-----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, M6yeMPS5/F6ZOaRd1zbIcfrMMJr26HGwcObV6RlkxqYRi7b0EG5c286ppAZiwLZK wXeSjBLtZ7c9DqFIHxpAOQ== 0000950137-04-011250.txt : 20041221 0000950137-04-011250.hdr.sgml : 20041221 20041220185516 ACCESSION NUMBER: 0000950137-04-011250 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20041220 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041221 DATE AS OF CHANGE: 20041220 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11656 FILM NUMBER: 041215436 BUSINESS ADDRESS: STREET 1: 110 N WACKER DRIVE STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129605000 MAIL ADDRESS: STREET 1: 110 N WACKER DRIVE STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 8-K 1 c90361e8vk.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of Earliest Event Reported) ------------------------------------------------ December 20, 2004 GENERAL GROWTH PROPERTIES, INC. ------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-11656 42-1283895 -------- ------- ---------- (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification incorporation Number) 110 N. Wacker Drive, Chicago, Illinois 60606 -------------------------------------------- (Address of principal executive offices) (Zip Code) (312) 960-5000 -------------- (Registrant's telephone number, including area code) N/A --- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 8.01 OTHER EVENTS. On August 11, 2004, the Board of Directors of General Growth Properties, Inc. (the "Company") approved plans to dispose of the industrial properties originally acquired in the JP Realty acquisition (the "JP Industrial Properties") in July 2002. The sales closed on November 1, 2004. In accordance with applicable generally accepted accounting principles, the Company presented the operating results of the aforementioned properties in continuing operations for all years included in its Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 12, 2004. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company reported the results of operations of the disposed properties as discontinued operations in its Form 10-Q for the quarterly period ended September 30, 2004. The following information (which is attached as exhibits hereto and incorporated by reference herein), which was originally presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, has been revised to present the JP industrial properties as discontinued operations: - - Selected Financial Data for the five years ended December 31, 2003 - - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for the three years ended December 31, 2003 - - Consolidated financial statements as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 Investors are cautioned that the MD&A presented herein has been revised solely to present the JP industrial properties as discontinued operations. It does not update the MD&A for any information, uncertainties, transactions, risks, events or trends occurring or known to management. Investors should read the information contained in this Current Report together with the other information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, its Forms 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, and other information filed with or furnished to the Securities and Exchange Commission after March 12, 2004. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) EXHIBITS EXHIBIT NO. DESCRIPTION - ----- ----------- 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of KPMG LLP 99.1 Selected Financial Data for the five years ended December 31, 2003 99.2 Management's Discussion and Analysis of Results of Operations and Financial Condition for the three years ended December 31, 2003 99.3 Consolidated financial statements as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL GROWTH PROPERTIES, INC. By: /s/ Bernard Freibaum -------------------- Bernard Freibaum Executive Vice President and Chief Financial Officer Date: December 20, 2004 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----- ----------- 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of KPMG LLP 99.1 Selected Financial Data for the five years ended December 31, 2003 99.2 Management's Discussion and Analysis of Results of Operations and Financial Condition for the three years ended December 31, 2003 99.3 Consolidated financial statements as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 EX-23.1 2 c90361exv23w1.txt COSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements File Nos. 333-11067, 333-15907, 333-17021, 333-23035, 333-37247, 333-37383, 333-41603, 333-58045, 333-68505, 333-76379, 333-76757, 333-82134, 333-82569, 333-84419, 333-88813, 333-88819, 333-91621, 333-115693 and 333-115694 of General Growth Properties, Inc. on Form S-3 and the Registration Statements File Nos. 33-79372, 333-07241, 333-11237, 333-28449, 333-74461, 333-79737 and 333-105882 of General Growth Properties, Inc. on Form S-8 of our report dated March 10, 2004 (December 13, 2004, as to Notes 2, 7, 14, 15, and 16) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in method of accounting for derivative instruments and hedging activities in 2001 and the change in accounting for debt extinguishment costs in 2003) appearing in this Current Report on Form 8-K. Deloitte & Touche LLP Chicago, Illinois December 20, 2004 EX-23.2 3 c90361exv23w2.txt CONSENT OF KPMG LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors General Growth Properties, Inc.: We consent to the incorporation by reference in the registration statements (Nos. 333-11067, 333-15907, 333-17021, 333-23035, 333-37247, 333-37383, 333-41603, 333-58045, 333-68505, 333-76379, 333-76757, 333-82134, 333-82569, 333-84419, 333-88813, 333-88819, 333-91621, 333-115693 and 333-115694) on Form S-3 and the registration statements (Nos. 33-79372, 333-07241, 333-11237, 333-28449, 333-74461, 333-79737 and 333-105882) on Form S-8 of General Growth Properties, Inc. of our report dated February 2, 2004, with respect to the consolidated balance sheets of GGP/Homart, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for the years then ended, and our report dated February 2, 2004, with respect to the consolidated balance sheets of GGP/Homart II L.L.C. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income and comprehensive income, members' capital and cash flows for the years then ended, which reports appear in the December 31, 2003 annual report on Form 10-K of General Growth Properties, Inc. Our reports refer to a change in the method of accounting for intangible assets in 2002. KPMG LLP Chicago, Illinois December 20, 2004 EX-99.1 4 c90361exv99w1.txt SELECTED FINANCIAL DATA EXHIBIT 99.1 SELECTED FINANCIAL DATA (Dollars in Thousands, except per share amounts) The following table sets forth selected financial data for the Company which is derived from, and should be read in conjunction with, the audited Consolidated Financial Statements and the related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report. As described in Item 4, the Company completed a three-for-one split of its Common Stock (effective December 5, 2003) and therefore, unless otherwise noted, all previous applicable share or Unit and per share or per Unit amounts have been reflected on a post-split basis.
2003 2002 2001 2000 1999 ------------ ----------- ----------- ----------- ----------- OPERATING DATA Revenue $ 1,262,791 $ 973,440 $ 799,365 $ 693,847 $ 607,733 Network discontinuance costs - - 66,000 - - Depreciation and amortization 230,195 179,036 144,863 119,337 107,951 Other operating expenses 484,294 366,925 293,725 224,255 204,110 Interest expense, net 276,235 215,340 220,402 212,640 185,839 Income allocated to minority interests (110,984) (86,213) (40,288) (51,676) (32,444) Equity in income of unconsolidated affiliates 94,480 80,825 60,195 50,063 17,890 ------------ ----------- ----------- ----------- ----------- Income from continuing operations 255,563 206,751 94,282 136,002 95,279 Income from discontinued operations, net 7,848 2,507 1,362 1,946 5,846 ------------ ----------- ----------- ----------- ----------- Income before cumulative effect of accounting change 263,411 209,258 95,644 137,948 101,125 Cumulative effect of accounting change - - (3,334) - - ------------ ----------- ----------- ----------- ----------- Net income 263,411 209,258 137,948 101,125 92,310 Convertible Preferred Stock Dividends (13,030) (24,467) (24,467) (24,467) (24,467) ------------ ----------- ----------- ----------- ----------- Net income available to common stockholders $ 250,381 $ 184,791 $ 67,843 $ 113,481 $ 76,658 ============ =========== =========== =========== =========== Earnings from continuing operations per share-Basic $ 1.21 $ 0.98 $ 0.44 $ 0.72 $ 0.52 Earnings from continuing operations per share-Diluted 1.19 0.97 0.44 0.72 0.52 Earnings from discontinued operations per share-Basic 0.04 0.01 0.01 0.01 0.04 Earnings from discontinued operations per share-Diluted 0.03 0.01 0.01 0.01 0.04 Loss from cumulative effect of accounting change-Basic - - (0.02) - - Loss from cumulative effect of accounting change-Diluted - - (0.02) - - Earnings per share-Basic 1.25 0.99 0.43 0.73 0.56 Earnings per share-Diluted 1.22 0.98 0.43 0.73 0.56 Distributions Declared Per Share (1) $ 0.78 $ 0.92 $ 0.80 $ 0.69 $ 0.66 BALANCE SHEET DATA Investment in Real Estate Assets-Cost $ 10,305,066 $ 7,724,515 $ 5,707,967 $ 5,439,466 $ 5,023,690 Total Assets 9,582,897 7,280,822 5,646,807 5,284,104 4,954,895 Total Debt 6,649,490 4,592,311 3,398,207 3,244,126 3,119,534 Preferred Minority Interests 495,211 468,201 175,000 175,000 - Common Minority Interests 408,613 377,746 380,359 355,158 356,540 Convertible Preferred Stock - 337,500 337,500 337,500 337,500 Stockholders' Equity $ 1,670,409 $ 1,196,525 $ 1,183,386 $ 938,418 $ 927,758 CASH FLOW DATA Operating Activities $ 578,487 $ 460,495 $ 207,125 $ 287,103 $ 205,705 Investing Activities (1,745,455) (949,411) (367,366) (356,914) (1,238,268) Financing Activities $ 1,124,005 $ 381,801 $ 293,767 $ 71,447 $ 1,038,526
1
2003 2002 2001 2000 1999 ----------- --------- --------- --------- ----------- FUNDS FROM OPERATIONS (2) Funds from Operations - Operating Partnership $ 618,561 $ 485,304 $ 296,777 $ 329,262 $ 261,767 Less: Allocations to Operating Partnership unitholders (138,568) (116,170) (80,215) (90,520) (78,874) ----------- --------- --------- --------- ----------- Funds from Operations - Company stockholders $ 479,993 $ 369,134 $ 216,562 $ 238,742 $ 182,893
(1) Reflects three dividend declarations in 2003, as the fourth quarter dividend was declared in January 2004. (2) Funds from Operations ("FFO" as defined below) does not represent cash flow from operations as defined by Generally Accepted Accounting Principles ("GAAP"), should not be considered as an alternative to GAAP net income and is not necessarily indicative of cash available to fund all cash requirements. Please see "Reconciliation of Net Income Determined in Accordance with Generally Accepted Accounting Principles to Funds from Operations" below for a reconciliation of Net Income to FFO. FUNDS FROM OPERATIONS General Growth, consistent with real estate industry and investment community preferences, uses Funds from Operations ("FFO") as a supplemental measure of the operating performance for a real estate investment trust. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains or losses from cumulative effects of accounting changes, extraordinary items and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. As discussed in Note 13, the treatment of debt extinguishment costs as extraordinary items was suspended with the effectiveness of the rescission of FASB Statement No. 4 in 2003. Accordingly, such previously recorded extraordinary items were reclassified to interest expense and no longer can be considered as excluded from the computation of FFO. Therefore, in the following presentation of its Funds from Operations, the Company has revised its computation of FFO for the years 2002, 2001 and 1999. In addition, the Company also has revised its FFO presentation for 2000 for certain losses on the sale of development property, for 2001 for the loss provision for network discontinuance costs and 2002 for minimum rent recognized for acquired below-market leases in order to be comparable to its 2003 FFO presentation and to reflect interpretations of the NAREIT approved presentation of such items that has changed since the Company's original presentation. The Company considers FFO a supplemental measure for equity REITs and a complement to GAAP measures because it facilitates an understanding of the operating performance of the Company's properties. FFO does not give effect to real estate depreciation and amortization since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company's operating performance. In order to provide a better understanding of the relationship between FFO and GAAP net income, a reconciliation of GAAP net income to FFO has been provided. FFO does not represent cash flow from operating activities in accordance with GAAP, should not be considered as an alternative to GAAP net income and is not necessarily indicative of cash available to fund cash needs. 2 RECONCILIATION OF NET INCOME DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO FUNDS FROM OPERATIONS
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Net Income available to common stockholders $ 250,381 $ 184,791 $ 67,843 $ 113,481 $ 76,658 Cumulative effect of accounting change - - 3,334 - - Allocations to Operating Partnership unitholders 71,145 57,821 25,128 43,026 33,058 Net (gain) loss on sales (3,720) (19) - (32) (3,083) Depreciation and amortization 300,755 242,711 200,472 172,787 155,134 --------- --------- --------- --------- --------- Funds from Operations - Operating Partnership 618,561 485,304 296,777 329,262 261,767 Funds from Operations - Minority Interest (138,568) (116,170) (80,215) (90,520) (78,874) --------- --------- --------- --------- --------- Funds from Operations - Company $ 479,993 $ 369,134 $ 216,562 $ 238,742 $ 182,893 ========= ========= ========= ========= =========
3 EX-99.2 5 c90361exv99w2.txt MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBIT 99.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references to numbered Notes are to specific footnotes to the Consolidated Financial Statements of the Company included in this Annual Report and which descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as in such Notes. FORWARD-LOOKING INFORMATION Certain statements contained in this Annual Report may include certain forward-looking information statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as "expects", "anticipates", "intends", "plans", "will", "believes", "seeks", "estimates", and "should" and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, acts of terrorism, interest rate trends, cost of capital requirements, availability of real estate properties, inability to consummate acquisition opportunities, competition from other companies and venues for the sale/distribution of goods and services, changes in retail rental rates in the Company's markets, shifts in customer demands, tenant bankruptcies or store closures, changes in vacancy rates at the Company's properties, changes in operating expenses, including employee wages, benefits and training, governmental and public policy changes, changes in applicable laws, rules and regulations (including changes in tax laws), the ability to obtain suitable equity and/or debt financing, and the continued availability of financing in the amounts and on the terms necessary to support the Company's future business. MANAGEMENT'S CONTEXTUAL OVERVIEW & SUMMARY The Company's primary business is the ownership, management, leasing and development of retail rental property. Management of the Company believes the most significant operating factor affecting incremental cash flow and net income is increased rents (either base rental revenue or overage rents) earned from tenants at the Company's properties. These rental revenue increases are primarily achieved by re-leasing existing space at higher current rents, increasing occupancy at the properties so that more space is generating rent and sales increases of the tenants, in which the Company participates through overage rents. Therefore, certain operating statistics of the properties owned by the Company are presented to indicate the trends of these factors. Readers of this management analysis of operations of the Company should focus on trends in such rental revenues as tenant expense recoveries (which are intended to recover amounts incurred for property operating expenses, including real estate taxes) and net management fees and expenses, are not as significant in terms of major net indicators of trends in cash flow or net income. In addition, management of the Company considers changes in interest rates to be the most significant external factor in determining trends in the Company's cash flow or net income. As detailed in our discussion of economic conditions and market risk in this section, interest rates could rise in future months, which could adversely impact the Company's future cash flow and net income. Finally, the following discussion of management's analysis of operations focuses on the consolidated financial statements presented in this Annual Report. Trends in Funds from Operations ("FFO") as defined by The National Association of Real Estate Investment Trusts ("NAREIT") have not been presented in this 1 management discussion of operations, as FFO, under current SEC reporting guidelines, can only be considered a supplemental measure of Company operating performance. The summary immediately above has discussed operating factors which affect incremental annual cash flow and net income for individual properties owned by the Company in all comparable periods. However, another significant factor for overall increases in annual Company cash flow and net income is the acquisition of additional properties. During 2003, the Company acquired 100% interests in 10 regional malls and additional ownership interests in 7 regional malls, for total consideration of approximately $2.0 billion. Readers of this management analysis of operations should note that, as described in the results of operations discussion below, the major portion of increases in cash flow and net income versus prior years are due to the continued acquisition of property. SEASONALITY The business of our tenants and the Company's business are both seasonal in nature. Our tenants' stores typically achieve higher sales levels during the fourth quarter because of the holiday selling season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school events. Although the Company has a year-long temporary leasing program, a significant portion of the rents received from short-term tenants are collected during the months of November and December. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual overage rent amounts. Accordingly, overage rent thresholds are most commonly achieved in the Company's fourth quarter. Thus, occupancy levels and revenue production are generally higher in the fourth quarter of each year and lower during the first and second quarters of each year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 for a variety of reasons, certain of which are described below. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that are both significant to the overall presentation of the Company's financial condition and results of operations and require management to make difficult, complex or subjective judgments. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables and deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions, as further discussed below. The Company's critical accounting policies have not changed during 2003 from 2002. INITIAL VALUATIONS AND ESTIMATED USEFUL LIVES OR AMORTIZATION PERIODS FOR PROPERTY AND INTANGIBLES: Upon acquisition of a property, the Company makes an initial assessment of the initial valuation and composition of the assets acquired and liabilities assumed. These assessments consider fair values of the respective assets and liabilities and are determined based on estimated future cash flows using appropriate discount and capitalization rates. The estimated future cash flows that are used for this analysis reflect the historical operations of the property, known trends and changes expected in current market and economic conditions which would impact the property's operations, and the Company's plans for such property. These estimates of cash flows are particularly important as they are used for the allocation of purchase price between land, buildings and improvements and other identifiable intangibles including above, below and at-market leases. As the resulting cash flows are, under current accounting standards, the basis for the carrying values of the assets and liabilities and any subsequent impairment losses recognized, the impact of these estimates on the Company's operations could be substantial. Significant differences in annual depreciation or amortization expense may result from the differing amortization periods related to such purchased assets and liabilities. 2 For example, the net consolidated carrying value of the land, buildings and other purchased intangible assets, net of identifiable purchased intangible liabilities, at December 31, 2003 for acquisitions completed by the Company in 2003 was approximately $2.3 billion which will be depreciated or amortized over estimated useful lives of five to forty-five years. Events or changes in circumstances concerning a property may occur which could indicate that the carrying values or amortization periods of the assets and liabilities may require adjustment. The resulting recovery analysis also depends on an analysis of future cash flows to be generated from a property's assets and liabilities. Changes in the Company's overall plans (for example, the extent and nature of a proposed redevelopment of a property) and its views on current market and economic conditions may have a significant impact on the resulting estimated future cash flows of a property that are analyzed for these purposes. RECOVERABLE AMOUNTS OF RECEIVABLES AND DEFERRED TAXES: The Company makes periodic assessments of the collectability of receivables (including those resulting from the difference between rental revenue recognized and rents currently due from tenants) and the recoverability of deferred taxes based on a specific review of the risk of loss on specific accounts or amounts. With respect to receivable amounts, this analysis places particular emphasis on past-due accounts and considers information such as, among other things, the nature and age of the receivables, the payment history and financial condition of the payee and the basis for any disputes or negotiations with the payee. For straight-line rents, the analysis considers the probability of collection of the unbilled deferred rent receivable given the Company's experience regarding such amounts. For deferred taxes, an assessment of the recoverability of the current tax asset considers the current expiration periods of the prior net operating loss carry forwards (currently through 2021-Note 6) and the estimated future taxable income of GGMI, a taxable REIT subsidiary of the Company. The resulting estimates of any allowance or reserve related to the recovery of these items is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on such payees and on GGMI. CAPITALIZATION OF DEVELOPMENT AND LEASING COSTS: The Company capitalizes the costs of development and leasing activities of its properties. These costs are incurred both at the property location and at the regional and corporate office level. The amount of capitalization depends, in part, on the identification and justifiable allocation of certain activities to specific projects and lease proposals. Differences in methodologies of cost identifications and documentation, as well as differing assumptions as to the time incurred on different projects, can yield significant differences in the amounts capitalized. CERTAIN INFORMATION ABOUT THE COMPANY PORTFOLIO At December 31, 2003, the Company owned the Consolidated Centers (120 regional malls and community centers) and the following investments in Unconsolidated Real Estate Affiliates (collectively, the "Company Portfolio"):
