-----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, BG7GewfE29R9NSycyU/mwPK4U+5Ut6TGraz1Q0bfw1suvre9hfG6/Fnd565sGBmT U8nfNbqmHNbh8DcS7lekVQ== 0000950137-97-002812.txt : 19970815 0000950137-97-002812.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950137-97-002812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11656 FILM NUMBER: 97662911 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-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 Number) 55 W. Monroe St., Chicago, IL 60603 ------------------------------------------ (Address of principal executive offices, Zip Code) (312) 551-5000 --------------- (Registrant's telephone number, including area code) N/A ----------- (Former name, former address and former fiscal year, if changed since last report) 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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- The number of shares of Common Stock, $.10 par value, outstanding on August 14, 1997 was 34,767,097. 1 of 26 2 GENERAL GROWTH PROPERTIES, INC. INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER Item 1: Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 .......................... 3 Consolidated Statements of Operations for the three and six months ended June 30, 1997 and 1996........... 4 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996..................... 5 Notes to Consolidated Financial Statements.......................... 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 13 Company Portfolio Results and Funds from Operations................. 15 Reconciliation of Company Net Income to Operating Partnership Funds from Operations for the three and six months ended June 30 1997 and 1996....................................................... 17 Reconciliation of Net Income to Funds from Operations for the three months ended June 30, 1997.................................... 18 Reconciliation of Net Income to Funds from Operations for the six months ended June 30, 1997.......................................... 19 Other Portfolio Data for the six months ended June 30, 1997......... 20 Management's Discussion and Analysis of Homart Portfolio Funds from Operations.......................................................... 21 Reconciliation of GGP/Homart Net Income to GGP/Homart Funds from Operations for the three and six months ended June 30, 1997 and 1996............................................................ 23 General Growth Management, Inc. Statement of Operations for the three and six months ended June 30, 1997............................ 24 Liquidity and Capital Resources of the Company...................... 25 PART II OTHER INFORMATION Item 2: Changes in Securities...................................... 25 Item 4: Submission of Matters to a Vote of Security Holders........ 26 Item 6: Exhibits and Reports on Form 8-K........................... 26 SIGNATURE........................................................... 26
2 of 26 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (Dollars in thousands, except for share amounts) ASSETS
JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 ----------- ----------- Investment in real estate: Land $ 190,401 $ 173,263 Buildings and equipment 1,534,401 1,337,366 Less accumulated depreciation (210,135) (188,744) Developments in progress 50,163 44,439 ---------- ---------- Net property and equipment 1,564,830 1,366,324 Investment in CenterMark - 64,769 Investment in GGP/Homart 198,377 193,270 Investment in Property Joint Ventures 43,598 15,077 ---------- ---------- Net investment in real estate 1,806,805 1,639,440 Cash and cash equivalents 6,489 15,947 Tenant accounts receivable, net 26,760 25,384 Deferred expenses, net 32,091 30,078 Investment in and note receivable from General Growth Management, Inc. 56,111 37,737 Prepaid and other assets 7,631 9,131 ---------- ---------- $1,935,887 $1,757,717 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $1,293,834 $1,168,522 Notes and contracts payable 905 971 Distributions payable 21,969 20,744 Accounts payable and accrued expenses 36,912 44,836 ---------- ---------- 1,353,620 1,235,073 ---------- ---------- Minority interest in Operating Partnership 217,072 192,377 ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock, $100 par value; 5,000,000 shares authorized; none issued Common stock; $.10 par value; 210,000,000 shares authorized; 30,789,949 shares issued and 30,767,097 outstanding (30,789,185 as of 12/31/96) 3,079 3,079 Additional paid-in capital 595,822 595,628 Retained earnings (deficit) (232,683) (268,440) Treasury stock; 31,852 shares held (1,023) - ---------- ---------- Total stockholders' equity 365,195 330,267 ---------- ---------- $1,935,887 $1,757,717 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 of 26 4 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 --------- --------- -------- --------- Revenues: Minimum rents $42,488 $32,927 $81,663 $65,271 Tenant recoveries 23,531 14,513 45,153 30,651 Percentage rents 1,585 1,389 3,658 2,769 Other 1,197 870 2,790 1,934 Fee income 893 1,972 1,758 2,787 ------- ------- -------- -------- Total revenues 69,694 51,671 135,022 103,412 ------- ------- -------- -------- Expenses: Property operating 23,735 16,539 45,902 34,540 Management fees to affiliate 816 658 1,566 1,325 General and administrative 862 758 1,702 1,493 Depreciation and amortization 12,013 9,259 23,175 18,400 ------- ------- -------- -------- Total expenses 37,426 27,214 72,345 55,758 ------- ------- -------- -------- Operating income 32,268 24,457 62,677 47,654 Interest expense, net (17,785) (17,552) (33,224) (35,092) Equity in net income/(loss) of unconsolidated affiliates: CenterMark 1,471 3,482 Property Joint Ventures 311 638 GGP/Homart 3,627 2,196 5,451 3,887 General Growth Management, Inc. (598) 1,035 (871) 1,486 Net gain on sales 58,647 ------- ------- -------- -------- Income before extraordinary item and allocation to minority interest 17,823 11,607 93,318 21,417 Income allocated to minority interest (6,696) (4,332) (34,238) (7,146) ------- ------- -------- -------- Income before extraordinary item 11,127 7,275 59,080 14,271 Extraordinary item (a) (377) (2,291) ------- ------- -------- -------- Net income $11,127 $7,275 $58,703 $11,980 ======= ====== ======= ======= Earnings per share before extraordinary item $ .36 $ .27 $ 1.92 $ .52 Extraordinary item per share ( .01) ( .08) ------- ------ ------- ------- Net earnings per share $ .36 $ .27 $ 1.91 $ .44 ======= ====== ======= =======
