provided, however, that if the Employee dies within such three year period, any unexercised portion of this Option shall, notwithstanding the expiration of such three year period, continue to be exercisable to t 2 the extent to which it was exercisable at the time of death for a period of one year from the date of such death or until the expiration of the term hereof, whichever period is shorter. (c) If the Employee's employment with the Company, an Affiliate or a Subsidiary terminates by reason of Disability then, notwithstanding the provisions of Section 2 of this Agreement, the Option may thereafter be exercised by the Employee, to the extent exercisable at the time of termination, or on such accelerated basis as the Committee may determine, for a period of three years from the date of such termination of employment or until the expiration of the term hereof, whichever period is shorter; provided, however, that if the Employee dies within such three year period, any unexercised portion of the Option shall, notwithstanding the expiration of such three year period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of one year from the date of such death or until the expiration of the term hereof, whichever period is shorter. (d) If there occurs a Termination of Employment for any reason other than death, Disability, Retirement or Cause (as hereinafter defined) then, notwithstanding the provisions of Section 2 of this Agreement, the Option shall terminate, except that the Option, to the extent then exercisable, or on such accelerated basis as the Committee may determine, may be exercised for the lesser of one year from the date of such Termination of Employment or the balance of the term of the Option; provided, however, that if the Employee dies within such one year period, any unexercised portion of the Option shall, notwithstanding the expiration of such one year period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of one year from the date of such death or until the expiration of the stated term of the Option, whichever period is shorter. (e) In the event the Employee's Termination of Employment is for Cause, any unexercised portion of the Option shall expire immediately upon the giving to the Employee of notice of such Termination of Employment. (f) Notwithstanding any language to the contrary set forth in Section 5(i) of the Plan, for purposes of this Agreement, the term "Cause" shall mean (i) the conviction of the Employee for committing a felony under Federal law or the law of the state in which such action occurred or (ii) the commission by the Employee of an act of fraud or embezzlement. 4. Method of Exercise. The Option may be exercised by written notice (the "Notice"), addressed and delivered to the Company specifying the number of whole shares of Common Stock subject to the Option to be purchased. For purposes of this Agreement, the reference in Section 5(c) of the Plan to the percentage of the Common Stock issued pursuant to a public offering shall have no force or effect. The Notice shall be accompanied by (i) cash, or (ii) that number of shares of unrestricted Common Stock which have an aggregate Fair Market Value (as of the date of exercise) equal to the aggregate exercise price for all of the shares of Common Stock subject to such exercise, or (iii) a request that the Company withhold from the number of shares of Common Stock otherwise issuable upon exercise of the Option that number of shares having an aggregate Fair Market Value on the date of exercise equal to the exercise price for all of the shares of Common Stock subject to such exercise; or (iv) any combination thereof. The Employee agrees, that no later than the date as of which an amount first becomes includible in his gross income for Federal income tax purposes with respect to the Option, the Employee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Withholding obligations may be settled with Common Stock, including Common Stock that is acquired upon exercise of the Option. The obligations of the Company under this Agreement and the Plan shall be conditional on such payment or arrangements, and the Company, its Affiliates and Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Employee. 3 5. Delivery of Stock Certificates. The Option shall be deemed to have been exercised upon receipt by the Company of the Notice accompanied by the exercise price (the "Exercise Date") and the Employee shall be treated as the holder of record of the shares with respect to which the Option is exercised as of the Exercise Date for all purposes. 6. Adjustment Provisions. If, during the term of this Agreement, there shall be any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, extraordinary distribution with respect to the Common Stock, or other change in corporate structure affecting the Common Stock, the Committee shall make an appropriate and equitable substitution or adjustment in the aggregate number, kind and option price of shares subject to this Option. 7. Non-Transferability. The Option is not transferable or assignable by the Employee other than by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order and is exercisable during the lifetime of the Employee only by the Employee, his guardian or legal representative or by an alternate payee pursuant to such qualified domestic relations order. 