NUMBER OF REGIONAL COMPANY MALL SHOPPING OWNERSHIP VENTURE NAME CENTERS PERCENTAGE - ------------ ------- ---------- GGP/Homart 22* 50% GGP/Homart II 10 50% GGP/Teachers 5 50% GGP Ivanhoe 2 51% GGP Ivanhoe IV 1 51% Quail Springs 1 50% Town East Mall 1 50% Circle T 1 50% Totals 43 --
(*) Including 3 regional mall shopping centers owned jointly with venture partners. 3 For the purposes of this report, the 43 regional mall shopping centers listed above are collectively referred to as the "Unconsolidated Centers" and, together with the Consolidated Centers, comprise the "Company Portfolio". Reference is made to Notes 1 and 4 for a further discussion of such Consolidated Centers and investments in Unconsolidated Real Estate Affiliates. As used in this Annual Report, the term "GLA" refers to gross leaseable retail space, including Anchors and all other areas leased to tenants; the term "Mall GLA" refers to gross leaseable retail space, excluding both Anchors and Freestanding GLA; 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 the structure including, or attached to, the primary complex of buildings that comprise a shopping center; the term "Freestanding GLA" means gross leaseable area of freestanding retail stores in locations that are not attached to the primary complex of buildings that comprise a shopping center; and the term "total Mall Stores sales" means the gross revenue from product sales to customers generated by the Mall Stores. The Company has presented certain information on its Consolidated and Unconsolidated Centers separately in charts and tables containing financial data and operating statistics for its equity-owned retail properties. As a significant portion of the Company's total operations are structured as joint venture arrangements which are unconsolidated for GAAP purposes since the Company only has an approximate 50% interest in such properties through such joint ventures, management of the Company believes that financial information and operating statistics with respect to all properties owned provide important insights into the income produced by such investments for the Company as a whole. Since GGMI, a wholly-owned subsidiary of the Company, provides on-site management and other services to the Unconsolidated Centers, the management operating philosophies and strategies are generally the same whether the properties are consolidated or unconsolidated as a result of a joint venture arrangement. As a result, a presentation of certain financial information for Consolidated and Unconsolidated Centers on a stand-alone basis as well as operating statistics on a stand-alone and weighted average basis depicts the relative size and significance of these elements of the Company's overall operations. 4 COMPANY OPERATING DATA (a) AS OF AND/OR FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 (unaudited)
Consolidated Unconsolidated Company Centers Centers Portfolio (b) ------- ------- ------------- OPERATING STATISTICS Space leased at centers not under redevelopment (as a %) 91.2% 91.4% 91.3% Trailing 12 month total tenant sales per sq. ft. $ 339 $ 378 $ 352 % change in total sales 2.71% 3.75% 3.05% % change in comparable sales 0.52% 0.63% 0.56% Occupied Mall and Freestanding GLA excluding space under redevelopment (in sq. ft.) 30,151,406 14,524,657 44,676,063 CERTAIN FINANCIAL INFORMATION Average annualized in place rent per sq. ft. $ 28.37 $ 32.63 Average rent per sq. ft. for new/renewal leases (excludes 2003 acquisitions) $ 31.83 $ 34.71 Average rent per sq. ft. for leases expiring in 2003 (excludes 2003 acquisitions) $ 22.16 $ 31.29
(a) Data is for 100% of the Mall GLA in each portfolio, including those centers that are owned in part by unconsolidated affiliates. Data excludes properties currently being redeveloped and/or remerchandised and miscellaneous (non-mall) properties. (b) Operating statistics presented in the column "Company Portfolio" are weighted average amounts. RESULTS OF OPERATIONS OF THE COMPANY GENERAL: Company revenues are primarily derived from tenants in the form of fixed minimum rents, overage rents and recoveries of operating expenses. In addition, the consolidated results of operations of the Company were impacted by the following acquisitions (listed by year): 2003 - - Peachtree Mall in Columbus, Georgia - - Saint Louis Galleria in St. Louis, Missouri - - Coronado Center in Albuquerque, New Mexico - - The additional 49% ownership interest in GGP Ivanhoe III - - Lynnhaven Mall in Virginia Beach, Virginia - - Sikes Senter in Wichita Falls, Texas - - The Maine Mall in Portland, Maine - - Glenbrook Square in Fort Wayne, Indiana - - Foothills Mall in Fort Collins, Colorado - - Chico Mall in Chico, California - - Rogue Valley Mall in Medford, Oregon 2002 - - Victoria Ward, Limited in Honolulu, Hawaii - - JP Realty, Inc. (51 properties in 10 western USA states) - - Prince Kuhio Plaza in Hilo, Hawaii - - Pecanland Mall in Monroe, Louisiana - - Southland Mall in Hayward, California 2001 - - Tucson Mall in Tucson, Arizona For purposes of the following discussion of the results of operations, the effect of "new" acquisitions is that, for the relevant comparative accounting periods, the properties listed above were not owned by the Company for the entire time in both accounting periods. 5 Inasmuch as the Company's consolidated financial statements reflect the use of the equity method to account for its investments in GGP/Homart, GGP/Homart II, GGP/Teachers, GGP Ivanhoe, GGP Ivanhoe III, GGP Ivanhoe IV, Quail Springs and Town East, the discussion of results of operations of the Company below related primarily to the revenues and expenses of the Consolidated Centers and GGMI. COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002 The main reason for the increases when comparing the results of 2003 to those of 2002 is the new acquisitions as discussed above. The following chart calculates the change and percentage change for major items of revenue and expense: PERCENTAGE CHANGE IN MAJOR ITEMS OF REVENUES AND EXPENSES (Dollars in thousands) Percentage Change in Major Items of Revenues and Expenses (Dollars in thousands)
REVENUE OR EXPENSE ITEM 2003 2002 $ CHANGE % CHANGE ----------------------- ---- ---- -------- -------- Total Revenues $ 1,262,791 $ 973,440 $ 289,351 29.7% Minimum rents $ 775,320 $ 581,551 $ 193,769 33.3% Tenant recoveries $ 332,137 $ 254,999 $ 77,138 30.3% Overage rents $ 34,928 $ 28,044 $ 6,884 24.5% Management and other fees $ 84,138 $ 75,479 $ 8,659 11.5% Total Expenses $ 714,489 $ 545,961 $ 168,528 30.9% Real estate taxes $ 88,276 $ 60,726 $ 27,550 45.4% Repairs and maintenance $ 81,433 $ 62,449 $ 18,984 30.4% Other property operating costs $ 153,370 $ 107,726 $ 45,644 42.4% Property management and other costs $ 109,844 $ 94,795 $ 15,049 15.9% Depreciation and amortization $ 230,195 $ 179,036 $ 51,159 28.6% Interest Expense $ 278,543 $ 219,029 $ 59,514 27.2% Equity in net income of unconsolidated affiliates $ 94,480 $ 80,825 $ 13,655 16.9%
The new acquisitions accounted for approximately $249.5 million of the $289.4 million increase in total revenues. The remainder of the increase in total revenues was attributable to the Comparable Cente-rs (properties owned by the Company for the entire time during the relevant comparative accounting periods) and to GGMI, the components of which are described in more detail below. The effect of new acquisitions comprised $151.8 million of the increase in minimum rents, while the remaining $42.0 million increase was due to additional rents from higher occupancies, higher base rents from lease renewals, as well as increased specialty leasing activities. Included in the increase in minimum rents was the effect of below-market lease rent accretion pursuant to SFAS 141 and 142 (Note 2) for the 2002 and 2003 acquisitions, which was $16.6 million in 2003 and $4.6 million in 2002. The majority of the increase in tenant recoveries was mainly due to new acquisitions which accounted for $70.5 million of the $77.1 million increase. The remaining amount of the increase was due to increased recoverable operating costs at the Comparable Centers as noted below. The increase in overage rents was substantially all due to new acquisitions which accounted for $6.7 million of the $6.9 million increase. The increase in management and other fees was primarily due to increases in acquisition, financing, leasing and development fees at GGMI, the components of which are discussed below. The new acquisitions accounted for $117.9 million of the $168.5 million increase in total expenses, including depreciation and amortization. The remainder of the increase was attributable to the Comparable Centers and to GGMI as described in more detail below. Real estate taxes increased mainly due to new acquisitions which accounted for $21.6 million of the $27.6 million increase. The remainder was due to increases at the Comparable Centers 6 primarily due to reassessments and increased real estate tax rates at the properties. The increase in repairs and maintenance was substantially all due to the new acquisitions. As noted in management's contextual overview, the above increases in real estate taxes, repairs and maintenance and other property operating expenses are generally recoverable from tenants. The effect of new acquisitions accounted for $29.3 million of the $45.6 million increase in other property operating costs. The remainder was primarily due to approximately $7.5 million in increases in insurance costs and approximately $5.5 million in increases in net payroll costs including approximately $3.1 million in incremental compensation expenses recognized in 2003 over 2002 due to the vesting of certain of the Company's threshold vesting stock options as described in Note 9. The increase in management and other fees and property management and other costs was primarily due to increased fees and expenses related to late 2003 acquisition activity of the Unconsolidated Real Estate Affiliates as discussed below. Third party management fees and expenses were generally comparable between the two years. The new acquisitions accounted for $41.5 million of the $51.2 million increase in depreciation and amortization. The increase in interest expense, including amortization of deferred financing costs, due to the loans and financings related to the new acquisitions was $48.6 million. Interest rates were generally stable during 2003 but certain reductions in interest expense were achieved through the refinancing of existing higher rate mortgage debt. The increase in equity in income of unconsolidated affiliates in 2003 was primarily due to an increase in the Company's equity in the income of GGP/Teachers which resulted in an increase of approximately $14.2 million. This increase is due to a full year of operations being reflected in 2003 versus only four months in 2002 as GGP/Teachers was formed in August 2002. In addition, the Company's equity in the income of GGP/Homart II increased approximately $7.2 million, primarily as a result of the acquisition of Glendale Galleria and First Colony Mall during the fourth quarter of 2002. These increases were partially offset by the acquisition of the 49% ownership interest in GGP Ivanhoe III in July 2003 which caused the operations of GGP Ivanhoe III to be fully consolidated for the remaining six months of 2003. COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001 The main reason for the increases when comparing the results of 2002 to those of 2001 is the new acquisitions as presented above. The following chart calculates the change and percentage change for major items of revenue and expense: PERCENTAGE CHANGE IN MAJOR ITEMS OF REVENUES AND EXPENSES (Dollars in thousands)
REVENUE OR EXPENSE ITEM 2002 2001 $ CHANGE % CHANGE ----------------------- ---- ---- -------- -------- Total Revenues $ 973,440 $ 799,365 $ 174,075 21.8% Minimum rents $ 581,551 $ 466,678 $ 114,873 24.6% Tenant recoveries $ 254,999 $ 218,700 $ 36,299 16.6% Overage rents $ 28,044 $ 22,746 $ 5,298 23.3% Management and other fees $ 75,479 $ 66,764 $ 8,715 13.1% Total Expenses $ 545,961 $ 504,588 $ 41,373 8.2% Real estate taxes $ 60,726 $ 51,057 $ 9,669 18.9% Repairs and maintenance $ 62,449 $ 53,922 $ 8,527 15.8% Other property operating costs $ 107,726 $ 84,941 $ 22,785 26.8% Property management and other costs $ 94,795 $ 66,987 $ 27,808 41.5% Depreciation and amortization $ 179,036 $ 144,863 $ 34,173 23.6% Interest Expense $ 219,029 $ 225,057 $ (6,028) -2.7% Equity in net income of unconsolidated affiliates $ 80,825 $ 60,195 $ 20,630 34.3%
7 The new acquisitions accounted for approximately $104.7 million of the $174.1 million increase in total revenues with increases in tenant recoveries and fee income as discussed below representing the majority of the remaining increase in total revenues. The effect of new acquisitions comprised $74.9 million of the $114.9 million increase in minimum rents, while the remainder of the increase was due primarily to new base rents on expansion space and specialty leasing increases at the Comparable Centers. Included in the increase in minimum rents was the effect of below-market lease rent accretion pursuant to SFAS 141 and 142 (Note 2) for the new acquisitions, which was $4.6 million in 2002. The majority of the increase in tenant recoveries was attributable to the new acquisitions which accounted for $24.6 million of the $36.3 million increase. The remainder was due to increased recoverable operating costs at the Comparable Centers as noted below. The $5.3 million increase in overage rents was substantially all due to the new acquisitions. The $8.7 million increase in management and other fees was primarily due to higher acquisition, financing, leasing and development fees. Excluding the effects of the $66.0 million of Network Discontinuance costs (Note 11) which were incurred in 2001, but not in 2002, total expenses increased approximately $107.4 million in 2002. Of the increase, $53.4 million was due to the effect of the acquisitions as discussed above. The remainder of the increase in total expenses was attributable to the Comparable Centers and to GGMI as described below. Real estate taxes increased mainly due to the new acquisitions which accounted for $8.8 million of the $9.7 million increase. The remainder was due to increases at the Comparable Centers primarily due to reassessments and increased real estate tax rates at the properties. The increase in repairs and maintenance was substantially all due to the new acquisitions. As noted in management's contextual overview, increases in real estate taxes, repairs and maintenance and other property operating expenses are generally recoverable from tenants. The $22.8 million increase in other property operating costs was primarily due to new acquisitions and increases in net payroll and professional services costs including approximately $11.8 million of compensation expenses recognized in 2002 due to the vesting of certain of the Company's threshold vesting stock options as described in Note 9. The $8.7 million increase in management and other fees and property management and other costs was primarily due to increased fees and expenses related to the 2002 acquisition activity of the Unconsolidated Real Estate Affiliates as discussed below. Third party management fees and expenses were generally comparable between the two years. The new acquisitions accounted for $18.2 million of the $34.2 million increase in depreciation and amortization. The $6.0 million decrease in interest expense in 2002 is primarily the result of approximately $14.0 million of debt extinguishment costs included in interest expense in 2001. These costs were reclassified in 2003 from extraordinary items per the rescission of FASB No. 4 (Note 13). Lower interest rates in 2002 also contributed to the 2002 decrease, which was partially offset by additional interest expense of approximately $15.1 million related to loans incurred or assumed in conjunction with new acquisitions. The increase in equity in income of unconsolidated affiliates was partially a result of reduced interest rates on their mortgage loans primarily resulting from refinancings in 2001. In addition, the Company's equity in the income of GGP Ivanhoe III increased approximately $8.7 million, primarily caused by increases in minimum rents, tenant recoveries and specialty leasing revenues at the properties owned by GGP Ivanhoe III. The Company's equity in the income of GGP/Teachers, formed in 2002, resulted in an increase in earnings of approximately $6.0 million. 