(a) Charges related to early retirement of debt. The accompanying notes are an integral part of these consolidated financial statements. 4 of 26 5 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) (Dollars in thousands)
Six Months Ended June 30, 1997 1996 -------- ------ Cash flows from operating activities: Net income $ 58,703 $ 11,980 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 34,238 7,146 Net gain on sales (58,647) Extraordinary items - charges related to early retirement of debt 377 2,291 Equity in net income of unconsolidated affiliates (5,218) (8,855) Provision for doubtful accounts 1,562 1,542 Depreciation 21,391 16,444 Amortization 1,784 1,956 Net changes in: Tenant accounts receivable (2,937) (2,007) Prepaid and other assets 1,415 (4,122) Accounts payable and accrued expenses (15,010) (876) --------- ------- Net cash provided by operating activities 37,658 25,499 --------- ------- Cash flows from investing activities: Acquisition/development of real estate and improvements and additions to properties (146,543) (32,633) Increase in investments in unconsolidated real estate affiliates (33,407) (121) Change in notes receivable from GGMI (19,348) 61 Proceeds from the sale of CenterMark stock 130,500 Distributions received from CenterMark Properties, Inc. 11,106 Distributions received from GGP/Homart, Inc. 6,077 4,633 Increase in deferred expenses (3,796) (6,112) --------- ------- Net cash from investing activities (66,517) (23,066) --------- ------- Cash flows from financing activities: Cash distributions paid to common stockholders (26,853) (23,455) Cash distributions paid to minority interest (15,818) (13,846) Payment of stock offering costs (3) Proceeds from issuance of mortgage and other notes payable 187,526 367,212 Principal payments on mortgage and other notes payable (124,143) (343,519) Purchase of treasury stock (1,179) Proceeds from exercised options 248 Retirement of common stock (net of sale proceeds) (62) Prepayment penalty on early retirement of debt (377) Increase in deferred financing costs (1,955) --------- ------- Net cash from financing activities 19,401 (15,625) --------- ------- Net change in cash and cash equivalents (9,458) (13,192) Cash and cash equivalents at beginning of period 15,947 18,298 --------- ------- Cash and equivalents at end of period $ 6,489 $ 5,106 ========= ======= Supplemental disclosure of cash flow information: Non-cash investing activities Interest paid $43,666 $38,172 Interest capitalized $ 2,718 $ 2,892 Debt assumed as consideration to seller for purchase of real estate $61,863 Partnership units and common stock issued as consideration for purchase of real estate $11,490
The accompanying notes are an integral part of these consolidated financial statements. 5 of 26 6 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) NOTE 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. On August 8, 1997, the Company completed a follow-on stock offering of 4,000,000 shares of its common stock. The shares were sold through Lehman Brothers, which has a 30 day option to purchase an additional 600,000 shares to cover over-allotments. Net proceeds of $135,600,000 were substantially applied to reduce the outstanding balance on two development loans totaling approximately $113,000,000. The balance of the proceeds will be used for general corporate purposes, including possible future acquisitions and the development of enclosed mall shopping centers. OPERATING PARTNERSHIP The Operating Partnership commenced operations on April 15, 1993 and as of June 30, 1997, the Company together with the Operating Partnership owned 100% of thirty-four enclosed regional shopping centers (the "Original Centers") and 50% of Quail Springs and Town East, 38.2% of the stock of GGP/Homart, Inc. and a 95% non-voting preferred stock interest in GGMI (see Note 5). GGP/Homart owns interests in twenty-five shopping centers (the "Homart Centers") and one center under development. At June 30, 1997, the Company owned a 63% general partnership interest in the Operating Partnership. 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 6 of 26 7 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) 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. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership consisting of the thirty-four centers (the "Original Centers") and the unconsolidated investments in CenterMark Properties, Inc. (through January 2, 1997), GGP/Homart, Inc., GGMI and Quail Springs and Town East (the "Property Joint Ventures"). The consolidated statements of operations for prior periods have been reclassified to conform with current classifications with no effect on results of operations. NOTE 2 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 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 3). The proceeds received from the second payment were 7 of 26 8 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) primarily used to repay existing indebtedness (see Note 6). NOTE 3 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. All of the stockholders of GGP/Homart committed to contribute up to $80,000 of additional capital as required, through the end of 1997. As of June 30, 1997, the stockholders had contributed $60,000 of additional capital. GGP/Homart currently owns interests in twenty-five regional shopping malls and one property under development. 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 and Commons is located in Waterbury, Connecticut, and is scheduled to open on September 17, 1997. During the second quarter of 1997, GGP/Homart sold its ownership interest in Eden Prairie Mall to the Company (see Note 4). On the following page is summarized financial information for GGP/Homart for the three and six months ended June 30, 1997 and 1996. 8 of 26 9 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) GGP/HOMART, INC. CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED, DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 --------- -------- -------- -------- Revenues Minimum rents $24,349 $21,901 $49,189 $43,110 Tenant recoveries 12,005 9,546 22,740 18,783 Percentage rents 615 838 1,249 1,195 Other 856 1,139 1,563 1,583 --------- -------- -------- -------- Total revenues 37,825 33,424 74,741 64,671 Operating expenses (15,475) (14,346) (31,510) (28,700) Depreciation and amortization (6,447) (5,346) (12,953) (10,083) --------- -------- -------- -------- Net operating income 15,903 13,732 30,278 25,888 Interest expense, net (9,867) (9,380) (20,695) (18,290) Equity in net income of unconsolidated real estate affiliates 2,785 1,404 4,123 2,584 Gain/(loss) on land sale 735 681 Income allocated to minority interest (66) (7) (122) (7) --------- -------- -------- -------- Net income $9,490 $5,749 $14,265 $10,175 ========= ======== ======== ========