8. Compliance with Law. By accepting the Option, the Employee agrees for himself and his guardian or legal representative that no shares of Common Stock shall be delivered pursuant to the Option until qualified for delivery under applicable securities laws and regulations as determined by the Company or its legal counsel. 9. Limitations. The Employee shall have no rights as a stockholder with respect to shares as to which the Option shall not have been exercised and payment made as herein provided and shall have no rights with respect to such shares not expressly conferred by this Agreement. Nothing contained in this Agreement shall be construed to be a contract of employment between the Company and the Employee. 10. Construction. (a) Successors. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs and successors, except as expressly herein otherwise provided. (b) Entire Agreement; Modification. This Agreement contains the entire understanding between the parties with respect to the matters referred to herein. Subject to Section 8(i) of the Plan, this Agreement may be amended by the Committee. (c) Capitalized Terms; Headings; Pronouns; Governing Law. Capitalized terms used and not otherwise defined herein are deemed to have the same meanings as in the Plan. The descriptive headings of the respective sections and subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to modify or construe the provisions which follow them. Any use of any masculine pronoun shall include the feminine and vice-versa and any use of a singular, the plural and vice-versa, as the context and facts may require. The construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Delaware. (d) Notices. All communications between the parties shall be in writing and shall be deemed to have been duly given as of the date and time of hand delivery or three days after mailing via certified or registered mail, return receipt requested, proper postage prepaid to the following or such other addresses of which the parties shall from time to time notify one another. 4 (1) If to the Company: General Growth Properties, Inc. 55 West Monroe - Suite 3100 Chicago, Illinois 60603-5060 (2) If to the Employee: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ (e) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party or circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances. (f) Counterpart Execution. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute the entire document. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement on the date first above written. GENERAL GROWTH PROPERTIES, INC. By: ---------------------------- Title: ----------------------- EMPLOYEE ----------------------------- EX-21 5 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF GENERAL GROWTH PROPERTIES, INC. Corporation General Growth Properties, Inc. Century Plaza, Inc. Champaign Market Place, Inc. Eagle Ridge Mall, Inc. Eden Prairie Mall, Inc. General Growth CMP, Inc. General Growth Properties-Natick, Inc. GGP-Lakeview Square, Inc. GGP-Lansing Mall, Inc. GGP-Westwood Mall, Inc. Grandville Mall, Inc. Oklahoma Mall, Inc. Tracy Mall, Inc. EX-23 6 CONSENT OF COOPERS & LYBRAND L.L.P. 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of General Growth Properties, Inc. on Forms S-3 (File Nos. 33-90556, 333-11067, 333-15907, 333-17021 and 333-23035) and on Forms S-8 (File Nos. 33-79372, 333-07241 and 333-11237) of our reports dated February 11, 1997 on our audits of the consolidated financial statements and financial statement schedule of General Growth Properties, Inc. as of December 31, 1996 and 1995, and for the three years in the period ended December 31, 1996, which reports are included in this Annual Report on Form 10-K. Chicago, Illinois Coopers & Lybrand L.L.P. March 25, 1997 EX-24 7 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Matthew Bucksbaum, Robert Michaels, Bernard Freibaum and Marshall Eisenberg and each of them his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K to be filed by General Growth Properties, Inc. with the Securities and Exchange Commission and any or all amendments thereto, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents fully power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in one or more counterparts; each of which shall be deemed to be an original. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand and seal as of the 27th day of March, 1997. /s/Matthew Bucksbaum /s/Beth Stewart __________________________________ ________________________________ Matthew Bucksbaum, Chairman of the Beth Stewart, Director Board and Chief Executive Officer (Principal Executive Officer) /s/Robert Michaels /s/Bernard Freibaum __________________________________ ________________________________ Robert Michaels, President, Chief Bernard Freibaum, Executive Vice Operating Officer and Director President and Chief Financial Officer (Principal Financial and Accounting Officer /s/John Bucksbaum /s/A. Lorne Weil __________________________________ ________________________________ John Bucksbaum, Executive Vice A. Lorne Weil, Director President and Director /s/Anthony Downs /s/Morris Mark __________________________________ ________________________________ Anthony Downs, Director Morris Mark, Director EX-27 8 FINANCIAL DATA SCHEDULE
5 0000895648 GENERAL GROWTH PROPERTIES, INC. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 15,747 0 25,384 0 0 39,209 1,865,921 (188,744) 1,757,717 65,580 1,169,483 0 0 3,079 519,565 1,757,717 0 217,405 0 (111,955) 0 (2,421) (67,826) 33,816 0 17,589 43,821 (36,871) 0 59,742 2.12 2.12
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