8 LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY As of December 31, 2003, the Company held approximately $10.7 million of unrestricted cash and cash equivalents. During January 2004, an additional $140 million was borrowed under the Company's 2003 Credit Facility. The Company uses operating cash flow as the principal source of internal funding for short-term liquidity and capital needs such as tenant construction allowances and minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants. External funding alternatives for longer-term liquidity needs such as acquisitions, new development, expansions and major renovation programs at individual centers include: - Construction loans - Mini-permanent loans - Long-term project financing - Joint venture financing with institutional partners - Operating Partnership level or Company level equity investments - Unsecured Company level debt - Secured loans collateralized by individual shopping centers In this regard, in March 2003 the Company arranged the 2003 Credit Facility (as described below and in Note 5) to replace a previously existing unsecured credit. The 2003 Credit Facility was finalized in April 2003 with initial borrowing availability of approximately $779 million (which was subsequently increased to approximately $1.25 billion). At closing, approximately $619 million was borrowed under the 2003 Credit Facility, which has a term of three years and provides for partial amortization of the principal balance in the second and third years. As of December 31, 2003, the Company had borrowed approximately $789.0 million on the 2003 Credit Facility and management believes it is in compliance with any restrictive covenants (Note 5) contained in its various financial arrangements. Also, in order to maintain its access to the public equity and debt markets, the Company has a currently effective shelf registration statement under which up to $2 billion in equity or debt securities may be issued from time to time. In addition, the Company considers its Unconsolidated Real Estate Affiliates as potential sources of short and long-term liquidity. In this regard, the Company has net borrowings (in place of distributions) at December 31, 2003 of approximately $8.9 million from GGP/Homart II, (which bears interest at a rate per annum of LIBOR plus 135 basis points) after repayments of approximately $73.1 million during 2003. Such loaned amounts from GGP/Homart II are currently due in March 2005 and primarily represent GGP/Homart II proceeds of the GGP MPTC and other recent financings and are expected to be repaid from future operating distributions from GGP/Homart II (Notes 4 and 5). To the extent that amounts remain due in March 2005 after the application of available operating distributions, the Company expects to repay such amounts from other financing proceeds as discussed below. As of December 31, 2003, the Company had consolidated debt of approximately $6.6 billion, of which approximately $4.5 billion is comprised of debt bearing interest at fixed rates (after taking into effect certain interest rate swap agreements described below), with the remaining approximately $2.1 billion bearing interest at variable rates. In addition, the Company's Unconsolidated Real Estate Affiliates have mortgage loans of which the Company's allocable portion based on its respective ownership percentages is approximately $1.9 billion. Of the Company's share of total mortgage debt of Unconsolidated Real Estate Affiliates of $1.9 billion, approximately $1.2 billion is comprised of debt bearing interest at fixed rates (after taking into effect certain interest rate swap agreements), with the remaining approximately $0.7 billion bearing interest at variable rates. Except in instances where certain Consolidated Centers are cross-collateralized with the Unconsolidated Centers, or the Company has retained a portion of the debt of a property when contributed to an Unconsolidated Real Estate Affiliate (as indicated in the chart below and in Note 4), the Company has not otherwise guaranteed the debt of the Unconsolidated Real Estate Affiliates. Reference is made to Notes 5 and 12 and 9 Items 2 and 7A of the Company's Annual Report on Form 10-K for additional information regarding the Company's debt and the potential impact on the Company of interest rate fluctuations. The following summarizes certain significant investment and financing transactions of the Company currently planned or completed since December 31, 2002: In January 2003, the Company refinanced the mortgage loans collateralized by the Provo Towne Centre and the Spokane Valley Mall with a new, long-term non-recourse mortgage loan. The new $95 million loan bears interest at a rate per annum of 4.42%, requires monthly payments of principal and interest and matures in February 2008. On March 31, 2003, the Company sold McCreless Mall in San Antonio, Texas for aggregate consideration of $15 million (which was paid in cash at closing). The Company recorded a gain of approximately $4 million for financial reporting purposes on the sale of the mall. McCreless Mall was purchased in 1998 as part of a portfolio of eight shopping centers. In April 2003, the Company reached an agreement with a group of banks to establish a new revolving credit facility and term loan (the "2003 Credit Facility") with initial borrowing availability of approximately $779 million (which was subsequently increased to approximately $1.25 billion). At closing, approximately $619 million was borrowed under the 2003 Credit Facility, which has a term of three years and provides for partial amortization of the principal balance in the second and third years (currently approximately $28.2 million and $36.1 million in 2004 and 2005, respectively). The proceeds were used to repay and consolidate existing financing including amounts due on the PDC Credit Facility, the Term Loan and the JP Realty acquisition loan. Amounts borrowed under the 2003 Credit Facility bear interest at a rate per annum of LIBOR plus 100 to 175 basis points depending upon the Company's leverage ratio. On April 30, 2003, the Company completed the acquisition of Peachtree Mall, an 811,000 square foot enclosed regional mall located in Columbus, Georgia. The purchase price was approximately $87.6 million, which was paid at closing with a five-year interest-only acquisition loan (assuming the exercise by the Company of all no-cost extension options) of approximately $53 million (bearing interest at a rate per annum of LIBOR plus 85 basis points), and the balance from cash on hand and borrowings under the Company's credit facilities. On June 11, 2003, the Company acquired Saint Louis Galleria, a two-level enclosed mall in St. Louis, Missouri. The purchase price was approximately $235 million which was funded by cash on hand, including proceeds from refinancings of existing long-term financing and an approximately $176 million acquisition, interest-only loan which matures in June of 2008 (assuming the exercise by the Company of all no-cost extension options) and currently bears interest at a rate per annum of LIBOR plus 165 basis points. On June 11, 2003, the Company acquired Coronado Center, a two-level enclosed mall in Albuquerque, New Mexico. The purchase price was approximately $175 million and was funded by cash borrowed from the Company's credit facilities and by an approximately $131 million, interest-only acquisition loan which matures in October of 2008 (assuming the exercise by the Company of all no-cost extension options) and bore interest at a rate per annum of LIBOR plus 85 basis points. In September 2003, $30 million was paid down and the loan now bears interest at a rate per annum of LIBOR plus 91 basis points. On June 13, 2003, the Company refinanced five malls, Boulevard Mall, West Valley Mall, Mayfair, Valley Plaza Mall and Regency Square Mall, which had all been a part of the GGP MPTC financing (see Note 5). Boulevard Mall was refinanced with a new non-recourse $120 million loan which requires monthly payments of principal and interest, matures in August of 2013 and bears interest at a rate per annum of 4.27%. West Valley Mall was refinanced with a new non-recourse $67 million loan which requires monthly payments of principal and interest, 10 matures in April of 2010 and bears interest at a rate per annum of 3.43%. Mayfair (owned by GGP Ivanhoe III which was an Unconsolidated Real Estate Affiliate until the July 1, 2003 acquisition described below) was refinanced with a new non-recourse $200 million loan which requires monthly payments of principal and interest, matures in June of 2008 and bears interest at a rate per annum of 3.11%. Valley Plaza was refinanced with a new non-recourse $107 million loan which requires monthly payments of principal and interest, matures in July of 2012 and bears interest at a rate per annum of 3.90%. Regency Square Mall was refinanced with a new non-recourse $106 million loan which requires monthly payments of principal and interest, matures in July of 2010 and bears interest at a rate per annum of 3.59%. On July 1, 2003, the Company acquired the 49% ownership interest in GGP Ivanhoe III which was held by Ivanhoe, the Company's joint venture partner, thereby increasing the Company's ownership interest to a full 100%. Concurrently with this transaction, a new joint venture, GGP Ivanhoe IV, was created between the Operating Partnership and Ivanhoe to own Eastridge Mall, which previously had been owned by GGP Ivanhoe III. No gain or loss will be recognized on this transaction by GGP Ivanhoe III. The Company's ownership interest in GGP Ivanhoe IV is 51% and Ivanhoe's ownership interest is 49%. The aggregate consideration for the GGP Ivanhoe III acquisition was approximately $459 million. Approximately $268 million of existing mortgage debt was assumed in connection with the GGP Ivanhoe III acquisition. The balance of the aggregate consideration, or approximately $191 million, was funded using a combination of proceeds from the refinancing of existing long-term debt and new mortgage loans on previously unencumbered properties as described immediately below. On July 1, 2003, the Company obtained an aggregate of five new amortizing mortgage loans on sixteen previously unencumbered properties. Visalia Mall was financed with a new non-recourse $49.0 million loan which is scheduled to be repaid in January 2010, matures in 2028 and bears interest at a rate per annum of 3.78%. Boise Towne Plaza was financed with a new non-recourse $12.1 million loan which matures in July of 2010 and bears interest at a rate per annum of 4.70%. A new non-recourse loan of approximately $38.5 million, cross-collateralized by a group of nine retail properties (Austin Bluffs Plaza, Division Crossing, Fort Union Plaza, Halsey Crossing, Orem Plaza-Center Street, Orem Plaza-State Street, River Pointe Plaza, Riverside Plaza and Woodlands Village), was obtained. This mortgage loan bears interest at a rate per annum of 4.40% and is scheduled to mature in April of 2009. A new non-recourse loan of approximately $29.4 million, collateralized by the Gateway Crossing and the University Crossing retail properties, was obtained which matures in July of 2010 and bears interest at a rate per annum of 4.70%. Finally, a new non-recourse loan of approximately $87 million, cross-collateralized by the Animas Valley, Grand Teton and Salem Center retail properties, was obtained which matures in July of 2008 and bears interest at a rate per annum of 3.56%. On July 15, 2003 the Company completed the redemption of the PIERS, (Note 1). The Company, through voluntary conversion by the holders of the PIERS or at redemption, redeemed the $337.5 million of preferred stock represented by the PIERS with Common Stock (plus a nominal amount of cash for fractional shares). On July 31, 2003, the Company obtained a new long-term fixed rate non-recourse mortgage loan collateralized by The Meadows Mall. The new $112 million loan, bearing interest at a rate per annum of 5.45%, and requiring monthly payments of principal and interest, matures in August 2013, and replaced a previously existing $59.6 million mortgage loan. On August 27, 2003, the Company acquired Lynnhaven Mall, an enclosed mall in Virginia Beach, Virginia for approximately $256.5 million. The consideration (after certain prorations and adjustments) was paid in the form of cash borrowed under the Company's credit facilities and a $180 million interest-only acquisition loan. The acquisition loan currently bears interest at a rate per annum of LIBOR plus 125 basis points and is scheduled to mature in August 2008, (assuming the exercise of three one-year, no-cost extension options). 11 On September 12, 2003, the Company refinanced Tucson Mall and Park City Center and, through GGP/Homart, Newgate Mall, all of which had been a part of the GGP MPTC financing, with new, non-recourse mortgage loans. The new $163 million loan collateralized by Park City Center requires monthly payments of principal and interest, bears interest at a rate of 5.19% per annum and is scheduled to mature in October 2010. The new $130 million loan collateralized by Tucson Mall requires monthly payments of principal and interest, bears interest at a rate of 4.26% per annum and is scheduled to mature in July 2008. The new $45 million loan collateralized by Newgate Mall requires monthly payments of principal and interest, bears interest at a rate of 4.84% per annum and is scheduled to mature in October 2010. On October 14, 2003, the Company acquired Sikes Senter, an enclosed mall located in Wichita Falls, Texas. The purchase price was approximately $61 million, which was paid at closing with an interest-only acquisition loan of approximately $41.5 million (bearing interest at a rate per annum of LIBOR plus 70 basis points and scheduled to mature in November 2008, assuming all no-cost extension options are exercised) and the balance from cash on hand and amounts borrowed under the Company's credit facilities. On October 29, 2003, the Company acquired The Maine Mall, an enclosed mall in Portland, Maine. The aggregate consideration paid for The Maine Mall was approximately $270 million (subject to certain prorations and adjustments). The consideration was paid in the form of cash borrowed under the Company's credit facilities and an approximately $202.5 million acquisition loan which initially bears interest at a rate per annum of LIBOR plus 92 basis points. After May 14, 2004, depending upon certain factors, the interest rate spread per annum could vary from 85 to 198 basis points. The loan requires monthly payments of interest-only and matures in five years (assuming the exercise by the Company of all no-cost extension options). On October 31, 2003, the Company acquired Glenbrook Square, an enclosed mall in Fort Wayne, Indiana. The aggregate consideration paid for Glenbrook Square was approximately $219 million (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from refinancings of existing long-term debt and by an approximately $164.3 million interest-only acquisition loan which initially bears interest at a rate per annum of LIBOR plus 80 basis points. After April 10, 2004, depending upon certain factors, the interest rate spread per annum could vary from 85 basis points to 185 basis points. The loan requires monthly payments of interest-only and matures in five years (assuming the exercise by the Company of all no-cost extension options). On December 5, 2003, the Company acquired Foothills Mall, four adjacent retail properties in Foothills, Colorado. The aggregate consideration paid was approximately $100.5 million (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including borrowings under the Company's credit facilities, approximately $26.6 million in 6.5% preferred units of limited partnership in the Operating Partnership, and approximately $45.8 million in assumed debt. The assumed debt requires monthly payments of principal and interest, bears interest at a weighted average rate per annum of approximately 6.6% and matures in September 2008. On December 23, 2003, the Company acquired Chico Mall, an enclosed mall in Chico, California. The aggregate consideration paid for Chico Mall was approximately $62.4 million (subject to certain prorations and adjustments). The consideration was paid in the form of cash borrowed under the Company's credit facilities and the assumption of approximately $30.6 million in existing long-term mortgage indebtedness that currently bears interest at a rate per annum of 7.0%. The loan requires monthly payments of principal and interest and is scheduled to mature in March 2005. 12 On December 23, 2003, the Company acquired Rogue Valley Mall, an enclosed mall in Medford, Oregon. The aggregate consideration paid for Rogue Valley Mall was approximately $57.5 million (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from borrowings under the Company's credit facilities and by the assumption of approximately $28 million in existing long-term mortgage indebtedness that currently bears interest at a rate per annum of 7.85%. The loan requires monthly payments of principal and interest and is scheduled to mature in January 2011. On January 7, 2004, the Company acquired a 50% ownership interest in Burlington Town Center, an enclosed mall in Burlington, Vermont. The aggregate consideration for the 50% ownership interest in Burlington Town Center is approximately $10.25 million (subject to certain prorations and adjustments) of which approximately $9 million was paid in cash at closing with the remaining amounts to be funded in cash in 2004 when certain conditions related to the property are satisfied. In addition, the Company issued to the venture a non-recourse loan collateralized by the property to replace the existing mortgage debt collateralized by the property. The Company's $31.5 million mortgage loan requires monthly payments of principal and interest, bears interest at a weighted average rate per annum of approximately 5.5% and is scheduled to mature in January 2009. In addition, the Company has an option to purchase the remaining 50% ownership interest in Burlington Town Center until January 2007 at a price computed on a formula related to the Company's initial purchase price. Due to substantive participating rights held by the unaffiliated venture partners, this investment is expected to be accounted for by the Company on the equity method. On January 16, 2004, the Company acquired Redlands Mall, an enclosed mall in Redlands, California. The purchase price paid for Redlands Mall was approximately $14.25 million (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from borrowings under the Company's credit facilities. On March 1, 2004 the Company acquired the remaining 50% general partnership interest in Town East Mall in Mesquite, Texas from its unaffiliated joint venture partner. The purchase price for the 50% ownership interest was approximately $44.5 million, which was paid in cash from cash on hand, including proceeds from borrowings under the Company's credit facilities. On March 5, 2004, the Company acquired Four Seasons Town Centre, an enclosed mall in Greensboro, North Carolina. The purchase price paid for Four Seasons Town Centre was approximately $161 million (subject to certain prorations and adjustments). The consideration was paid from approximately $134 million in assumed debt, approximately $25.1 million in 7% preferred units of limited partnership in the Operating Partnership and the remaining amounts from cash on hand, including proceeds from borrowings under the Company's credit facilities. Immediately following the closing, the Company prepaid approximately $22 million of such debt using cash on hand. In addition, certain Unconsolidated Real Estate Affiliates completed significant investment and financing transactions since December 31, 2002, which are summarized as follows: On February 14, 2003, GGP/Homart purchased from the holder the portion of the GGP MPTC financing (approximately $65 million) attributable to the West Oaks Mall, a property 100% owned by GGP/Homart. In October 2003, a new $76 million loan which matures in August 2013 and bears interest at a rate per annum of 5.25% was obtained. In March 2003, the Company, through GGP/Homart, refinanced the Pembroke Lakes Mall $84 million mortgage with a new long-term mortgage loan. The new $144 million loan is comprised of two notes, both of which mature in April 2013 and bears interest at a weighted average interest rate per annum of 4.94%. Also in March 2003, the Company, through GGP/Homart, repaid the $44.0 million mortgage 13 collateralized by Columbiana Centre. A new $72 million mortgage loan, collateralized by the Columbiana Centre, was obtained in April 2003. The new loan, maturing in May 2008, provides for periodic amortization of principal and interest and bears interest at a rate per annum of 4.13%. In May 2003, the $19.1 million 7.65% mortgage loan (originally scheduled to mature in September 2003) collateralized by Bay City Mall was repaid by GGP/Homart. In November 2003, GGP/Homart obtained replacement financing secured by the property in the form of a new $26.5 million non-recourse mortgage loan bearing interest at a rate per annum of 6.70% and maturing in December 2013. In September 2003, the Company, through GGP/Homart, refinanced Lakeland Square Mall and Chula Vista Center. The new, $60 million loan collateralized by Lakeland Square Mall bears interest at a rate per annum of 5.13%, requires monthly payments of principal and interest and matures in October 2013. The new $65 million loan collateralized by Chula Vista Center bears interest at a rate per annum of 4.12%, requires monthly payments of principal and interest and matures in October 2008. On October 9, 2003, the Company, through GGP/Homart, refinanced the Shoppes at Buckland Hills. The new $112.5 million interest-only loan bears interest at a rate per annum of LIBOR plus 80 basis points and, assuming the exercise of all no-cost extension options, matures in October 2008. Approximately $454.9 million of the Company's consolidated debt is scheduled to mature in 2004 and approximately $417.6 million of consolidated debt is scheduled to mature in 2005. In addition, the Unconsolidated Real Estate Affiliates have certain mortgage loans maturing in 2004 (the Company's portion based on the Company's ownership percentage is approximately $87.1 million). Although agreements to refinance all of such indebtedness have not yet been reached, the Company anticipates that all of its debt will be repaid or refinanced on a timely basis. Other than as described above or in conjunction with possible future new developments or acquisitions, there are no current plans to incur additional debt, increase the amounts available under the Company's credit facilities or raise equity capital. The following table aggregates the Company's contractual obligations and commitments subsequent to December 31, 2003: CONTRACTUAL OBLIGATIONS AND COMMITMENTS (in Thousands)
2004 2005 2006 2007 2008 SUBSEQUENT TOTAL ---- ---- ---- ---- ---- ---------- ----- Long-term debt-principal $ 449,439 $363,691 $1,230,975 $557,357 $1,460,849 $2,587,179 $6,649,490 Retained Debt-principal $ 4,050 $ 7,822 $ 31,270 $168,403 $ 199 $ 10,911 $ 222,655(1) Ground lease payments $ 2,469 $ 2,455 $ 2,417 $ 2,384 $ 2,373 $ 87,010 $ 99,108 Committed real estate acquisition contracts (Note 3) $ 56,000 - - - - - $ 56,000(2) Purchase obligations $ 18,993 - - - - - $ 18,993(3) Other long-term liabilities - - - - - - -(4) ---------- -------- ---------- -------- ---------- ---------- ---------- Total $ 530,951 $373,968 $1,264,662 $728,144 $1,463,421 $2,685,100 $7,046,246 ========== ======== ========== ======== ========== ========== ==========