9 of 26 10 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) NOTE 4 PROPERTY ACQUISITIONS AND DEVELOPMENT ACQUISITIONS On March 31, 1997, the Company acquired a 100% interest in Market Place Mall for a cash purchase price of approximately $70,000. Market Place Mall is located in Champaign, Illinois. During the second quarter of 1997, the Company also acquired 100% ownership of three other properties, Century Plaza Shopping Center, Southlake Mall and Eden Prairie Mall, and a 50% interest in Town East Mall. Century Plaza Shopping Center located in Birmingham, Alabama was acquired on May 1, 1997 for $31.8 million in cash. Southlake Mall was acquired on June 18, 1997, for a purchase price of $67.0 million. The purchase price consisted of $45.1 million of mortgage debt assumption, $11.5 million (353,537 units) of newly issued Operating Partnership Units, and $10.4 million in cash. Southlake Mall is located in Atlanta, Georgia. The aggregate consideration paid for Eden Prairie Mall located in Minneapolis, Minnesota was $19.9 million. It included the assumption of a $16.8 million mortgage, the payment of $2.0 million in cash and the assumption of $1.1 million of short-term liabilities. On June 11, 1997, the Company acquired a 50% interest in Town East Mall, located in Mesquite, Texas for $56.5 million. The consideration included approximately $27.5 million in cash, the assumption of approximately $27.9 million of mortgage indebtedness and the assumption of $1.1 million in net current liabilities. The acquisitions were accounted for utilizing the purchase method and accordingly, the results of operations are included in the Operating Partnership's results of operations from the date 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. NOTE 5 ACQUISITION OF GGMI 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 was used to purchase the Company's common stock. The loan 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. 10 of 26 11 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) On June 16, 1997, GGMI acquired a 220,000 square foot office building in downtown Chicago, Illinois to be used as the new corporate headquarters. The office building will be completely upgraded and retrofitted to create class A office space. GGMI and Company personnel will initially occupy approximately half of the building in April of 1998. The balance of the space will be leased to other tenants. NOTE 6 MORTGAGE LOANS AND CREDIT FACILITIES On January 2, 1997, a portion of the proceeds from the sale of CenterMark were used to repay a $12,597 mortgage on Westwood Mall and to reduce the balance on a non-recourse bridge loan facility from $250,000 to $180,000. In addition to the $250,000 non-recourse bridge loan that is collateralized in part by mortgages on seven Original Centers, the Company obtained additional short term unsecured financing. As part of the additional financing, the Company agreed not to encumber four additional Original Centers. As of June 30, 1997 the entire $250,000 non-recourse loan was outstanding and the entire $116,700 of proceeds available under the additional unsecured loan was also outstanding. NOTE 7 NET GAIN ON SALES The net gain on sales relates primarily to the gain on the sale of CenterMark (see Note 2) less additional costs related to prior acquisitions. NOTE 8 EXTRAORDINARY ITEMS The extraordinary items resulted from prepayment costs and unamortized deferred financing costs related to the early extinguishment of mortgage notes payable. NOTE 9 DISTRIBUTIONS PAYABLE On June 24, 1997, the Company declared a cash distribution of $.45 per share that was paid on July 31, 1997, to stockholders of record on July 15, 1997, totaling $13,856. In addition, a distribution of $8,124 was paid to the limited partners of the Operating Partnership. On December 17, 1996, the Company declared a cash distribution of $.43 per share that was paid on January 31, 1997, to stockholders of record on December 31, 1996, totaling $13,239. In addition, a distribution of $7,505 was paid to the limited partners of the Operating Partnership. 11 of 26 12 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) NOTE 10 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 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. NOTE 11 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 128, "Earnings Per Share," revises the disclosure requirements and increases the comparability of EPS data on an international basis by simplifying the existing computational guidelines in APB Opinion No. 15. The pronouncement will require the Company to present both basic and diluted EPS for net income on the face of the income statement and is effective for the Company's fiscal year ending December 31, 1997. The Company believes SFAS No. 128 will not have a material impact on its financial statements. In June of 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Under the new reporting and disclosure requirements promulgated in these statements, the Company will adopt the provisions beginning in its fiscal 1998 year. 12 of 26 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of June 30, 1997, the Company together with the Operating Partnership owned 100% of thirty-four enclosed regional shopping centers (the "Original Centers") and 50% of Quail Springs and Town East, 38.2% of the stock of GGP/Homart, Inc. and a 95% interest in GGMI (see Note 5). GGP/Homart owns interests in twenty-five shopping centers (the "Homart Centers") and one center under development. During 1996 the Company, through the Operating Partnership owned an interest in CenterMark Properties, Inc. (the "CenterMark Centers") (see Note 2). Revenues are primarily derived from fixed minimum rents, percentage rents and recoveries of operating expenses from tenants. Inasmuch as the Company's financial statements reflect the use of the equity method to account for its investments in CenterMark, GGP/Homart, GGMI, Quail Springs and Town East, the discussion of results