(1) As separately detailed in the chart immediately below. (2) Reflects equity of $10,250 and mortgage loan receivable of $31,500 related to Burlington Town Center which closed on January 7, 2004 and $14,250 of equity related to Redlands Mall which closed on January 16, 2004. (3) Reflects accrued and incurred construction costs payable. Routine trade payables have been excluded. Other construction costs of approximately $570 million are expected in future years as disclosed (Note 3) as the Company's current development and 14 redevelopment projects. (4) Other long term liabilities related to interest expense on long term debt or ongoing real estate taxes have not been included in the table as such amounts depend upon future amounts outstanding and future applicable real estate tax and interest rates. Interest expense and real estate tax expense were $278.5 million and $89.0 million for 2003 and $219.0 million and $61.1 million for 2002, respectively. With respect to the Unconsolidated Real Estate Affiliates, the Company has the following specified contractual obligations:
UNCONSOLIDATED NATURE OF CONTRACTUAL AFFILIATE OBLIGATION OBLIGATION - --------- ---------- ---------- GGP/Homart II Retained Debt $164.0 million GGP/Homart II Loan $8.9 million GGP Ivanhoe IV Retained Debt $39.3 million GGP/Teachers Retained Debt $19.4 million Circle T Contractual construction obligations $0.5 million
Finally, the Company has, as described in Note 13, established certain special purpose entities, primarily to facilitate financing arrangements. Such special purpose entities are either; fully consolidated in the accompanying consolidated financial statements or; are not owned or consolidated by the Company and the Company has no fixed or contingent obligations with respect to such unconsolidated entities. If additional capital is required for any of the above listed obligations or for other purposes, the Company believes that it can increase the amounts drawn or available under the Company's credit facilities, obtain new revolving credit facilities, obtain an interim bank loan, obtain additional mortgage financing on under-leveraged or unencumbered assets, enter into new joint venture partnership arrangements, sell certain assets or raise additional debt or equity capital. However, there can be no assurance that the Company can complete such transactions on satisfactory terms. The Company will continue to monitor its capital structure, investigate potential investments or joint venture partnership arrangements and purchase additional properties if they can be acquired and financed on terms that the Company reasonably believes will enhance long-term stockholder value. In addition, the Company anticipates it will continue its current practice of initially financing acquisitions with variable rate debt. When the acquired property operating cash flow has been increased, the Company anticipates refinancing portions of such variable rate acquisition debt with pooled or property-specific, non-recourse fixed-rate mortgage financing. Such replacement financing, if based on increased property cash flow, should yield increased refinancing proceeds or other more favorable financing terms. Net cash provided by operating activities was $578.5 million in 2003, an increase of $118.0 million from $460.5 million in the same period in 2002. Income from continuing operations increased $51.3 million which was primarily due to the effect of the acquisitions of property in 2002 and 2003 as described above. Net cash provided by operating activities was $460.5 million in 2002, an increase of $253.4 million from $207.1 million in the same period in 2001. Income from continuing operations increased $113.9 million which was primarily due to the effect of the $66 million provision for the discontinuance of the Network Services in 2001 as discussed in Note 11 and $69.5 million of 2002 earnings is attributable to properties acquired in 2002. SUMMARY OF INVESTING ACTIVITIES Net cash used by investing activities in 2003 was $1.7 billion, compared to a use of $949.4 million in 2002. Cash flow from investing activities was affected by the timing of acquisitions, development and improvements to real estate properties, requiring a use of cash of approximately $1.7 billion in 2003 compared to approximately $1.0 billion in 2002. 15 Net cash used by investing activities in 2002 was $949.4 million, compared to a use of $367.4 million in 2001. Cash flow from investing activities was affected by the timing of acquisitions, development and improvements to real estate properties, requiring a use of cash of approximately $1.0 billion in 2002 compared to $338.2 million in 2001. In addition, approximately $155.1 million of the use of cash for investing activities in 2001, and a corresponding source of cash from investing activities in 2002, was the purchase and subsequent sale of the marketable securities discussed in Note 1. SUMMARY OF FINANCING ACTIVITIES Financing activities provided net cash of $1.1 billion in 2003, compared to $381.8 million in 2002. A significant contribution of cash from financing activities was obtained from mortgage refinancings and acquisition debt, which had a positive impact of $3.1 billion in 2003 versus approximately $792.3 million in 2002. The majority of such financing in 2003 was for the purpose of funding acquisitions that took place during the year. The additional financing in 2003 was used to repay existing indebtedness and to fund redevelopment of real estate as discussed above. The remaining use of cash consisted primarily of increased distributions (including dividends paid to preferred stockholders in 2003 and 2002). Financing activities provided net cash of $381.8 million in 2002, compared to $293.8 million in 2001. The 2001 Offering resulted in net proceeds of approximately $348 million which, as described in Note 1, was utilized to reduce outstanding indebtedness and provide for additional working capital. An additional significant contribution of cash from financing activities was obtained from mortgages and acquisition debt, which had a positive impact of $792.3 million in 2002 versus approximately $2.1 billion in 2001. The majority of such financing in 2001 was attributable to the GGP MPTC financing described in Note 5. The additional financing was used to repay existing indebtedness and to fund the acquisitions and redevelopment of real estate as discussed above. The remaining use of cash consisted primarily of increased distributions (including dividends paid to preferred stockholders in 2002 and 2001). REIT REQUIREMENTS In order to remain qualified as a real estate investment trust for federal income tax purposes, General Growth must distribute or pay tax on 100% of capital gains and at least 90% of its ordinary taxable income to stockholders. The following factors, among others, will affect operating cash flow 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 overage 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; (iv) necessary capital improvement expenditures or debt repayments at existing properties; and (v) General Growth's share of distributions of operating cash flow generated by the Unconsolidated Real Estate Affiliates, less management costs and debt service on additional loans that have been or will be incurred. General Growth anticipates that its operating cash flow, and potential new debt or equity from future offerings, 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 General Growth preferred and common stockholders in accordance with the requirements of the Code. On January 1, 2001, the REIT provisions of the Tax Relief Extension Act of 1999 became effective. Among other things, the law permits a REIT to own up to 100% of the stock of a Taxable REIT Subsidiary ("TRS"). A TRS, which must pay corporate income tax, can provide services to REIT tenants and others without disqualifying the rents that a REIT receives from its tenants. Accordingly, on January 1, 2001 the Operating Partnership acquired for nominal cash consideration 100% of the common stock of GGMI and elected in 2001 to have GGMI treated as a TRS. The Operating Partnership and GGMI concurrently terminated the management contracts for the Consolidated Centers as the management activities would thereafter be performed directly by the Company. GGMI has continued to manage, lease, and perform various other services for the Unconsolidated Centers and other properties owned by unaffiliated third parties. Although taxable income is expected to be reported for 2003 and 16 subsequent years, GGMI is not expected to be required to pay Federal income taxes in the near term due to its significant net operating loss carry-forwards primarily arising from 2001 operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS As described in Notes 2 and 13, the FASB has issued certain statements, which are effective for the current or subsequent year. The Company does not expect a significant impact on its annual reported operations due to the application of the new statements as discussed in Note 13. ECONOMIC CONDITIONS Inflation has been relatively low in recent years and has not had a significant detrimental impact on the Company. Should inflation rates increase in the future, substantially all of the Company's tenant leases contain provisions designed to partially 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 expire each year which may enable the Company to replace or renew such expiring leases with new leases at higher base and/or percentage rents, if rents under the expiring leases are below the then-existing market rates. Finally, many of the existing leases require the tenants to pay amounts related to all or substantially all of their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby partially reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation also poses a potential threat to the Company due to the probability of future increases in interest rates. Such increases would adversely impact the Company due to the amount of its outstanding floating rate debt. However, in recent years, the Company's ratio of interest expense to operating cash flow has continued to decrease. In addition, the Company has limited its exposure to interest rate fluctuations related to a portion of its variable rate debt by the use of interest rate cap and swap agreements as described below. Finally, subject to current market conditions, the Company has a policy of replacing variable rate debt with fixed rate debt (see Note 5). However, in an increasing interest rate environment (which generally follows improved market conditions as discussed below), the fixed rates the Company can obtain with such replacement fixed-rate debt will also continue to increase. During 2002, the retail sector was generally weak. During 2003, modest improvements in the sector occurred and the 2003 holiday season was the strongest since 1999. Despite these favorable trends, some economists remain cautious about prospects for continued improvements in retail markets. Growth in retail markets would lead to stronger demand for leaseable space, ability to increase rents to tenants with stronger sales performance and rents computed as a percentage of tenant sales would increase. The Company and its affiliates currently have interests in 162 operating retail properties in the United States. The Portfolio Centers are diversified both geographically and by property type (both major and middle market properties) and this may mitigate the impact of any economic decline at a particular property or in a particular region of the country. In addition, the diverse combination of the Company's tenants is important because no single tenant (by trade name) comprises more than 1.54% of the Company's annualized total rents. The Company has over the past 18 months experienced a significant increase in the market price of its Common Stock. Accordingly, all options granted to date under its incentive stock plans that vest based on the market price of the Common Stock have vested. Such vesting has resulted in approximately $14.9 million and $11.8 million in compensation cost in 2003 and 2002 respectively. As all prior grants have vested and any grants of TSOs made in 2004 would require a substantial increase in the market price of the Common Stock to vest, similar TSO compensation costs in 2004 are not anticipated. 17 EX-99.3 6 c90361exv99w3.txt CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99.3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders General Growth Properties, Inc. We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of GGP/Homart, Inc. and GGP/Homart II L.L.C., the Company's investments in which are accounted for by use of the equity method. The Company's equity of $150,170,000 and $197,737,000 in GGP/Homart, Inc.'s net assets as of December 31, 2003 and 2002, respectively, and $23,815,000, $23,418,000 and $21,822,000 in GGP/Homart, Inc.'s net income, respectively, for each of the three years in the period ended December 31, 2003 are included in the accompanying consolidated financial statements. The Company's equity of $259,363,000 and $190,597,000 in GGP/Homart II L.L.C.'s net assets as of December 31, 2003 and 2002, respectively, and of $33,448,000, $26,421,000 and $23,995,000 in GGP/Homart II L.L.C.'s net income, respectively, for each of the three years in the period ended December 31, 2003 are included in the accompanying consolidated financial statements. The consolidated financial statements of GGP/Homart, Inc. and GGP/Homart II L.L.C. were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based solely on the reports of such other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of General Growth Properties, Inc. at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001 and as discussed in Note 13 to the consolidated financial statements, the Company changed its method of accounting for debt extinguishment costs in 2003. Deloitte & Touche LLP Chicago, Illinois March 10, 2004 (December 13, 2004, as to Notes 2, 7, 14, 15, and 16) 1 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2002 (Dollars in thousands, except for per share amounts)
ASSETS DECEMBER 31, ---------------------------- 2003 2002 ------------- ----------- Investment in real estate: Land $ 1,384,662 $ 1,128,990 Buildings and equipment 8,121,270 5,738,514 Less accumulated depreciation (1,100,840) (798,431) Developments in progress 168,521 90,492 ------------- ----------- Net property and equipment 8,573,613 6,159,565 Investment in and loans from Unconsolidated Real Estate Affiliates 630,613 766,519 ------------- ----------- Net investment in real estate 9,204,226 6,926,084 Cash and cash equivalents 10,677 53,640 Marketable securities - 476 Tenant accounts receivable, net 148,485 126,587 Deferred expenses, net 140,701 108,694 Prepaid expenses and other assets 78,808 65,341 ------------- ----------- $ 9,582,897 $ 7,280,822 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes and other debt payable $ 6,649,490 $ 4,592,311 Distributions payable 6,828 71,389 Network discontinuance reserve 4,071 4,123 Accounts payable and accrued expenses 348,275 233,027 ------------- ----------- 7,008,664 4,900,850 Minority interests: Preferred 495,211 468,201 Common 408,613 377,746 ------------- ----------- 903,824 845,947 Commitments and contingencies - - Preferred Stock: $100 par value; 5,000,000 shares authorized; - 337,500 345,000 designated as PIERS (Note 1) which were redeemed in 2003 but were convertible and carried a $1,000 per share liquidation value of which 337,500 were issued and outstanding at December 31, 2002 Stockholders' Equity: Common stock: $.01 par value; 875,000,000 shares authorized; 217,293,976 and 187,191,255 shares issued and outstanding as of December 31, 2003 and 2002, respectively 2,173 1,872 Additional paid-in capital 1,913,447 1,549,642 Retained earnings (accumulated deficit) (220,512) (315,844) Notes receivable-common stock purchase (6,475) (7,772) Unearned compensation-restricted stock (1,949) (2,248) Accumulated other comprehensive income (loss) (16,275) (29,125) ------------- ----------- Total stockholders' equity 1,670,409 1,196,525 ------------- ----------- $ 9,582,897 $ 7,280,822 ============= ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Dollars in thousands, except for per share amounts)
YEARS ENDED DECEMBER 31, 2003 2002 2001 ----------- --------- --------- Revenues: Minimum rents $ 775,320 $ 581,551 $ 466,678 Tenant recoveries 332,137 254,999 218,700 Overage rents 34,928 28,044 22,746 Management and other fees 84,138 75,479 66,764 Other 36,268 33,367 24,477 ----------- --------- --------- Total revenues 1,262,791 973,440 799,365 Expenses: Real estate taxes 88,276 60,726 51,057 Repairs and maintenance 81,433 62,449 53,922 Marketing 35,797 28,681 27,490 Other property operating costs 153,370 107,726 84,941 Provision for doubtful accounts 7,041 3,828 3,322 Property management and other costs 109,844 94,795 66,987 General and administrative 8,533 8,720 6,006 Depreciation and amortization 230,195 179,036 144,863 Network discontinuance costs - - 66,000 ----------- --------- --------- Total expenses 714,489 545,961 504,588 ----------- --------- --------- Operating income 548,302 427,479 294,777 Interest income 2,308 3,689 4,655 Interest expense (278,543) (219,029) (225,057) Income allocated to minority interests (110,984) (86,213) (40,288) Equity in net income of unconsolidated affiliates 94,480 80,825 60,195 ----------- --------- --------- Income from continuing operations 255,563 206,751 94,282 Discontinued operations, net of minority interest: Income from operations 4,128 2,488 1,362 Gain on disposition 3,720 19 - ----------- --------- --------- Income from discontinued operations, net 7,848 2,507 1,362 ----------- --------- --------- Income before cumulative effect of accounting change 263,411 209,258 95,644 Cumulative effect of accounting change - - (3,334) ----------- --------- --------- Net income $ 263,411 $ 209,258 $ 92,310 ----------- --------- --------- Convertible preferred stock dividends (13,030) (24,467) (24,467) ----------- --------- --------- Net income available to common stockholders $ 250,381 $ 184,791 $ 67,843 =========== ========= ========= Basic earnings per share: Continuing operations $ 1.21 $ 0.98 $ 0.44 Discontinued operations 0.04 0.01 0.01 Loss from cumulative effect of accounting change - - (0.02) ----------- --------- --------- Total basic earnings per share $ 1.25 $ 0.99 $ 0.43 =========== ========= ========= Diluted earnings per share: Continuing operations $ 1.19 $ 0.97 $ 0.44 Discontinued operations 0.03 0.01 0.01 Loss from cumulative effect of accounting change - - (0.02) ----------- --------- --------- Total basic earnings per share $ 1.22 $ 0.98 $ 0.43 =========== ========= ========= Net income $ 263,411 $ 209,258 $ 92,310 Other comprehensive income, net of minority interest: Net unrealized gains (losses) on financial instruments 12,542 (30,774) 2,389 Minimum pension liability adjustment 308 (740) - Equity in unrealized gains on available-for-sale securities of unconsolidated affiliate - 169 1,368 ----------- --------- --------- Comprehensive income, net $ 276,261 $ 177,913 $ 96,067 =========== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3
UNEARNED OTHER COMPENSA- COMPRE- TOTAL ADDITIONAL RETAINED EMPLOYEE TION HENSIVE STOCK- COMMON STOCK PAID-IN EARNINGS STOCK RESTRICTED GAINS/ HOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) LOANS STOCK (LOSSES) EQUITY ------------ ------ ---------- --------- -------- --------- -------- --------- Balance, December 31, 2000 156,843,777 $1,568 $1,213,921 $(266,085) $ (9,449) $ - $ (1,537) $ 938,418 Net income 92,310 92,310 Cash distributions declared ($0.80 per share) (130,107) (130,107) Convertible Preferred Stock dividends (24,467) (24,467) Conversion of operating partnership units to common stock 63,636 1 576 577 Issuance of Common Stock, net of employee stock option loans 28,864,383 289 358,497 (10,441) 348,345 Other comprehensive gains 3,757 3,757 Adjustment for minority interest in operating partnership (45,447) (45,447) ----------- ------ ---------- --------- -------- -------- -------- ---------- Balance, December 31, 2001 185,771,796 $1,858 $1,527,547 $(328,349) $(19,890) $ - $ 2,220 1,183,386 ----------- ------ ---------- --------- -------- -------- -------- ---------- Net income 209,258 209,258 Cash distributions declared ($0.92 per share) (170,614) (170,614) Convertible Preferred Stock dividends (24,467) (24,467) Conversion of operating partnership units to common stock 48,738 - 636 636 Issuance of Common Stock, net of employee stock option loans 1,370,721 14 19,344 12,118 31,476 Issuance costs, preferred units (1,672) (1,672) Restricted stock grant, net of compensation expense (2,248) (2,248) Other comprehensive losses (31,345) (31,345) Adjustment for minority interest in operating partnership 2,115 2,115
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UNEARNED OTHER COMPENSA- COMPRE- TOTAL ADDITIONAL RETAINED EMPLOYEE TION HENSIVE STOCK- COMMON STOCK PAID-IN EARNINGS STOCK RESTRICTED GAINS/ HOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) LOANS STOCK (LOSSES) EQUITY ------ ------ ------- --------- ----- ----- -------- ------ Balance, December 31, 2002 187,191,255 $ 1,872 $ 1,549,642 $(315,844) $ (7,772) $ (2,248) $(29,125) $1,196,525 ------------ ------- ----------- --------- -------- ----------- -------- ---------- Net income 263,411 263,411 Cash distributions declared ($0.78 per share) (155,049) (155,049) Convertible Preferred Stock dividends (13,030) (13,030) PIERS redemption and conversion, net 25,503,543 255 337,837 338,092 Conversion of operating partnership units to common stock 2,956,491 30 22,134 22,164 Issuance of Common Stock, net of employee stock option loans/repayments 1,642,687 16 30,108 1,297 31,421 Restricted stock grant, net of compensation expense 299 299 Other comprehensive gains 12,850 12,850 Adjustment for minority interest in operating partnership (26,274) (26,274) ------------ ------- ----------- --------- -------- ---------- -------- ---------- Balance, December 31, 2003 217,293,976 $ 2,173 $ 1,913,447 $(220,512) $ (6,475) $ (1,949) $(16,275) $1,670,409 ============ ======= =========== ========= ======== ========== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. 5
2003 2002 2001 ---- ---- ---- Cash flows from operating activities: Net Income $ 263,411 $ 209,258 $ 92,310 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interests, including income from discontinued operations 113,289 87,003 40,792 Cumulative effect of accounting change - - 3,334 Equity in income of unconsolidated affiliates (94,480) (80,825) (60,195) Provision for doubtful accounts 7,009 3,859 3,322 Distributions received from unconsolidated affiliates 91,613 80,177 59,403 Depreciation 205,385 172,593 128,334 Amortization 34,849 12,045 16,529 Gains on disposition, net (4,831) (25) - Net Changes: Tenant accounts receivable (29,304) (33,004) 15,890 Prepaid expenses and other assets 8,298 (5,926) (821) Deferred expenses (51,435) (20,785) (14,929) Network discontinuance reserve (52) (1,038) 5,161 Accounts payable and accrued expenses 34,735 37,163 (82,005) ----------- ----------- ----------- Net cash provided by (used in) operating activities 578,487 460,495 207,125 ----------- ----------- ----------- Cash flows from investing activities: Acquisition/development of real estate and improvements and additions to properties (1,732,358) (1,006,368) (338,236) Network and Broadband System additions - - (47,037) Proceeds from sale of investment property 14,978 - - Increase in investments in unconsolidated affiliates (26,418) (165,581) (23,229) Distributions received from unconsolidated affiliates in excess of income 90,925 50,276 101,243 Proceeds from repayment of notes receivable for common stock purchases 1,297 16,361 - Loans (repayments) from unconsolidated affiliates, net (94,355) 1,274 94,996 Net decrease in holdings of investments in marketable securities 476 154,627 (155,103) ----------- ----------- ----------- Net cash provided by (used in) investing activities (1,745,455) (949,411) (367,366) ----------- ----------- ----------- Cash flows from financing activities: Cash distributions paid to common stockholders (199,986) (165,942) (117,585) Cash distributions paid to holders of Common Units (59,815) (52,334) (43,854) Cash distributions paid to holders of Preferred Units (40,257) (25,014) (15,663) Payment of dividends on PIERS (19,145) (24,467) (24,467) Proceeds from sale of common stock, net of issuance costs 31,308 12,867 348,346 Proceeds from issuance of Preferred Units - 63,326 - Proceeds from issuance of mortgage notes and other debt payable 3,140,750 792,344 2,137,667 Principal payments on mortgage notes and other debt payable (1,715,752) (218,449) (1,983,586) Increase in deferred expenses (13,098) (530) (7,091) ----------- ----------- ----------- Net cash provided by (used in) financing activities 1,124,005 381,801 293,767 ----------- ----------- ----------- Net change in cash and cash equivalents (42,963) (107,115) 133,526 Cash and cash equivalents at beginning of period 53,640 160,755 27,229 ----------- ----------- ----------- Cash and cash equivalents at end of period $ 10,677 $ 53,640 $ 160,755 =========== =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 258,395 $ 224,573 $ 211,319 =========== =========== =========== Interest capitalized $ 5,679 $ 5,195 $ 16,272 =========== =========== =========== Non-cash investing and financing activities: Common stock issued in exchange for PIERS $ 337,483 $ - $ - Common stock issued in exchange for Operating Partnership Units 22,134 636 577 Assumption of debt in conjunction with acquisition of property 552,174 812,293 8,207 Notes receivable issued for exercised stock options - 4,243 10,441 Operating Partnership Units and common stock issued as consideration for purchase of real estate 26,637 41,131 - Distributions payable 6,828 71,389 62,368 Acquisition of GGMI - - 66,079
The accompanying notes are an integral part of these consolidated financial statements. 6 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) NOTE 1 ORGANIZATION GENERAL General Growth Properties, Inc., a Delaware corporation ("General Growth"), was formed in 1986 to own and operate regional mall shopping centers. The Company conducts substantially all of its business through GGP Limited Partnership (the "Operating Partnership" or "GGPLP") which is majority owned by General Growth and which was formed in 1993 in conjunction with General Growth's initial public offering of its common stock ("Common Stock") to succeed to substantially all of the interests in regional mall general partnerships owned and controlled by the Company and its original stockholders. All references to the "Company" in these notes to Consolidated Financial Statements include General Growth and those entities owned or controlled by General Growth (including the Operating Partnership and the LLC as described below), unless the context indicates otherwise. In addition, the Company completed a three-for-one split of its Common Stock (effective December 5, 2003), as described below. In the accompanying consolidated financial statements, unless otherwise noted, all previous applicable share or per share disclosure amounts have been reflected on a post-split basis. On January 1, 2001, the Operating Partnership acquired for nominal cash consideration 100% of the common stock of General Growth Management, Inc. ("GGMI"). GGMI has continued to manage, lease, and perform various other services for the Unconsolidated Real Estate Affiliates (as defined below) and other properties owned by unaffiliated third parties. During 2001, the Company elected that GGMI be treated as a taxable REIT subsidiary (a "TRS") as permitted under the Tax Relief Extension Act of 1999. During December 2001, General Growth completed a public offering of 27,600,000 shares of Common Stock (the "2001 Offering"). General Growth received net proceeds of approximately $345,000 which was used to reduce outstanding indebtedness and increase working capital. General Growth has reserved for issuance up to 3,000,000 shares of Common Stock for issuance under the Dividend Reinvestment and Stock Purchase Plan ("DRSP"). The DRSP allows, in general, participants in the plan to make purchases of Common Stock from dividends received or additional cash investments. Although the purchase price of the Common Stock is determined by the current market price, the purchases will be made without fees or commissions. General Growth has and will satisfy DRSP Common Stock purchase needs through the issuance of new shares of Common Stock or by repurchases of currently outstanding Common Stock. As of December 31, 2003, an aggregate of 377,528 shares of Common Stock have been issued under the DRSP. On October 1, 2003, the Company's Board of Directors approved a proposed amendment to the Company's Charter to effectuate a three-for-one split of the Common Stock, increase the number of authorized shares of Common Stock from 210 million to 875 million shares and change the par value of the Common Stock from $.10 to $.01 per share. The Charter amendment was approved by the shareholders at a special shareholder meeting held on November 20, 2003. The record date for the stock split was November 20, 2003 with a distribution date of December 5, 2003. When the change in par value became effective, it resulted in an approximate $5 million reclassification of common stock-par value to additional paid-in capital. In addition, the Operating Partnership currently has common units of limited partnership interest ("Units") outstanding that may be exchanged by their holders, under certain circumstances, for shares of Common Stock on a one-for-one basis as described below in Note 2-Minority Interest Common. These common units were also split on a three-for-one basis so that they continue to be exchangeable on a one-for-one basis into shares of Common Stock. In the accompanying consolidated financial statements, all previous applicable Unit and per Unit disclosure amounts have been reflected on a post-split basis. PREFERRED STOCK General Growth had issued 13,500,000 Depositary Shares, each representing 1/40 of a share of 7.25% Preferred Income Equity Redeemable Stock, Series A ("PIERS"), or a total of 337,500 PIERS. During May 2003, General Growth called all of its outstanding PIERS and Depositary Shares for redemption on July 15, 2003. The Depositary Shares (and the related PIERS) were converted at the rate of 1.8891 shares of Common Stock per Depositary Share and therefore, a 7 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) total of 12,540,186 shares of Common Stock were issued on July 15, 2003 as a result of this redemption and approximately $17 was paid in cash to redeem fractional shares of PIERS held. In order to enable General Growth to comply with its obligations with respect to the PIERS, General Growth had owned preferred units of limited partnership interest in the Operating Partnership (the "Preferred Units") which had rights, preferences and other privileges, including distribution, liquidation, conversion and redemption rights, that mirrored those of the PIERS. Accordingly, the Operating Partnership was required to make all required distributions on the Preferred Units prior to any distribution of cash or assets to the holders of the Units. The Depositary Shares had been convertible at any time, at the option of the holder, into shares of Common Stock at the rate of 1.8891 shares of Common Stock per Depositary Share. Although no Depositary Shares had been converted at December 31, 2002, through July 14, 2003, holders of approximately 6,861,800 Depositary Shares had voluntarily elected to convert such Depositary Shares, and such Depositary Shares were converted to, 12,963,357 shares of Common Stock. The PIERS and the Depositary Shares had been subject to mandatory redemption by General Growth on July 15, 2008 at a price of $1,000 per PIERS, plus accrued and unpaid dividends, if any, to the redemption date. Accordingly, the PIERS were reflected in the accompanying consolidated financial statements at such liquidation or redemption value. During 2002 and 2003, other classes of preferred stock of General Growth were created to permit the future conversion of certain equity interests assumed by the Company in conjunction with the JP Realty acquisition or created in conjunction with other acquisitions (Note 3) into General Growth equity interests. As no such preferred stock has been issued and, for certain classes of such preferred stock the conditions to allow such a conversion have not yet occurred, such additional classes of preferred stock have not been presented in the accompanying consolidated balance sheets for December 31, 2003 and 2002. SHAREHOLDER RIGHTS PLAN General Growth has a shareholder rights plan pursuant to which one preferred share purchase right (a "Right") is attached to each currently outstanding or subsequently issued share of Common Stock. Prior to becoming exercisable, the Rights trade together with the Common Stock. In general, the Rights will become exercisable if a person or group acquires or announces a tender or exchange offer for 15% or more of the Common Stock. Each Right will initially entitle the holder to purchase from General Growth one third of one-thousandth of a share of Series A junior Participating Preferred Stock, par value $100 per share (the "Preferred Stock"), at an exercise price of $148 per one one-thousandth of a share, subject to adjustment. In the event that a person or group acquires 15% or more of the Common Stock, each Right will entitle the holder (other than the acquirer) to purchase shares of Common Stock (or, in certain circumstances, cash or other securities) having a market value of twice the exercise price of a Right at such time. Under certain circumstances, each Right will entitle the holder (other than the acquirer) to purchase Common Stock of the acquirer having a market value of twice the exercise price of a Right at such time. In addition, under certain circumstances, the Board of Directors of General Growth may exchange each Right (other than those held by the acquirer) for one share of Common Stock, subject to adjustment. If the Rights become exercisable, holders of common units of partnership interest in the Operating Partnership, other than General Growth, will receive the number of Rights they would have received if their units had been redeemed and the purchase price paid in Common Stock. The Rights expire on November 18, 2008, unless earlier redeemed by the General Growth Board of Directors for one third of $0.01 per Right or such expiration date is extended. OPERATING PARTNERSHIP As of December 31, 2003, the Company either directly or through the Operating Partnership and subsidiaries owned 120 operating retail properties (regional malls and community centers), collectively, the "Consolidated Centers" as well as 100% of General Growth Management, Inc. ("GGMI") and other miscellaneous mixed-use commercial business properties and potential development sites. As of December 31, 2003, the Company holds ownership interests in the following joint ventures, collectively, the "Unconsolidated Real Estate Affiliates", as described in Note 4: 8 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts)
NUMBER OF REGIONAL MALL COMPANY OWNERSHIP SHOPPING STRUCTURE AND LEGAL NAME VENTURE NAME CENTERS PERCENTAGE - --------------------------------------------------------------------------------------------------------------- GGP/Homart, Inc. GGP/Homart 22* 50% common stock GGP/Homart II L.L.C. GGP/Homart II 10 50% LLC membership interest GGP-TRS L.L.C. GGP/Teachers 5 50% LLC membership interest GGP Ivanhoe, Inc. GGP Ivanhoe 2 51% common stock GGP Ivanhoe IV, Inc. GGP Ivanhoe IV 1 51% common stock Dayjay Associates Quail Springs 1 50% general partnership interest Town East Mall Partnership Town East 1 50% general partnership interest Westlake Retail Associates, Ltd. Circle T 1 50% general partnership interest
*Including 3 regional mall shopping centers owned jointly with venture partners. For the purposes of this report, the 43 regional mall shopping centers listed above are collectively referred to as the "Unconsolidated Centers" and, together with the Consolidated Centers, comprise the "Company Portfolio". During May 2000, the Operating Partnership formed GGPLP L.L.C., a Delaware limited liability company (the "LLC"), by contributing its interest in a portfolio of 44 Consolidated Centers to the LLC in exchange for all of the common units of membership interest in the LLC. As of December 31, 2003, the LLC, due to subsequent acquisitions by the Company, owns 104 of the Consolidated Centers. A total of 940,000 redeemable preferred units of membership interest in the LLC (the "RPUs") have been issued by the LLC. Holders of the RPUs are entitled to receive cumulative preferential cash distributions per RPU at a per annum rate of 8.95% of the $250 liquidation preference thereof (or $5.59375 per quarter) prior to any distributions by the LLC to the Operating Partnership. Subject to certain limitations, the RPUs may be redeemed in cash by the LLC for the liquidation preference amount plus accrued and unpaid distributions and may be exchanged by the holders of the RPUs for an equivalent amount of redeemable preferred stock of General Growth. Such preferred stock provides for an equivalent 8.95% annual preferred distribution and is redeemable at the option of General Growth for cash equal to the liquidation preference amount plus accrued and unpaid distributions. The RPUs outstanding at December 31, 2003 and December 31, 2002 have been reflected in the accompanying consolidated financial statements as a component of minority interest-preferred as detailed in Note 2. In addition, 20,000 8.25% cumulative preferred units (the "CPUs") have been issued by the LLC. The holders of these CPUs are entitled to receive cumulative preferential cash distributions per CPU at a per annum rate of 8.25% of the $250 liquidation preference thereof (or $5.15625 per quarter), prior to any distributions by the LLC to the Operating Partnership also as detailed in Note 2. As of December 31, 2003, General Growth owned an approximate 80% general partnership interest in the Operating Partnership. The remaining approximate 20% minority interest in the Operating Partnership is held by limited partners that include trusts for the benefit of the families of the original stockholders who initially owned and controlled the Company and subsequent contributors of properties to the Company. These minority interests are represented by common units of limited partnership interest in the Operating Partnership (the "Units"). In addition, holders of certain preferred units of limited partnership (see Minority Interest-Preferred, Note 2) in the Operating Partnership have rights to convert such holdings to Units. Under certain circumstances, the Units can be redeemed at the option of the holders for cash or, at General Growth's election, for shares of Common Stock on a one-for-one basis. The holders of the Units also share equally with General Growth's common stockholders on a per share basis in any 9 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) distributions by the Operating Partnership on the basis that one Unit is equivalent to one share of Common Stock. BUSINESS SEGMENT INFORMATION The Financial Accounting Standards Board (the "FASB") has issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("Statement 131") which requires disclosure of certain operating and financial data with respect to separate business activities within an enterprise. The primary business of General Growth and its consolidated affiliates is the owning and operation of shopping centers. General Growth evaluates operating results and allocates resources on a property-by-property basis. General Growth does not distinguish or group its consolidated operations on a geographic basis. Accordingly, General Growth has concluded it currently has a single reportable segment for Statement 131 purposes. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company including the Consolidated Centers, GGMI and the unconsolidated investments in GGP/Homart, GGP/Homart II, GGP/Teachers, GGP Ivanhoe, GGP Ivanhoe III, GGP Ivanhoe IV, Circle T, Quail Springs, and Town East. Included in the consolidated financial statements are four joint ventures, acquired in the JP Realty acquisition (Note 3), which are partnerships with non-controlling independent joint venture partners. Income allocated to minority interests includes the share of such properties' operations (computed as the respective joint venture partner ownership percentage) applicable to such non-controlling venture partners. All significant intercompany balances and transactions have been eliminated. REVENUE RECOGNITION Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. As of December 31, 2003, approximately $77,397 has been recognized as straight-line rents receivable (representing the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases), all of which is included in tenant accounts receivable, net in the accompanying consolidated financial statements. Also included in consolidated minimum rents in 2003 is approximately $16,551 of accretion related to above and below-market leases at properties acquired as provided by FASB Statements No. 141, "Business Combinations", ("SFAS 141") and No. 142, "Goodwill and Intangible Assets", ("SFAS 142"). Overage rents are recognized on an accrual basis once tenant sales revenues exceed contractual tenant lease thresholds. Recoveries from tenants computed as a formula related to taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. Amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates, approximately $9,694, $8,303 and $7,500 in 2003, 2002 and 2001, respectively, have been included in minimum rents. Fee income primarily represents GGMI management and leasing fees, financing fees and fees for other ancillary services performed by the Company for the benefit of its Unconsolidated Real Estate Affiliates and certain properties managed for independent third-party investors. For the years ended December 31, 2003, 2002 and 2001, GGMI has recognized $62,960, $52,646 and $45,079, respectively, in fees from the Unconsolidated Real Estate Affiliates. Management and leasing fees of GGMI are recognized as services are rendered. The Company provides an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon the recovery experience of the Company. With respect to straight-line rents, the Company evaluates the probability of collection of the portion of future rent to be recognized presently under a straight-line methodology. This analysis considers the long-term nature of the Company's leases, as a certain portion of the deferred rent currently recognizable will not be billed to the tenant until many years into the future. The Company's experience relative to unbilled deferred rent receivable is that a certain portion of the amounts straight-lined into revenue are never collected from (or billed to) the tenant due to early lease terminations. For that portion of the otherwise recognizable deferred rent that is not deemed to be probable of collection, no revenue is recognized. Accounts receivable in the accompanying consolidated 10 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) balance sheets are shown net of an allowance for doubtful accounts of $12,940 and $7,817 as of December 31, 2003 and 2002, respectively. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The cash and cash equivalents of the Company are held at two financial institutions. DEFERRED EXPENSES Deferred expenses consist principally of financing fees which are amortized over the terms of the respective agreements and leasing costs and commissions which are amortized over the average life of the tenant leases. Deferred expenses in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of $94,525 and $73,546 as of December 31, 2003 and 2002, respectively. FINANCIAL INSTRUMENTS Statement No. 107, "Disclosure about the Fair Value of Financial Instruments", ("SFAS 107"), issued by the FASB, requires the disclosure of the fair value of the Company's financial instruments for which it is practicable to estimate that value. SFAS 107 does not apply to all balance sheet items and the Company has utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument. The Company considers the carrying value of its cash and cash equivalents to approximate the fair value due to the short maturity of these investments. Based on borrowing rates available to the Company at the end of 2003 and 2002 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes and other debts payable approximates the carrying value at December 31, 2003 and 2002. In addition, the Company estimates that the fair value of its interest rate cap and swap agreements (Note 5) related to consolidated debt at December 31, 2003 and 2002 is approximately $(15,546) and $(28,292), respectively. The Company held approximately $155,100 of marketable securities (bearing interest at a weighted average variable annual rate of 2.9% at December 31, 2001 and having a weighted average maturity of approximately 3.63 years). Such securities, which were subsequently sold in May 2002 to finance certain acquisitions (Note 3), represented a portion of the commercial mortgage pass-through certificates issued in December 2001 as more fully described in Note 5. At December 31, 2002, the Company held approximately $476 of common stock of certain former tenants who had settled their previous obligations by transferring such common stock to the Company. These equity securities had been reflected at their respective market values and were sold in February 2003 at prices approximating such assigned values. In addition at December 31, 2003, the Company has certain derivative financial instruments as described below and in Note 5. The Company's only hedging activities are the cash flow hedges represented by its interest rate cap and swap agreements relating to its commercial mortgage-backed securities (Note 5). These agreements either place a limit on the effective rate of interest the Company will bear on such variable rate obligations or fix the effective interest rate on such obligations to a certain rate. The Company has concluded that these agreements are highly effective in achieving its objective of eliminating its exposure to variability in cash flows relating to these variable rate obligations in any interest rate environment for loans subject to swap agreements and for loans with related cap agreements, when LIBOR rates exceed the strike rates of the agreements. The Company values the interest rate cap and swap agreements as of the end of each reporting period. Interest rates have declined since these agreements were obtained. The Company recorded at January 1, 2001 a loss to earnings of $3,334 as a cumulative-effect type transition adjustment to recognize at fair value the time-value portion of all the interest rate cap agreements that were previously designated as part of a hedging relationship. Included in the $3,334 loss is $704 related to interest rate cap agreements held by Unconsolidated Real Estate Affiliates. The Company also recorded $112 to other comprehensive income at January 1, 2001 to reflect the then fair value of the intrinsic portion of the interest rate cap agreements. Subsequent changes in the fair value of these agreements and additional cap agreements subsequently entered into have been reflected in 11 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) current earnings and accumulated other comprehensive income. During 2003, 2002 and 2001, the Company recorded approximately $12,542, ($30,774) and $2,389, respectively, of net additional other comprehensive income (loss) to reflect changes in the fair value of its interest rate cap and swap agreements. In conjunction with the GGP MPTC financing (as defined and described in Note 5), all of the debt hedged by the Company's then existing interest rate cap agreements was refinanced. As the related fair values of the previous cap agreements were nominal on the refinancing date, these cap agreements were not terminated and any subsequent changes in the fair value of these cap agreements were reflected in interest expense. Further, certain caps were purchased and sold in conjunction with GGP MPTC financing. These purchased and sold caps do not qualify for hedge accounting and changes in the fair values of these agreements are reflected in interest expense. Finally, certain interest rate swap agreements were entered into to partially fix the interest rates on a portion of the GGP MPTC financing. These swap agreements have been designated as cash flow hedges on $500,000 of the Company's consolidated variable rate debt (see also Note 5). ACQUISITIONS Acquisitions of properties are accounted for utilizing the purchase method and, accordingly, the results of operations are included in the Company's results of operations from the respective dates of acquisition. The Company has used estimates of future cash flows and other valuation techniques to allocate the purchase price of acquired property between land, buildings and improvements, equipment and other identifiable debit and credit intangibles such as amounts related to in-place at-market leases, acquired above and below-market leases and tenant relationships. The Company has estimated the fair value of acquired in-place at-market leases as the costs the Company would have incurred to lease the property to the occupancy level of the property at the date of acquisition. Such estimate includes the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, the Company evaluates the time period over which such occupancy level would be achieved and includes an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to one year. Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) the Company's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above- and below-market lease values are amortized as adjustments to rental income over the remaining non-cancelable terms of the respective leases. This allocation has resulted in the recognition upon acquisition of additional consolidated intangible assets (acquired above-market and in-place leases) and deferred credits (acquired below-market leases) relating to the Company's 2003 real estate purchases of approximately $35,144 and $54,058, respectively. These intangible assets and liabilities, and similar assets and liabilities from the Company's 2002 acquisitions including those by the Unconsolidated Real Estate Affiliates, are being amortized over the terms of the acquired leases. As a result, the Company reported additional amortization expense of approximately $2,763 and additional amortization expense from its Unconsolidated Real Estate Affiliates of approximately $1,093. Due to existing contacts and relationships with tenants at its currently owned properties and at properties currently managed for others, no significant value has been ascribed to the tenant relationships which exist at the properties acquired. PROPERTIES Real estate assets are stated at cost. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. Real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets. Interest costs are capitalized during periods of active construction for qualified expenditures based upon interest rates in place during the construction period until construction is substantially complete. Capitalized interest costs are 12 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) amortized over the lives consistent with the constructed assets. Pre-acquisition costs, which generally include legal and professional fees and other third-party costs related directly to the acquisition of the property, are capitalized as part of the acquired property. In the event an acquisition is no longer deemed to be probable, the costs previously capitalized are written off as a component of operating expenses. The real estate assets of the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. A real estate asset is considered to be impaired when the estimated future undiscounted operating cash flow is less than its carrying value. To the extent an impairment has occurred, the excess of carrying value of the asset over its estimated fair value will be charged to operations. Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:
YEARS ----- Buildings and improvements 40-45 Equipment, tenant improvements and fixtures 5-10 Purchased intangibles 5-15
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 significant betterments and improvements are capitalized. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE AFFILIATES The Company accounts for its investments in Unconsolidated Real Estate Affiliates using the equity method whereby the cost of an investment is adjusted for the Company's share of equity in earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition and reduced by distributions received. Generally, the operating agreements with respect to these Unconsolidated Real Estate Affiliates (Note 4) provide that elements of assets, liabilities and funding obligations are shared in accordance with the Company's ownership percentages (50% or 51% depending on the affiliate). Therefore, the Company generally shares in the profit and losses, cash flows and other matters relating to its Unconsolidated Real Estate Affiliates in accordance with its respective ownership percentages. In addition, the differences between the Company's carrying value of its investment in the Unconsolidated Real Estate Affiliates and the Company's share of the underlying equity of such Unconsolidated Real Estate Affiliates (approximately $49,044 and $53,103 at December 31, 2003 and 2002, respectively) are, except for Retained Debt (as described and defined in Note 4), amortized over lives ranging from five to forty years. Further, any advances to or loans (see Note 5) from the Unconsolidated Real Estate Affiliates, (loans equal approximately $8,867 and $102,053 at December 31, 2003 and 2002, respectively) have been included in the Company's investment in Unconsolidated Real Estate Affiliates. INCOME TAXES General Growth elected to be taxed as a real estate investment ("REIT") trust under sections 856-860 of the Internal Revenue Code of 1986 (the "Code"), commencing with its taxable year beginning January 1, 1993. To qualify as a REIT, General Growth must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of its ordinary taxable income and to distribute to stockholders or pay tax on 100% of capital gains and to meet certain asset and income tests. It is management's current intention to adhere to these requirements. As a REIT, General Growth will generally not be subject to corporate level Federal income tax on taxable income it distributes currently to its stockholders. If General Growth fails to qualify as a REIT in any taxable year, it will be subject to Federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Accordingly, the consolidated statements of operations do not reflect a provision for General Growth's income taxes since its taxable income is included in the taxable income of its stockholders. Even if the Company qualifies for taxation as a REIT, General Growth may be subject to certain state and local taxes on its income or property, and to Federal income and excise taxes on its undistributed taxable income. 13 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) Deferred income taxes relate primarily to one of the Company's subsidiaries, GGMI, and are accounted for using the asset and liability method, which reflect the impact of the temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured for tax purposes. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including tax planning strategies and other factors. Temporary differences primarily related to depreciation (Note 6). Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due to differences for Federal income tax reporting purposes in, among other things, estimated useful lives, depreciable basis of properties and permanent and temporary differences on the inclusion of deductibility of elements of income and deductibility of expense for such purposes. STOCK OPTIONS During the second quarter of 2002, the Company elected to adopt the fair value based employee stock-based compensation expense recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), prospectively. The Company previously applied the intrinsic value based expense recognition provisions set forth in APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123 states that the adoption of the fair value based method is a change to a preferable method of accounting. In applying APB 25 in accounting for the 1993 Stock Incentive Plan, the 1998 Incentive Plan and the Employee Stock Purchase Plan, no compensation costs had been recognized in 2001. Had compensation costs for the Company's plans been determined based on the fair value at the grant date for options granted in 2001 and prior years in accordance with the method required by SFAS 123, the Company's net income available to common stockholders would have been nominally reduced but there would have been no effect on reported basic or diluted earnings per share. EARNINGS PER SHARE ("EPS") Basic and diluted per share amounts are based on the weighted average of common shares and dilutive securities outstanding for the respective periods. The effect of the issuance of the PIERS is anti-dilutive with respect to the Company's calculation of diluted earnings per share for the year ended December 31, 2001 and therefore has been excluded. In addition, 21,000, 384,375, and 737,693 options, outstanding for 2003, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share either because the exercise price of the options was higher than the average market price of the Common Stock for the applicable periods and therefore, the effect would be anti-dilutive or because the conditions which must be satisfied prior to the issuance of any such shares were not achieved during the applicable periods. The outstanding Units have been excluded from the diluted earnings per share calculation as there would be no effect of the EPS amounts since the minority interests' share of income would also be added back to net income. The following are the reconciliations of the numerators and denominators of the basic and diluted EPS: 14 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts)
Years ended December 31, ----------------------------------------- 2003 2002 ------------------- ------------------- Basic Dilutive Basic Dilutive -------- -------- -------- -------- Numerators: Income from continuing operations $255,563 $255,563 $206,751 $206,751 Dividends on PIERS (preferred stock dividends) (13,030)* - (24,467)* - -------- -------- ------- -------- Income from continuing operations available to common stockholders 242,533 255,563 182,284 206,751 Discontinued operations, net 7,848 7,848 2,507 2,507 Cumulative effect of accounting change - - - - -------- -------- ------- -------- Net income available to common stockholders - for basic and diluted EPS $250,381 $263,411 $184,791 $209,258 ======== ======== ======== ======== Denominators: Weighted average common shares outstanding (in thousands) - for basic EPS 200,875 200,875 186,544 186,544 Effect of dilutive securities - options (and PIERS for 2003 and 2002*) - 14,204 - 26,009 -------- -------- ------- -------- Weighted average common shares outstanding (in thousands) - for diluted EPS 200,875 215,079 186,544 212,553 ======== ======== ======== ========
* For the twelve months ended December 31, 2003 and 2002, the effect of the issuance of the PIERS is dilutive and, therefore, no adjustment of net income is made as the PIERS dilution is reflected in the denominator of the diluted EPS calculation. DISCONTINUED OPERATIONS In August 2004, the Company's Board of Directors approved plans to dispose of the industrial properties originally acquired in the JP Realty acquisition in July 2002. The sales closed on November 1, 2004 for $67,000 and a gain of approximately $11,000 was recognized. The carrying amounts for the industrial properties were as follows:
December 31, December 31, 2003 2002 ---- ---- Land $ 13,246 $ 13,325 Buildings, net 38,062 38,052 Tenant receivables 1,337 257 Deferred expenses 27 -- Cash, prepaid and other assets 60 121 Accounts payable and accrued expenses (110) (127) -------- -------- Net $ 52,622 $ 51,628 ======== ========
On March 31, 2003, the Company sold McCreless Mall in San Antonio, Texas for aggregate consideration of $15,000 (which was paid in cash at closing). The Company recorded a gain of approximately $4,000 for financial reporting purposes on the sale of the mall. McCreless Mall was purchased in 1998 as part of a portfolio of eight shopping centers. Pursuant to SFAS 144, the Company has reclassified the operations of McCreless Mall (approximately $859, $3,789 and $4,344 in revenues and $292, $1,361 and $1,866 in net income in the years ended December 31, 2003, 2002, and 2001, respectively) to discontinued operations in the accompanying consolidated financial statements and has reflected such amounts net of minority interests. December 31, 2002 carrying amounts of property sold: Land $ 1,000 Buildings, net 8,661 Tenant receivables 681 Deferred expenses 1,020 Cash, prepaid and other assets 123 Accounts payable and accrued expenses (710) -------- Net $ 10,775 ========
MINORITY INTEREST COMMON Income is allocated to the holders of the Units (the "OP Minority Interests") based on their ownership percentage of the Operating Partnership. The ownership percentage is determined by 15 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) dividing the number of Operating Partnership Units held by the OP Minority Interests by the total Operating Partnership Units (excluding Preferred Units) outstanding. The issuance of additional shares of Common Stock or Operating Partnership Units are capital transactions that change this percentage as well as the total net assets of the Operating Partnership. Such capital transactions result in an allocation between stockholders' equity and OP Minority Interests in the accompanying consolidated balance sheets to account for the change in the OP Minority Interests ownership percentage as well as the change in the total net assets of the Operating Partnership. Therefore, all such capital transactions result in an allocation between stockholders' equity and OP Minority Interests in the accompanying consolidated balance sheets to account for the change in the OP Minority Interests' ownership percentage as well as the change in total net assets of the Operating Partnership. Due to the number of such capital transactions that occur each period, the Company has presented a single net effect of all such allocations for the period as the "Adjustment for Minority Interest" (rather than separately allocating the minority interest for each individual capital transaction) to arrive at a presentation of each transaction as net of such a minority interest allocation. Changes in outstanding Operating Partnership Units (excluding the Preferred Units) for the three years ended December 31, 2003, are as follows:
UNITS ----- December 31, 2000 58,781,115 Exchanges for Common Stock (63,636) ---------- December 31, 2001 58,717,479 Exchanges for Common Stock (48,738) ---------- December 31, 2002 58,668,741 Exchanges for Common Stock (2,956,491) ---------- December 31, 2003 55,712,250 ==========
Also included in minority interest-common is approximately $1,898 and $4,939, respectively, at December 31, 2003 and 2002 of minority interest in consolidated partnerships in PDC as defined and discussed in Note 3. PREFERRED The following is a detailed listing of the components of minority interest-preferred at December 31, 2003 and 2002.