of operations below relates primarily to the revenues and expenses of the Original Centers. The Original Centers, the CenterMark Centers, the Homart Centers and GGMI are collectively known as the "Company Portfolio". A separate discussion of GGP/Homart's results of operations is presented below (see "Homart Portfolio Results and Funds from Operations" on page 21). RESULTS OF OPERATIONS OF THE COMPANY THREE MONTHS ENDED JUNE 30, 1997 AND 1996 Total revenues for the second quarter of 1997 were $69.7 million, which represents an increase of $18.1 million or approximately 35.1% from $51.6 million in the second quarter of 1996. Approximately $13.2 million or 72.9% of the increase is from acquisitions completed after June 30, 1996. Improved performance of comparable properties (properties owned at all times during current and prior periods) accounted for the remaining $4.9 million or 27.1% of the increase. Minimum rent for the second quarter of 1997 increased by $9.6 million or 29.2% from $32.9 million in 1996 to $42.5 million. The acquisition of properties generated $8.9 million of the $9.6 million increase in minimum rents. Expansion space, specialty leasing and a combination of occupancy and rental changes at the comparable centers accounted for the remaining increase of $.7 million in minimum rents. Tenant charges increased by $9.0 million or 62.1% from $14.5 million to $23.5 million for the second quarter of 1997. Approximately $5.2 million of the increase is attributable to higher recoverable operating expenses at the comparable malls. The remaining $3.8 million increase was generated by properties which were recently acquired. For the second quarter of 1997 overage rents increased by $.2 million or approximately 14.2% from $1.4 million in 1996. Other revenues increased by approximately $.3 million or 33.3% to $1.2 million for the second quarter of 1997 from $.9 million in 1996. Fee income decreased by $1.2 million due to a non-recurring finance fee in the second quarter of 1996. Total expenses, including depreciation and amortization, increased by approximately $10.2 million, from $27.2 million in the second quarter of 1996 to $37.4 million in the second quarter of 1997. For the period ended June 30, 1997, property operating expenses increased by $7.2 million or 43.6% from $16.5 million in 1996 to $23.7 million for the second quarter of 1997. Of this increase new acquisitions accounted for $4.3 million, while comparable centers contributed the remaining $2.9 million. Depreciation and amortization increased by $2.8 million over the same period in 1996. Approximately $.8 million of the $2.8 million increase in depreciation and amortization was generated at comparable centers. The remaining $2.0 13 of 26 14 million was from newly acquired properties. Management fees to affiliates and general and administrative expenses together were approximately $.2 million higher than in the second quarter of 1996. Net interest expense for the second quarter of 1997 was $17.8 million, an increase of $.2 million or 1.1% from $17.6 million in the second quarter of 1996. The acquisition of new properties was responsible for an increase of approximately a $4.7 million. Interest savings of $4.5 million were generated by lower interest rates as a result of refinancing activities and from the temporary use of the proceeds from the sale of CenterMark to reduce debt. Equity in net income of unconsolidated affiliates in the second quarter of 1997 decreased by approximately $1.4 million to $3.3 million in 1997, from $4.7 million in the second quarter of 1996. Approximately $1.5 million of the decrease is attributable to the sale of the Company's interest in CenterMark. The Company's ownership interest in GGMI resulted in a decrease of $1.6 million. Property Joint Ventures (see Note 1) and GGP/Homart accounted for increases of $.3 million and $1.4 million, respectively. The results of GGP/Homart's operations are also presented and discussed below (see "Homart Portfolio Results and Funds from Operations" on page 21). SIX MONTHS ENDED JUNE 30, 1997 AND 1996 Total revenues for the first half of 1997 were $135.0 million, which represents an increase of $31.6 million or approximately 30.6% from $103.4 million in the first half of 1996. Of this increase approximately $23.1 million is from properties acquired after June 30, 1996. Minimum rent for the first six months of 1997 increased $16.4 million or 25.1% from $65.3 million in 1996 to $81.7 million. Acquisitions after June 30, 1996, generated $15.2 million of the increase. Higher rents at comparable centers accounted for the remaining $1.2 million increase in minimum rents. Tenant recoveries increased by $14.5 million or 47.2% from $30.7 million to $45.2 million for the first six months of 1997. Acquisitions of new properties contributed $7.4 million of the $14.5 million increase. Higher recoverable operating costs at comparable centers generated the remaining $6.6 million of the increase. For the first six months of 1997, overage rents increased by $.9 million or 32.1% from $2.8 million to $3.7 million in 1997. The increase is primarily due to the acquisition of new properties. Other revenues increased $.9 million or 47.4% from $1.9 million to $2.7 million for the first six months of 1997. Fee revenue decreased by $1.0 million due to a $1.2 million non-recurring finance fee in 1996 net of higher fee revenue of $.2 million. Total expenses, including depreciation and amortization, increased $16.6 million or 29.6% from $55.7 million in 1996 to $72.3 in the first six months of 1997. For the period ended June 30, 1997, property operating, general and administrative costs and management expenses increased $11.8 million. Of this increase $7.8 million is attributable to the acquisition of new properties. The remaining $4.0 million is from higher operating expenses at comparable properties. Depreciation and amortization increased $4.8 million from $18.4 million in the first six months of 1996 to $23.2 million in 1997. Of this increase $3.1 million is attributable to new acquisitions. Comparable centers accounted for the remaining $1.7 million increase in depreciation and amortization. 