Per Unit Carrying Amount Coupon Issuing Number Liquidation --------------------- Security Type Rate Entity of Units Preference 2003 2002 - ------------- ---- ------ -------- ---------- ---- ---- Perpetual Preferred Units CPU-(Note 1) 8.25% LLC 20,000 $ 250 $ 5,000 $ 5,000 PDC Series A-JP Realty (Note 3) 8.75% PDC 510,000 25 12,750 12,750 PDC Series C-JP Realty (Note 3) 8.75% PDC 320,000 25 8,000 8,000 RPU-(Note 1) 8.95% LLC 940,000 250 235,000 235,000 PDC Series B-JP Realty (Note 3) 8.95% PDC 3,800,000 25 95,000 95,000 -------- -------- 355,750 355,750 Convertible Preferred Units Series D-Foothills (Note 3) 6.50% GGPLP 532,750 50 26,637 - Series C-Glendale Galleria (Note 4) 7.00% GGPLP 822,626 50 41,131 41,131 Series B-JP Realty (Note 3) 8.50% GGPLP 1,426,393 50 71,320 71,320 -------- -------- 139,088 112,451 Other preferred stock of consolidated subsidiaries N/A various 373 1,000 373 - Total Minority Interest-Preferred $495,211 $468,201 ======== ========
16 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) COMPREHENSIVE INCOME FASB Statement of No. 130, "Reporting Comprehensive Income", requires that the Company disclose comprehensive income in addition to net income. Comprehensive income is a more inclusive financial reporting methodology that encompasses net income and all other changes in equity except those resulting from investments by and distributions to equity holders. Included in comprehensive income but not net income are unrealized holding gains or losses on marketable securities classified as available-for-sale and unrealized gains or losses on financial instruments designated as cash flow hedges. Also included in comprehensive loss for 2003 and 2002 is approximately $308 and $740, respectively, representing the changes in the fair value of plan assets relating to a frozen pension plan of Victoria Ward assumed by the Company upon acquisition (Note 3). In addition, one of the Company's unconsolidated affiliates received common stock of a large publicly-traded real estate company as part of a 1998 transaction. During 2001, portions of the Company's holdings of the stock were sold and the prior unrealized losses on such stock sold were realized. For the year ended December 31, 2002, there were no unrealized losses as the remaining stock was sold in March 2002 and the remaining cumulative unrealized losses pertaining to such stock holdings were realized. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables and deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the 2002 and 2001 consolidated financial statements, including discontinued operations (Note 16), have been reclassified to conform to the current year presentation. 17 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) NOTE 3 PROPERTY ACQUISITIONS AND DEVELOPMENTS CONSOLIDATED PROPERTIES 2004 On January 7, 2004, the Company acquired a 50% membership interest in a newly formed limited liability company ("Burlington LLC") which owns Burlington Town Center, an enclosed mall in Burlington, Vermont. The aggregate consideration for the 50% ownership interest in Burlington Town Center was approximately $10,250 (subject to certain prorations and adjustments). Approximately $9,000 was funded in cash by the Company at closing with the remaining amounts to be funded in cash in 2004 when certain conditions related to the property are satisfied. In addition, at closing the Company made a $31,500 mortgage loan to Burlington LLC to replace the existing mortgage financing which had been collateralized by the property. The new mortgage loan requires monthly payments of principal and interest, bears interest at a rate per annum of 5.5% and is scheduled to mature in January 2009. The Company has an annual preferential return of 10% on its initial investment and has an option to purchase the remaining 50% interest in Burlington LLC until in January 2007 at a price computed based on a formula related to the Company's initial purchase price. Finally, management and leasing responsibilities for the property were assumed by GGMI effective on the closing date. Due to substantive participating rights held by the unaffiliated venture partners, this investment is expected to be accounted for by the Company on the equity method. On January 16, 2004, the Company acquired Redlands Mall, an enclosed mall in Redlands, California. The purchase price paid for Redlands Mall was approximately $14,250 (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from borrowings under the Company's credit facilities. On March 5, 2004, the Company acquired Four Seasons Town Centre, an enclosed mall in Greensboro, North Carolina. The purchase price paid for Four Seasons Towne Centre Mall was approximately $161,000 (subject to certain prorations and adjustments). The consideration was paid by the assumption of approximately $134,000 in existing long-term non-recourse mortgage debt (bearing interest at a rate per annum of approximately 5.6% and scheduled to mature in November 2013), approximately $25,100 in 7% preferred units of Operating Partnership interest and the remaining amounts in cash, primarily from amounts borrowed under the Company's credit facilities. Immediately following the closing, the Company prepaid approximately $22,000 of such debt using cash on hand. 2003 On April 30, 2003, the Company acquired Peachtree Mall, an enclosed regional mall located in Columbus, Georgia. The purchase price was approximately $87,600, which was paid at closing with an interest-only acquisition loan of approximately $53,000 (bearing interest at a rate per annum of LIBOR plus 85 basis points and maturing in April 2008, assuming all no-cost extension options are exercised) and the balance from cash on hand and amounts borrowed under the Company's credit facilities. On June 11, 2003, the Company acquired Saint Louis Galleria, an enclosed mall in St. Louis, Missouri. The aggregate consideration paid for Saint Louis Galleria was approximately $235,000 (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from refinancings of existing long-term debt and an approximately $176,000 acquisition loan which initially bore interest at LIBOR plus 105 basis points. In October 2003, pursuant to the original loan terms, the interest rate spread on the loan was reset to 165 basis points. The loan requires monthly payments of interest-only and is scheduled to mature in June 2008 assuming all no-cost extension options are exercised. On June 11, 2003, the Company acquired Coronado Center, an enclosed mall in Albuquerque, New Mexico. The aggregate consideration paid for Coronado Center was approximately $175,000 (subject to certain prorations and adjustments). The consideration was paid in the form of cash borrowed under the Company's credit facilities and an approximately $131,000 acquisition loan which initially bore interest at LIBOR plus 85 basis points. In September 2003, 18 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) $30,000 was repaid under the acquisition loan and, pursuant to the original loan terms, the interest rate spread on the loan was reset to 91 basis points. The loan requires monthly payments of interest-only and is scheduled to mature in October 2008 assuming all three no-cost extension options are exercised. On July 1, 2003, the Company acquired the 49% ownership interest in GGP Ivanhoe III, Inc. ("GGP Ivanhoe III") which was held by the Company's joint venture partner (an affiliate of Ivanhoe Cambridge, Inc. of Montreal, Canada ("Ivanhoe")), thereby increasing the Company's ownership interest to 100%. The aggregate consideration for the 49% ownership interest in Ivanhoe III was approximately $459,000 (subject to certain prorations and adjustments). Concurrently with this transaction, a new joint venture, GGP Ivanhoe IV, Inc., ("GGP Ivanhoe IV") was created between the Company and Ivanhoe to own Eastridge Mall, which previously had been owned by GGP Ivanhoe III (Note 4). The Company's ownership interest in GGP Ivanhoe IV is 51% and Ivanhoe's ownership interest is 49%. On August 27, 2003, the Company acquired Lynnhaven Mall, an enclosed mall in Virginia Beach, Virginia for approximately $256,500. The consideration (after certain prorations and adjustments) was paid in the form of cash borrowed under an existing unsecured credit facility and a $180,000 interest-only acquisition loan. The acquisition loan currently bears interest at a rate per annum of LIBOR plus 125 basis points and is scheduled to mature in August 2008, (assuming the exercise of three one-year, no-cost extension options). On October 14, 2003, the Company acquired Sikes Senter, an enclosed mall located in Wichita Falls, Texas. The purchase price was approximately $61,000, which was paid at closing with an interest-only acquisition loan of approximately $41,500 (bearing interest at a rate per annum of LIBOR plus 70 basis points and scheduled to mature in November 2008, assuming all no-cost extension options are exercised) and the balance from cash on hand and amounts borrowed under the Company's credit facilities. On October 29, 2003, the Company acquired The Maine Mall, an enclosed mall in Portland, Maine. The purchase price paid for The Maine Mall was approximately $270,000 (subject to certain prorations and adjustments). The consideration was paid in the form of cash borrowed under the Company's credit facilities and an approximately $202,500 acquisition loan which initially bears interest at LIBOR plus 92 basis points. After May 14, 2004, depending upon certain factors, the interest rate spread per annum could vary from 85 basis points to 198 basis points. The loan requires monthly payments of interest-only and matures in October 2008 (assuming the exercise by the Company of all no-cost extension options). On October 31, 2003, the Company acquired Glenbrook Square, an enclosed mall in Fort Wayne, Indiana. The purchase price paid for Glenbrook Square was approximately $219,000 (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from refinancings of existing long-term debt and by an approximately $164,250 acquisition loan which initially bears interest at LIBOR plus 80 basis points. After April 10, 2004, depending upon certain factors, the interest rate spread per annum could vary from 85 basis points to 185 basis points. The loan requires monthly payments of interest-only and is scheduled to mature in April 2009 (assuming the exercise by the Company of all no-cost extension options). On December 5, 2003, the Company acquired Foothills Mall, four adjacent retail properties in Foothills, Colorado. The purchase price paid was approximately $100,500 (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including borrowings under an existing line of credit, approximately $45,750 in assumed debt and approximately $26,637 in new 6.5% preferred units of limited partnership in the Operating Partnership ("Series D"). The assumed debt requires monthly payments of principal and interest, bears interest at a weighted average rate per annum of approximately 6.6% and matures in September 2008. On December 23, 2003, the Company acquired Chico Mall, an enclosed mall in Chico, 19 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) California. The purchase price paid for Chico Mall was approximately $62,390 (subject to certain prorations and adjustments). The consideration was paid in the form of cash borrowed under the Company's credit facilities and the assumption of approximately $30,600 in existing long-term mortgage indebtedness that currently bears interest at a rate per annum of 7.0%. The loan requires monthly payments of principal and interest and is scheduled to mature in March 2005. On December 23, 2003, the Company acquired Rogue Valley Mall, an enclosed mall in Medford, Oregon. The purchase price paid for Rogue Valley Mall was approximately $57,495 (subject to certain prorations and adjustments). The consideration was paid from cash on hand, including proceeds from borrowings under the Company's credit facilities, and by the assumption of approximately $28,000 in existing long-term mortgage indebtedness that currently bears interest at a rate per annum of 7.85%. The loan requires monthly payments of principal and interest and is scheduled to mature in January 2011. 2002 On May 28, 2002, the Company acquired the stock of Victoria Ward, Limited, a privately held real estate corporation ("Victoria Ward"). The total acquisition price was approximately $250,000, including the assumption of approximately $50,000 of existing debt, substantially all of which was repaid immediately following the closing. The $250,000 total cash requirement was funded from the proceeds of the sale of the Company's investment in marketable securities (related to the GGP MPTC financing (Note 5)) and from available cash and cash equivalents. The principal Victoria Ward assets include 65 fee simple acres in Kakaako, central Honolulu, Hawaii, currently improved with, among other uses, an entertainment, shopping and dining district which includes Ward Entertainment Center, Ward Warehouse, Ward Village and Village Shops. At acquisition, Victoria Ward owned in total 17 land parcels each of which was individually ground leased to tenants and 29 owned buildings containing in the aggregate approximately 878,000 square feet of retail space, as well as approximately 441,000 square feet of office, commercial and industrial leaseable area. In 2002 and subsequent years, Victoria Ward has been and will be taxed as a REIT. On July 10, 2002, the Company acquired JP Realty, Inc. ("JP Realty"), a publicly-held real estate investment trust, and its operating partnership subsidiary, Price Development Company, Limited Partnership ("PDC"). The total acquisition price was approximately $1,100,000 which included the assumption of approximately $460,000 in existing debt and approximately $116,000 of existing cumulative preferred operating partnership units in PDC (510,000 PDC Series A 8.75% units redeemable commencing April 23, 2004, 3,800,000 PDC Series B 8.95% units redeemable commencing July 28, 2004 and 320,000 PDC Series C 8.75% units redeemable commencing May 1, 2005). Each unit of each series of the cumulative redeemable preferred units in PDC has a liquidation value of $25 per unit and is convertible at the option of the preferred unit holder in 2009 (2010 for the PDC Series C Units) into 0.025 shares of a newly created series of General Growth preferred stock ($1,000 per share base liquidation preference) with payment and liquidation rights comparable to such preferred unit. Pursuant to the terms of the merger agreement, the outstanding shares of JP Realty common stock were converted into $26.10 per share of cash (approximately $431,470). Holders of common units of limited partnership interest in PDC were entitled to receive $26.10 per unit in cash or, at the election of the holder, .522 8.5% Series B Preferred Units (Note 2) per unit. Based upon the elections of such holders, 1,426,393 Series B Preferred Units were issued and the holders of the remaining common units of limited partnership interest of PDC received approximately $23,600 in cash. JP Realty owned or had an interest in 51 properties, including 18 enclosed regional mall centers (two of which were owned through controlling general partnership interests), 26 anchored community centers (two of which were owned through controlling general partnership interests), one free-standing retail property and 6 mixed-use commercial/business properties, containing an aggregate of over 15,200,000 square feet of GLA in 10 western states. The cash portion of the acquisition price was funded from the net proceeds of certain new mortgage loans, a new $350,000 acquisition loan (Note 5), and available cash and cash equivalents. On August 5, 2002, the Operating Partnership acquired from GGP/Homart, the Prince Kuhio 20 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) Plaza in Hilo, Hawaii for approximately $39,000. Prince Kuhio Plaza, which contains approximately 504,000 square feet of GLA, was acquired by the assumption by the Operating Partnership of the allocated share of the GGP MPTC financing (Note 4) pertaining to Prince Kuhio Plaza (approximately $24,000) and the payment to GGP/Homart of $7,500 in cash and $7,500 in the form of a promissory note. Immediately following the acquisition, GGP/Homart issued a dividend of $15,000 to its two co-investors, paid in the form of $7,500 in cash to NYSCRF (as defined in Note 4 below) and the $7,500 promissory note to the Operating Partnership. Upon receipt of the promissory note as a dividend, the Operating Partnership caused the promissory note to GGP/Homart to be cancelled. On August 26, 2002, concurrent with the formation of GGP/Teachers (Note 3), the Company, through GGP/Teachers, acquired Galleria at Tyler in Riverside, California, Kenwood Towne Centre in Cincinnati, Ohio and Silver City Galleria in Taunton, Massachusetts from an institutional investor for an aggregate purchase price of approximately $477,000. Two existing non-recourse loans on Silver City Galleria, aggregating a total of $75,000 and bearing interest at a rate per annum of 7.41%, were assumed and three new non-recourse mortgage loans totaling approximately $337,000 were obtained. The new loans bear interest at a weighted average rate per annum of LIBOR plus 76 basis points. On September 13, 2002, the Company acquired Pecanland Mall, an enclosed regional mall in Monroe, Louisiana, for approximately $72,000. The acquisition was funded by approximately $22,000 of cash on hand and the assumption of a $50,000 existing non-recourse loan that bore interest at a rate per annum equal to the sum of 3.0% plus the greater of (i) LIBOR or (ii) 3.5%. The loan was scheduled to mature in January of 2005 and was refinanced in February 2004. The new $66,000 non-recourse mortgage loan bears interest at a rate of 4.28% per annum, requires monthly payments of principal and interest and is scheduled to mature in March 2010. On December 4, 2002, the Company acquired Southland Mall, an enclosed regional mall in Hayward, California. The aggregate consideration paid was approximately $89,000. The purchase was financed with approximately $24,000 of cash on hand and a new 5-year (assuming all options to extend are exercised) $65,000 mortgage loan that bears interest at LIBOR plus 75 basis points. The Company currently plans to refinance this loan in March 2004 with a new $90,000 long-term, non-recourse, fixed rate amortizing mortgage loan. 2001 During April 2001, GGP-Tucson Mall, L.L.C., a consolidated subsidiary of the Operating Partnership ("GGP-Tucson"), agreed to advance $20,000 to an unaffiliated developer in the form of a secured promissory note (bearing interest at 8% per annum) collateralized by such developer's ownership interest in Tucson Mall, a 1.3 million square foot enclosed regional mall in Tucson, Arizona. The promissory note required installment payments of interest-only and was due on demand. GGP-Tucson had also entered into an option agreement to purchase Tucson Mall from such developer and its co-tenants in title to the property. On August 15, 2001, the promissory note was repaid in conjunction with GGP-Tucson's completion of its acquisition of Tucson Mall pursuant to the option agreement. The aggregate consideration paid by GGP-Tucson for Tucson Mall was approximately $180,000 (subject to prorations and to certain adjustments and payments to be made by GGP-Tucson). The consideration was paid in the form of cash borrowed under the Operating Partnership's revolving line of credit and an approximately $150,000 short-term floating rate acquisition loan which was scheduled to mature in December 2001 but was refinanced in December 2001 in conjunction with the GGP MPTC financing (Note 5). DEVELOPMENTS The Company has an ongoing program of renovations and expansions at its properties including the following significant projects (projected expenditure in excess of $10,000) currently under construction at the following centers: - Alderwood Mall in Lynnwood (Seattle), Washington (owned by GGP/Homart II) - Altamonte Mall in Altamonte Springs (Orlando), Florida (owned by GGP/Homart II) 21 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) - The