14 of 26 15 Interest expense for the first six months of 1997 was $33.2 million, a decrease of $1.9 million or 5.4% from $35.1 million during the same period in 1996. The acquisition and development of new properties was responsible for a $7.2 million increase. Interest savings due to lower interest rates on refinancing activity and reduced debt levels from the use of the CenterMark sale proceeds accounted for a $9.1 million decrease in interest expense. Equity in net income of unconsolidated affiliates in the first six months of 1997 decreased by approximately $3.6 million to $5.2 million in 1997, from $8.8 million in the first six months of 1996. Approximately $3.5 million of the decrease is attributable to the sale of the Company's interest in CenterMark. The Company's ownership in GGMI resulted in a decrease of $2.4 million. The Property Joint Ventures (see Note 1) and GGP/Homart accounted for increases of $.6 million and $1.7 million, respectively. The results of GGP/Homart's operations are also presented and discussed below (see "Homart Portfolio Results and Funds from Operations" on page 20). COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS In order to portray the various direct and indirect sources of the Company's Funds from Operations in a similar and useful manner, the Company Portfolio results and Funds from Operations depicted below reflect the applicable ownership percentage 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 the applicable ownership percentage 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 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 financial statements because the other shareholders in CenterMark and GGP/Homart are not affiliated with the Company. The National Association of Real Estate Investment Trusts ("NAREIT") defines Funds from Operations as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. In calculating its Funds from Operations, the Company also excludes non-cash straight line rent and gains on land sales, if any. The NAREIT definition of Funds from operations does not exclude the aforementioned items. Funds from Operations does not represent cash generated from operating activites in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. 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 Homart centers. Accordingly, management believes the following schedule of the relative share of Company Portfolio net operating income (Funds from Operations before interest expense) contributed by the Original Centers and the 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. 15 of 26 16
THREE MONTHS SIX MONTHS ENDED % OF ENDED % OF NET OPERATING INCOME BY PORTFOLIO JUNE 30, 1997 TOTAL JUNE 30, 1997 TOTAL ------------- ------------ ------------- ------ Original Centers and GGMI $46,089 80.08% $ 88,790 80.16% 38.2% of GGP/Homart (a) $11,463 19.92% $ 21,980 19.84% ------------- ------------ ------------- ------ Company Portfolio Net Operating Income $57,552 100.00% $110,770 100.00% ============= ====== ============= ====== (a) Reflects the Company's share of GGP/Homart's Net Operating Income, including GGP/Homart's share of Net Operating Income from joint ventures. (See Note 3)
The Company Portfolio results and funds from operations reflected below for the three and six months ended June 30, 1997 and 1996 do not purport to project results for any future period. For 1996, the Company Portfolio results include the Company's share of the CenterMark Centers results. 16 of 26 17 RECONCILIATION OF COMPANY NET INCOME TO OPERATING PARTNERSHIP FUNDS FROM OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands - Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ------------------ ------------------- GAAP Net income (see page 4) $ 11,127 $ 7,275 $58,703 $11,980 Extraordinary item (a) 377 2,291 Allocations to Operating Partnerships unitholders 6,696 4,279 34,238 7,071 Net gain on sales (281) (58,907) Straight-line rent (included in GAAP net income, so it must be deducted in order to reconcile to FFO) (1,137) (1,561) (2,492) (3,019) Depreciation and amortization of real estate costs 16,751 15,681 32,356 31,086 ------------------ ------------------- Operating Partnership Funds From Operations (See below) $ 33,156 $25,674 $64,275 $49,409 ================== ===================
COMPANY PORTFOLIO RESULTS (In thousands, except for per share amounts - Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenues Minimum rents (b) $ 54,988 $ 51,076 $ 105,939 $101,420 Tenant recoveries 29,847 23,672 57,463 48,843 Percentage rents 1,922 1,839 4,339 3,974 Other 1,904 1,133 3,822 2,707 Fees 15,864 7,504 30,831 12,721 -------- -------- --------- -------- Total revenues $104,525 $ 85,224 $ 202,394 $169,665 Operating expenses (c) (46,112) (33,509) (89,923) (68,289) General and administrative (861) (758) (1,701) (1,493) -------- -------- --------- -------- Net operating income 57,552 50,957 110,770 99,883 Interest expense, net (24,396) (25,283) (46,495) (50,474) -------- -------- --------- -------- Operating Partnership Funds From Operations (See above) $ 33,156 $ 25,674 $ 64,275 $ 49,409 Less: FFO allocable to Operating Partnership unitholders $ 12,268 $ 9,531 $ 23,678 $ 18,341 -------- -------- --------- -------- Company Funds From Operations $ 20,888 $ 16,143 $ 40,597 $ 31,068 ======== ======== ========= ======== FFO per share $ .68 $ .59 $ 1.32 $ 1.14 ======== ======== ========= ========
(a) Charges related to early retirement of debt. (b) Excluding straight-line rents for the three and six months ended June 30, 1997 and 1996 of $1,137, $1,561 and $2,492 and $3,019, respectively. (c) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. 17 of 26 18 RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 (Dollars in thousands - Unaudited)
Original GGP/ Centers Homart GGMI Total -------- -------- ------- -------- GAAP Net income (see page 4) $ 9,236 $ 2,264 $ (373) $ 11,127 Allocations to Operating Partnership unitholders 5,558 1,363 (225) 6,696 Net gain on sales (281) (281) Straight-line rent (included in GAAP net income, so it must be deducted in order to reconcile to FFO) (824) (313) (1,137) Depreciation and amortization of real estate costs 12,198 3,566 987 16,751 ------- ------- ------ -------- Operating Partnership Funds From Operations (See below) $26,168 $ 6,599 $ 389 $ 33,156 ======= ======= ====== ========
BREAKDOWN OF COMPANY PORTFOLIO RESULTS (In thousands, except for per share amounts - Unaudited)
Original GGP/ Centers Homart GGMI Total -------- -------- ------- -------- Revenues Minimum rents (b) $ 42,344 $ 12,644 $ 54,988 Tenant recoveries 24,162 5,685 29,847 Percentage rents 1,633 289 1,922 Other 1,506 398 1,904 Fees 892 14,972 15,864 ------- -------- ------- -------- Total revenues 70,537 19,016 14,972 104,525 Operating expenses (c) (25,448) (7,553) (13,111) (46,112) General and administrative (861) (861) ------- -------- ------- -------- Net operating income 44,228 11,463 1,861 57,552 Interest expense, net (18,060) (4,864) (1,472) (24,396) ------- -------- ------- -------- Operating Partnership Funds From Operations (See above) $26,168 $ 6,599 $ 389 $ 33,156 ======= ======= ======= ======== Funds From Operations per share/unit $ 0.68 ========
(a) Charges related to early retirement of debt. (b) Excluding straight-line rent for the three months ended June 30, 1997 of $1,137. (c) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. 18 of 26 19 RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (Dollars in thousands - Unaudited)
Original GGP/ Centers Homart GGMI Total --------- --------- ------- -------- GAAP Net income (see page 4) $ 55,809 $ 3,443 $ (549) $ 58,703 Extraordinary item (a) 377 377 Allocations to Operating Partnership unitholders 32,552 2,008 (322) 34,238 Net gain on sales (58,647) (260) (58,907) Straight-line rent (included in GAAP net income, so it must be deducted in order to reconcile to FFO) (1,952) (540) (2,492) Depreciation and amortization of real estate costs 23,428 7,219 1,709 32,356 -------- ------- ------ ------- Operating Partnership Funds From Operations $ 51,567 $11,870 $ 838 $64,275 (See below) ======== ======= ====== =======
BREAKDOWN OF COMPANY PORTFOLIO RESULTS (In thousands, except for per share amounts - Unaudited)
Original GGP/ Centers Homart GGMI Total --------- --------- ------- ----------- Revenues Minimum rents (b) $ 81,119 $ 24,820 $ - $ 105,939 Tenant recoveries 46,126 11,337 - 57,463 Percentage rents 3,744 595 - 4,339 Other 3,121 701 - 3,822 Fees 1,758 - 29,073 30,831 --------- --------- ------- ----------- Total revenues 135,868 37,453 29,073 202,394 Operating expenses (c) (48,917) (15,473) (25,533) (89,923) General and administrative (1,701) - - (1,701) --------- --------- ------- ----------- Net operating income 85,250 21,980 3,540 110,770 Interest expense, net (33,683) (10,110) (2,702) (46,495) --------- --------- ------- ----------- Operating Partnership Funds From Operations (See above) $ 51,567 $ 11,870 $ 838 $ 64,275 ========= ========= ======= =========== Funds From Operations per share/unit $ 1.32 ===========
(a) Charges related to early retirement of debt. (b) Excluding straight-line rent for the six months ended June 30, 1997 of $2,492. (c) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. 19 of 26 20 OTHER COMPANY PORTFOLIO DATA AS OF AND/OR FOR THE SIX MONTHS ENDED JUNE 30, 1997 (In thousands, except for per square foot amounts, unaudited)
Original GGP/ Total or Centers(a) Homart(a) Average ------------- ----------- ------------ Occupancy of centers not under redevelopment 82.4% 85.8% 83.8% Tenant allowances $ 5,091 $ 5,643 $ 10,734 Annualized sales per sq. ft. $ 243 $ 292 $ 268 Average rent per sq. ft. for new/renewal leases $ 20.94 $ 31.75 $ 27.82 Average rent per sq. ft. for expiring leases $ 16.68 $ 24.94 $ 19.46 % change in total sales 4.0% 10.7% 7.7%
(a) Data is for 100% of the non-anchor GLA in each portfolio, including those centers that are owned in part by unaffiliated joint venture partners. COMPANY PORTFOLIO DEBT MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY AS OF JUNE 30, 1997 (Dollars in Thousands, unaudited)
Company Original Centers GGP/Homart(a) Portfolio Debt ------------------------- ------------------------- ------------------------- Current Current Current Maturing Average Maturing Average Maturing Average Year Amount Rate Amount Rate Amount Rate ---------- -------- -------- ------- ---------- ------- 1997 $ 423,261 6.91% - - $ 423,261 6.91% 1998 129,309 7.12% 27,984 6.83% 157,293 7.07% 1999 112,357 8.79% 123,042 7.39% 235,399 8.06% 2000 - - 33,485 7.31% 33,485 7.31% Subsequent 665,147 7.12% 153,376 7.46% 818,523 7.18% ---------- ----- -------- ----- ---------- ----- Totals $1,330,074 7.19% $337,887 7.37% $1,667,961 7.23% ========== ===== ======== ===== ========== ===== Floating Rate $ 479,266 6.78% $130,218 7.36% $ 609,484 6.90% Fixed Rate 850,808 7.43% 207,669(b) 7.37% 1,058,477 7.41% ---------- ----- -------- ----- ---------- ----- Totals $1,330,074 7.19% $337,887 7.37% $1,667,961 7.23% ========== ===== ======== ===== ========== =====
(a) GGP/Homart debt reflects the Operating Partnership's share of its total portfolio debt. (b) Includes $34,381 of floating rate debt with a 9% cap on the all-in rate through maturity in December 1998. 20 of 26 21 HOMART PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS GGP/Homart owns 100% of 14 retail properties and has various percentage interests in 11 other retail properties. As required by generally accepted accounting principles, GGP/Homart uses the equity method to account for its investments in joint venture properties that are not eligible for consolidation. The Company Portfolio results and Funds from Operations reflected above include the Company's share of GGP/Homart's Funds from Operations. In order to portray the sources of GGP/Homart's Funds from Operations in a similar and useful manner, the "Homart Portfolio" results presented below comprise 100% of the revenues and expenses of the wholly owned Homart Centers and GGP/Homart's various percentage interests of the revenues and expenses of Homart Centers that are owned in part by unaffiliated joint venture partners. The Company's share of GGP/Homart's Funds from Operations does not take into account interest expense paid on debt incurred to fund a majority of the $179 million initial cash purchase price and $23 million of subsequent investments, for 38.2% of GGP/Homart's stock. Also not charged against GGP/Homart's Funds from operations are certain general and administrative costs incurred by the Company that are attributable to the management and oversight of its investment in GGP/Homart. Accordingly, the net effective incremental contribution to the Company's Funds from Operations generated by the Homart Centers is substantially less than the amounts reflected below. See the discussion above regarding the relative contributions to net operating income (similar to EBITDA) made by the Original Centers and the Homart Centers. Management believes that contributions to Company Portfolio net operating income is the best indication of the relative significance to the Company of the Original Centers and the Homart Centers. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF THE HOMART PORTFOLIO'S FUNDS FROM OPERATIONS (Dollars in thousands) THREE MONTHS ENDED JUNE 30, 1997 AND 1996 Total revenue for the second quarter of 1997 increased $5.1 million or 11.4% to $49.8 million from $44.7 million in 1996. Minimum rents accounted for $4.4 million of the $5.1 million increase in total revenues. Minimum rent increased 15.4% or $4.4 million to $33.0 million for the quarter ended June 30, 1997. The development of West Oaks accounted for approximately $2.1 million of the $4.4 million increase in minimum rents. The improved performance of comparable properties accounted for the remaining increase in minimum rent of $2.3 million. Tenant recoveries increased 8.8% from $13.7 million in 1996 to $14.9 million in 1997. The development and increased ownership of properties generated $1.1 million of the increase in tenant recoveries. During the second quarter of 1997, percentage rents decreased $.2 million to $.8 million and other revenues decreased $.3 million to $1.1 million from $1.4 million in 1996. Operating expenses were $19.8 million for the second quarter of 1997 up from $19.2 million in 1996, an increase of 3.1% or $.6 million. The development and increased ownership of properties accounted for an increase of $1.0 million. 21 of 26 22 Net interest expense increased $.2 million or 1.6% from $12.5 million in the second quarter of 1996 to $12.7 million. Approximately $1.2 million of the increase is attributable to the development of a new property. The $1.0 million in interest savings was due to lower floating interest rates and the refinancing of floating rate loans to fixed rate loans at several properties. The aforementioned changes generated a $4.3 million or 33.1% increase in Funds from Operations from $13.0 million to $17.3 million. SIX MONTHS ENDED JUNE 30, 1997 AND 1996 Total revenues for the first half of 1997 increased $9.1 million or 10.2% from $88.9 million to $98.0 million. Approximately $7.7 million of the increase is from the development of West Oaks Mall and increased ownership in Vista Ridge Mall. Improved performance of comparable centers accounted for the remaining increase of $1.4 million. Minimum rent increased 12.8% or $7.4 million from $57.5 million to $64.9 million for the six month period. Of the $7.4 million, development and increased ownership of properties contributed $4.7 million, while the comparable centers accounted for the remaining $2.7 million or 36.4% of the increase. Tenant recoveries increased $1.8 million or 6.5% to $29.7 million from $27.9 million for the six month period. Other revenues decreased $.1 million or 5.5% from $2.0 to $1.9 million for the first six months of 1997. Operating expenses were $40.5 million, an increase of $1.1 million from $39.4 million in 1996. This increase is primarily the result of the new development and increased ownership of properties. Net interest expense increased $1.6 million from $24.8 million for the six months of 1996 to $26.4 million. Approximately $2.0 million is attributable to the new development and increased ownership of properties. The $.4 million interest savings is from lower floating interest rates and the refinancing of loans at several properties. The aforementioned changes generated a $6.3 million of 25.4% increase in Funds from Operations for the frist six months of 1997 from $24.8 million to $31.1 million. 22 of 26 23 RECONCILIATION OF GGP/HOMART NET INCOME TO GGP/HOMART FUNDS FROM OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands - Unaudited)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 ------------ ------------ -------------- ----------- GGP/Homart GAAP net income (a) $ 9,490 $ 5,749 $ 14,265 $ 10,175 Gain on land sale (735) (681) Straight-line rent not included in FFO (820) (1,320) (1,414) (2,310) Depreciation and amortization - real estate 9,333 8,574 18,894 16,887 -------- ------- --------- -------- GGP/Homart Funds From Operations (See below) $ 17,268 $13,003 $ 31,064 $ 24,752 ======== ======= ========= ======== Operating Partnership's share (38.2%) of $ 6,599 $ 4,969 $ 11,870 $ 9,458 GGP/Homart FFO (See below) ======== ======= ========= ========
GGP/HOMART PORTFOLIO RESULTS (In thousands, except for per share amounts - Unaudited)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 ------------ ------------ -------------- ----------- Revenues Minimum rents (b) $ 33,089 $ 28,624 $ 64,956 $ 57,575 Tenant recoveries 14,879 13,668 29,671 27,853 Percentage rents 757 1,003 1,558 1,543 Other 1,043 1,357 1,836 1,998 ------------ ------------ -------------- ----------- Total revenues 49,768 44,652 98,021 88,969 Operating expenses (c) (19,771) (19,199) (40,498) (39,374) ------------ ------------ -------------- ----------- Net operating income 29,997 25,453 57,523 49,595 Interest expense, net (12,729) (12,450) (26,459) (24,843) ------------ ------------ -------------- ----------- GGP/Homart Funds From Operations (See above) $ 17,268 $ 13,003 31,064 24,752 ============ ============ ============== =========== Operating Partnership's share (38.2%) of GGP/Homart FFO (See above) $ 6,599 $ 4,969 $ 11,870 $ 9,458 ============ ============ ============== ===========
(a) The Operating Partnership's share (38.2%) of GGP/Homart's net income is reflected as equity in net income of unconsolidated real estate affiliates on the Company's Consolidated Statements of Operations (see Page 4 above). (b) Excluding straight-line rents for the three and six months ended June 30, 1997 and 1996 of $820 and $1,320, $1,414 and $2,310, respectively. (c) Excluding depreciation and amortization of capitalized real estate costs other than financing fees/costs. 23 of 26 24 GGMI In December 1995, the Company formed GGP Management, Inc. to manage, lease, develop and operate enclosed regional malls. In August 1996 the Company acquired GGMI for approximately $51.5 million in common stock and operating partnership units. GGP Management was merged into GGMI as a result of the acquisition. As required by generally accepted accounting principles, the Company accounts for its ownership interest in GGMI using the equity method as the Company owns 95% of GGMI through non-voting preferred stock. The 5% minority interest is owned by five key employees who hold 100% of the common stock with voting rights. Due to the currently unpaid and accrued preferences on the preferred stock, the Company effectively earned 100% of the income generated by GGMI from the date of acquisition through June 30, 1997. The operating results of GGMI are included in the Company Portfolio Results. GGMI manages, leases, and performs various other services for the Original Centers, the Homart Centers and other properties owned by unaffiliated parties. The following schedule reflects the revenues and expenses related to the operations of GGMI for the three and six months ended June 30, 1997 and 1996. GENERAL GROWTH MANAGEMENT, INC. STATEMENT OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 and 1996 (UNAUDITED, IN THOUSANDS)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997(a) 1996 1997 1996 -------- -------- -------- -------- Revenues Management, leasing and development service $ 14,972 $ 5,262 $ 29,073 $ 9,888 Expenses Operating expense (13,111) (4,228) (25,533) (8,403) -------- ------- -------- ------- Net operating income 1,861 1,034 3,540 1,485 Interest expense, net (on loan from the Company) (1,472) (2,702) -------- ------- -------- ------- GGMI Funds From Operations $ 389 $ 1,034 $ 838 $ 1,485 ======== ======= ======== =======
(a) For three months ended June 30, 1997, the combined revenues and expenses of GGMI and the former GGP Management, Inc. are reflected. (b) For the six months ended June 30, 1996, only GGP Management, Inc. revenues and expenses are included. 24 of 26 25 LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY The Company uses operating cash flow as the principal source of funding for recurring capital expenditures such as tenant construction allowances and minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants. Funding alternatives for acquisitions, new development, expansions and major renovation programs at individual centers include construction loans, mini-permanent loans, long-term project financing, additional property level or Company level equity investments, unsecured Company level debt or secured loans collateralized by individual shopping centers. The Company expects to close on a new $200 million unsecured credit facility prior to August 31, 1997. Said facility will provide all of the funds necessary to complete the development of Coralville Mall in Iowa City, Iowa and to fund all other non-recurring capital expenditures that are currently being contemplated and/or evaluated. 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 renewal leases; (iii) changes in occupancy rates at existing centers and procurement of leases for newly developed centers; and (iv) the Company's share of Funds From Operations generated by GGMI, GGP/Homart and distributions therefrom, less oversight costs and debt service on additional loans that were incurred to finance a portion of the cash purchase price for GGP/Homart's stock. The Company anticipates that its Funds From Operations, and potential new debt or equity from future new financings or refinancings will provide adequate liquidity to conduct its operations, fund general and administrative expenses, fund operating costs and interest payments and allow distributions to the Company's stockholders in accordance with the requirements of the Internal Revenue Code of 1986, as amended, for continued qualification as a real estate investment trust and to avoid any Company level federal income or excise tax. PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES (c) On June 19, 1997, the Operating Partnership acquired in a negotiated transaction, Southlake Mall, located in Morrow (Atlanta), Georgia from CA Southlake Investors, Ltd., a Georgia limited partnership, and Metropolitan Life Insurance Company. The consideration consisted of approximately $10.4 million in cash, 353,537 redeemable units of limited partnership interest in the Operating Partnership and the assumption of approximately $45.1 million of mortgage debt. The units of limited partnership interest were issued solely to CA Southlake Investors, Ltd., in a private placement transaction which is exempt from registration under Section 4 (2) of the Securities Act of 1933, as amended (the "Act"), and the rules promulgated thereunder, including, without limitation, Rule 506 of the Act. The units of limited partnership interest are redeemable on a one-for-one basis, at any time after June 19, 1998, for shares of the Company's Common Stock. 25 of 26 26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At its Annual Meeting of Stockholders held on May 15, 1997, the Company presented to the stockholders the re-election of Morris Mark and Robert Michaels as Directors, the approval of an amendment to the Company's Amended and Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of Common Stock from 70,000,000 to 210,000,000, the approval of an amendment to the Company's 1993 Stock Incentive Plan to increase the nuber of shares available for issuance thereunder to 3,000,000 and the ratification of the reappointment of Coopers & Lybrand L.L.P. as Independent Auditors. A total of 30,791,185 shares were eligible to vote on each matter presented at the Annual Meeting, all of which were approved by the following votes of stockholders:
Number of Shares Matter For Against Abstain 1. (a) Re-elect Morris Mark 21,622,340 121,080 (b) Re-elect Robert Michaels 21,622,340 121,080 2. Amendment to Certificate of Incorporation 17,925,554 3,788,713 29,153 3. Amendment to 1993 Stock Incentive Plan 14,539,568 7,164,622 39,230 4. Reappointment of Coopers & Lybrand L.L.P. as Independent Auditors 21,690,011 39,375 14,035
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Not applicable (b) Reports on Form 8-K The Company filed a current report on Form 8-K dated June 19, 1997. The 8-K reported item 2 - acquisition or disposition of assets and item 5 - other events. SIGNATURE Pursuant to the requirements 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. Date: August 14, 1997 /s/: Bernard Freibaum ----------------------------------------------------- Bernard Freibaum Executive Vice President and Chief Financial Officer 26 of 26 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000895648 GENERAL GROWTH PROPERTIES INC 1,000 US DOLLARS 3-MOS DEC-31-1997 APR-1-1997 JUN-30-1997 1 6,489 0 74,246 0 0 37,775 2,027,512 (210,135) 1,935,887 58,881 1,294,739 0 0 3,080 579,187 1,935,887 0 135,022 0 47,606 0 1,562 33,224 34,673 0 34,673 58,647 (377) 0 58,703 1.91 1.91
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