Woodlands Mall in The Woodlands (Houston), Texas (owned by GGP/Homart) - Eastridge Mall in San Jose, California (owned by GGP Ivanhoe IV) - Crossroads Center in Saint Cloud, Minnesota - Ala Moana Center in Honolulu, Hawaii - River Falls Mall in Clarksville, Indiana - Grand Teton Mall in Idaho Falls, Idaho - Kenwood Towne Centre in Cincinnati, Ohio (owned by GGP/Teachers) - Newpark Mall in Newark (San Francisco), California (owned by GGP/Homart) The above listed projects represent a total projected expenditure (including the amount of the Unconsolidated Centers at the Company's ownership percentage) of approximately $370,000. During 1998, the Company formed the Circle T joint venture to develop a regional mall in Westlake (Dallas), Texas as further described in Note 4 below. As of December 31, 2003, the Company had invested approximately $18,311 in the joint venture. The Company is currently obligated to fund additional pre-development costs of approximately $539. Total development costs are not finalized or committed but are anticipated to be funded from a construction loan that is expected to be obtained. The retail site, part of a planned community which is expected to contain a resort hotel, a golf course, luxury homes and corporate offices, is currently planned to contain up to 1.3 million square feet of tenant space including up to nine anchor stores, an ice rink and a multi-screen theater. The construction project is currently anticipated to be completed in 2006. On June 23, 2002, the Company commenced construction of the Jordan Creek Town Center on a 200 acre site in West Des Moines, Iowa. As of December 31, 2003, the Company had invested approximately $80,012 in the project, including land costs. Total development costs are estimated to be approximately $200,000 and are anticipated to be funded from operating cash flow, current unsecured revolving credit facilities and/or a future project loan. At completion, currently scheduled for August 2004, the regional mall is planned to contain up to two million square feet of tenant space with up to three anchor stores, a hotel and an amphitheater. The Company also owns and/or is investigating certain other potential development sites (representing a net investment of approximately $34,005), including sites in Toledo, Ohio and South Sacramento, California but there can be no assurance that development of these sites will proceed. NOTE 4 INVESTMENTS IN UNCONSOLIDATED AFFILIATES GGP/HOMART The Company owns 50% of the common stock of GGP/Homart with the remaining ownership interest held by the New York State Common Retirement Fund ("NYSCRF"). GGP/Homart has elected to be taxed as a REIT. NYSCRF has an exchange right under the GGP/Homart Stockholders' Agreement, which permits it to convert its ownership interest in GGP/Homart to shares of Common Stock of General Growth. If such exchange right is exercised, the Company may alternatively satisfy such exchange in cash. During 2002, as further described in Note 3, GGP/Homart sold its interest in Prince Kuhio Plaza to the Company for approximately $39,000. In addition, GGP/Homart acquired on December 19, 2002, for a purchase price of approximately $50,000, the 50% interest that it did not own in The Woodlands Mall in Houston, Texas. An additional $50,000 mortgage loan bearing interest at a rate per annum of LIBOR plus 250 basis points was placed at the property on December 31, 2002 which is scheduled to mature in December 2006. GGP/HOMART II In November 1999, the Company, together with NYSCRF, the Company's co-investor in GGP/Homart, formed GGP/Homart II, a limited liability company which is owned equally by the Company and NYSCRF. According to the membership agreement between the venture partners, the Company and its joint venture partner share in the profits and losses, cash flows and other matters relating to GGP/Homart II in accordance with their respective ownership percentages. 22 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) At the time of its formation, GGP/Homart II owned 100% interests in Stonebriar Centre in Frisco (Dallas), Texas, Altamonte Mall in Altamonte Springs (Orlando), Florida, Natick Mall in Natick (Boston), Massachusetts, and Northbrook Court in Northbrook (Chicago), Illinois which were contributed by the Company, and 100% interests in Alderwood Mall in Lynnwood (Seattle), Washington, Carolina Place in Charlotte, North Carolina and Montclair Plaza in Los Angeles, California which were contributed by NYSCRF. Certain of these seven malls were contributed subject to existing financing ("Retained Debt") in order to balance the net equity values of the malls contributed by each of the venture partners. Such contribution arrangements between the Company and NYSCRF have the effect of the Company having an additional contingent obligation to fund all amounts related to such debt including any shortfalls GGP/Homart II may incur if the non-recourse debt (approximately $164,000 at December 31, 2003) related to Natick Mall is not funded by proceeds from any subsequent sales or refinancing of Natick Mall. Subsequent to its formation, GGP/Homart II made three additional acquisitions. Specifically, during March 2001, GGP/Homart II acquired a 100% ownership interest in Willowbrook Mall in Houston, Texas for a purchase price of approximately $145,000. GGP/Homart II financed the Willowbrook acquisition with a new $102,000 10-year mortgage loan bearing interest at 6.93% per annum and approximately $43,000 in financing proceeds from a new mortgage loan collateralized by Stonebriar Centre. Glendale Galleria was acquired by GGP/Homart II on November 27, 2002, for approximately $415,000. A portion of the purchase price was paid by the Operating Partnership's issuance of 822,626 convertible preferred Operating Partnership units ("Series C") having a base liquidation preference of approximately $41,000 (Note 2). In addition, on December 30, 2002, GGP/Homart II acquired First Colony Mall, an enclosed regional mall in Sugar Land, Texas for approximately $105,000. The acquisition was funded by cash on hand and a new $67,000 mortgage loan bearing interest at a rate per annum of LIBOR plus 80 basis points with a scheduled maturity of January 2006. GGP/TEACHERS On August 26, 2002, the Company formed GGP/Teachers, a new limited liability company owned 50% by the Company and 50% by Teachers' Retirement System of the State of Illinois ("Illinois Teachers"). Upon formation of GGP/Teachers, Clackamas Town Center in Portland, Oregon, which was 100% owned by Illinois Teachers, was contributed to GGP/Teachers. In addition, concurrent with its formation, GGP/Teachers acquired Galleria at Tyler in Riverside, California, Kenwood Towne Centre in Cincinnati, Ohio, and Silver City Galleria in Taunton, Massachusetts, as described in Note 3. The Company's share (approximately $112,000) of the equity of GGP/Teachers was funded by a portion of new unsecured loans that total $150,000 (see note 5) and bear interest at LIBOR plus 100 basis points. According to the operating agreement between the venture partners, the Company and Illinois Teachers generally share in the profits and losses, cash flows and other matters relating to GGP/Teachers in accordance with their respective 50% ownership percentages. Also pursuant to the operating agreement, and in exchange for a reduced initial cash contribution by the Company, certain debt (approximately $19,389 at December 31, 2003) related to the properties was deemed to be Retained Debt and therefore, solely attributable to the Company. The Company would be obligated to fund all amounts related to such debt including any shortfalls of any subsequent sale or refinancing proceeds of the properties against their respective loan balances to the extent of such Retained Debt. In addition, on December 19, 2002, Florence Mall in Florence, Kentucky was acquired by GGP/Teachers for a purchase price of approximately $97,000 including a new, two-year $60,000 mortgage loan that bears interest at a rate per annum of LIBOR plus 89 basis points and matures in January 2008 (assuming an exercise of both no-cost extension options). GGP IVANHOE III On July 1, 2003, the Operating Partnership acquired the 49% common stock ownership interest in GGP Ivanhoe III which was held by the Company's joint venture partner (Ivanhoe Cambridge, Inc. of Montreal, Canada ("Ivanhoe")), thereby increasing the Company's 23 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) ownership interest to a full 100%. Following the completion of the transaction described below, GGP Ivanhoe III holds a 100% ownership in 7 enclosed regional malls. The aggregate consideration for the 49% ownership interest in GGP Ivanhoe III was approximately $459,000 (subject to certain prorations and adjustments). Approximately $268,000 of existing mortgage debt was assumed in connection with this acquisition with the balance of the aggregate consideration, or approximately $191,000, being funded from proceeds from the refinancing of existing long-term debt and new mortgage loans on previously unencumbered properties. GGP IVANHOE IV Concurrently with the July 1, 2003 GGP Ivanhoe III transaction described above, a new joint venture, GGP Ivanhoe IV was created between the Operating Partnership and Ivanhoe to own Eastridge Mall, which previously had been owned by GGP Ivanhoe III. No gain or loss was recognized on the transfer of Eastridge Mall by GGP Ivanhoe III. The Company and Ivanhoe share in the profits and losses, cash flows and other matters relating to GGP Ivanhoe IV in accordance with their respective common stock ownership percentages (51% and 49%, respectively) except that certain major operating and capital decisions (as defined in the stockholders' agreement) requires the approval of both stockholders. Accordingly, the Company is accounting for GGP Ivanhoe IV using the equity method. GGP Ivanhoe IV will elect to be taxed as a REIT. Additionally, the stockholders' agreement provides that during certain periods in 2006 or certain periods in 2009, Ivanhoe shall have the right to require the Company to purchase all of the GGP Ivanhoe IV common stock held by Ivanhoe for a purchase price equal to the value of such GGP Ivanhoe IV common stock. The Company can satisfy this obligation in any combination of cash or Common Stock. Also in exchange for a reduced cash portion of the total purchase price paid by the Company in connection with the acquisition of Ivanhoe's interest in GGP Ivanhoe III, certain debt related to the property (approximately $39,284 at December 31, 2003) was deemed to be Retained Debt, and therefore, solely attributable to the Company. Following the acquisition of Ivanhoe's interest in GGP Ivanhoe III, the Company is obligated to fund all amounts related to such Retained Debt including any shortfalls of any subsequent sale or refinancing proceeds of the property against the respective loan balance to the extent of such Retained Debt. GGP IVANHOE GGP Ivanhoe owns The Oaks Mall in Gainesville, Florida and Westroads Mall in Omaha, Nebraska. The Company contributed approximately $43,700 for its 51% common stock ownership interest in GGP Ivanhoe and Ivanhoe owns the remaining 49% ownership interest. Other than the absence of a right of Ivanhoe to require the Company to purchase the GGP Ivanhoe common stock held by Ivanhoe, the terms of the stockholders' agreement are generally similar to those of GGP Ivanhoe IV and GGP Ivanhoe has elected to be taxed as a REIT. As certain major decisions concerning GGP Ivanhoe must be made jointly by the Company and Ivanhoe, the Company is accounting for GGP Ivanhoe using the equity method. TOWN EAST/ QUAIL SPRINGS The Company owns a 50% general partnership interest in Town East Mall, located in Mesquite, Texas and a 50% general partnership interest in Quail Springs Mall in Oklahoma City, Oklahoma. The Company shares in the profits and losses, cash flows and other matters relating to Town East and Quail Springs in accordance with its respective ownership percentages. On March 1, 2004 the Company acquired the remaining 50% general partnership interest in Town East from its unaffiliated joint venture partner. The purchase price for the 50% ownership interest was approximately $44,500, which was paid in cash from cash on hand, including proceeds from borrowings under the Company's credit facilities. CIRCLE T At December 31, 2003, the Company, through a wholly-owned subsidiary, owns a 50% general partnership interest in Westlake Retail Associates, Ltd. ("Circle T"). AIL Investment, LP, an affiliate of Hillwood Development Company ("Hillwood"), is the limited partner of Circle T. Circle T is currently developing the Circle T Ranch Mall, a regional mall in Dallas, Texas, 24 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) scheduled for completion in 2006. Development costs are expected to be funded by a construction loan to be obtained by the joint venture and capital contributions by the joint venture partners. As of December 31, 2003, the Company has made contributions of approximately $18,311 to the project for pre-development costs (and is currently obligated to fund approximately $539 of additional specified pre-development costs) and Hillwood has contributed approximately $11,200, mostly in the form of land costs and related pre-development costs. SUMMARIZED FINANCIAL INFORMATION OF INVESTMENTS IN UNCONSOLIDATED REAL ESTATE AFFILIATES Following is summarized financial information for the Company's Unconsolidated Real Estate Affiliates as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001. COMBINED BALANCE SHEETS
DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Assets Land $ 532,036 $ 558,747 Buildings and equipment 4,698,197 5,342,201 Less accumulated depreciation (600,431) (542,075) Developments in progress (*) 100,197 59,212 ----------- ----------- Net property and equipment 4,729,999 5,418,085 Investment in unconsolidated joint ventures 11,876 1,289 ----------- ----------- Net investment in real estate 4,741,875 5,419,374 Cash and cash equivalents 107,214 225,427 Marketable securities - 523 Tenant accounts receivable, net 82,091 90,342 Deferred expenses, net 120,159 127,862 Prepaid expenses and other assets 99,042 99,307 ----------- ----------- Total assets $ 5,150,381 $ 5,962,835 =========== =========== Liabilities and Owners' Equity Mortgage notes and other debt payable $ 3,542,173 $ 4,074,025 Accounts payable and accrued expenses 232,120 289,375 Minority Interest 117 117 ----------- ----------- 3,774,410 4,363,517 Owners' Equity 1,375,971 1,599,318 ----------- ----------- Total liabilities and owners' equity $ 5,150,381 $ 5,962,835 =========== ===========
(*) At December 31, 2003 and 2002, amounts reflected as development in progress include approximately $29,481 and $28,563, respectively, of assets of the Circle T joint venture. COMPANY INVESTMENT IN UNCONSOLIDATED REAL ESTATE AFFILIATES
2003 2002 ----------- ----------- Owners' equity $ 1,375,971 $ 1,599,318 Less joint venture partners' equity (794,402) (885,902) Loans and other, net 49,044 53,103 ----------- ----------- Company investment in and loans from Unconsolidated Real Estate Affiliates $ 630,613 $ 766,519 =========== ===========
25 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) COMBINED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2003 2002 2001 --------- --------- --------- Revenues : Minimum rents $ 558,322 $ 484,507 $ 434,888 Tenant recoveries 272,536 236,700 213,349 Overage rents 16,290 16,801 15,708 Other 15,123 13,001 9,822 --------- --------- --------- Total revenues 862,271 751,009 673,767 Expenses: Real estate taxes 78,449 65,904 59,622 Repairs and maintenance 64,865 56,340 53,652 Marketing 27,504 25,294 22,018 Other property operating costs 117,056 98,771 81,897 Provision for doubtful accounts 3,197 3,433 3,738 Property management and other costs 48,807 40,818 37,085 General and administrative 2,099 536 5,269 Depreciation and amortization 158,480 136,713 121,910 --------- --------- --------- Total expenses 500,457 427,809 385,191 Operating income 361,814 323,200 288,576 Interest income 5,757 14,976 8,651 Interest expense (174,862) (161,339) (176,872) Equity in income of unconsolidated joint ventures 4,640 4,938 1,740 Cumulative effect of accounting change - - (704) --------- --------- --------- Net Income $ 197,349 $ 181,775 $ 121,391 ========= ========= =========
COMPANY EQUITY IN EARNINGS OF UNCONSOLIDATED REAL ESTATE AFFILIATES
2003 2002 2001 --------- --------- --------- Total net income of Unconsolidated Real Estate Affiliates $ 197,349 $ 181,775 $ 121,391 Cumulative effect of accounting change - - 704 Joint venture partners' share of earnings of Unconsolidated Real Estate Affiliates (98,226) (90,449) (63,630) Amortization of capital or basis differences (3,263) (4,717) 1,730 Elimination of Unconsolidated Real Estate Affiliate loan interest (1,380) (5,784) - Company equity in earnings in --------- --------- --------- Unconsolidated Real Estate Affiliates $ 94,480 $ 80,825 $ 60,195 ========= ========= =========
In addition, the following is summarized financial information for certain individually significant Unconsolidated Real Estate Affiliates as of December 31, 2002 and 2001 and for the years ended December 31, 2003, 2002 and 2001. 26 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) GGP/HOMART AND GGP/HOMART II BALANCE SHEETS
GGP/HOMART GGP/HOMART II DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Assets Land $ 146,908 $ 146,947 $ 214,740 $ 187,597 Buildings and equipment 1,691,508 1,630,028 1,863,028 1,801,918 Less accumulated depreciation (329,099) (272,567) (151,662) (100,365) Developments in progress 15,905 8,784 40,261 21,758 ----------- ----------- ----------- ----------- Net property and equipment 1,525,222 1,513,192 1,966,367 1,910,908 Investment in unconsolidated joint ventures 11,876 1,289 - - ----------- ----------- ----------- ----------- Net investment in real estate 1,537,098 1,514,481 1,966,367 1,910,908 Cash and cash equivalents 74,162 82,975 5,999 102,203 Marketable securities - 294 - 229 Tenant accounts receivable, net 37,352 36,867 28,242 25,395 Deferred expenses, net 45,426 47,019 59,661 55,892 Prepaid expenses and other assets 50,516 26,092 39,662 36,443 ----------- ----------- ----------- ----------- Total assets $ 1,744,554 $ 1,707,728 $ 2,099,931 $ 2,131,070 =========== =========== =========== =========== Liabilities and Owners' Equity Mortgage notes and other debt payable $ 1,462,193 $ 1,323,040 $ 1,317,607 $ 1,469,137 Accounts payable and accrued expenses 66,736 80,497 76,290 81,736 Minority Interest - - 117 117 ----------- ----------- ----------- ----------- 1,528,929 1,403,537 1,394,014 1,550,990 Owners' Equity 215,625 304,191 705,917 580,080 ----------- ----------- ----------- ----------- Total liabilities and owners' equity $ 1,744,554 $ 1,707,728 $ 2,099,931 $ 2,131,070 =========== =========== =========== ===========
27 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) GGP/HOMART AND GGP/HOMART II INCOME STATEMENTS
GGP/HOMART GGP/HOMART II TWELVE MONTHS ENDED DECEMBER, 31 TWELVE MONTHS ENDED DECEMBER, 31 2003 2002 2001 2003 2002 2001 --------- --------- --------- --------- --------- --------- Revenues : Minimum rents $ 208,662 $ 189,839 $ 185,640 $ 177,041 $ 136,373 $ 125,303 Tenant recoveries 91,475 81,536 81,612 85,194 65,837 57,721 Overage rents 6,240 6,367 7,216 6,250 4,095 2,998 Other 6,272 7,358 5,534 5,727 2,745 1,983 --------- --------- --------- --------- --------- --------- Total revenues 312,649 285,100 280,002 274,212 209,050 188,005 Expenses: Real estate taxes 26,852 24,145 21,446 24,493 19,068 16,943 Repairs and maintenance 25,482 22,235 22,738 18,455 13,506 13,259 Marketing 9,576 9,410 8,958 9,271 6,901 5,705 Other property operating costs 41,327 38,324 34,254 34,386 23,153 18,763 Provision for doubtful accounts 1,040 1,602 1,810 1,733 578 1,051 Property management and other costs 18,846 17,067 16,470 15,892 11,357 10,663 General and administrative 755 212 2,676 577 63 1,658 Depreciation and amortization 62,485 54,671 53,096 53,243 39,396 35,775 --------- --------- --------- --------- --------- --------- Total expenses 186,363 167,666 161,448 158,050 114,022 103,817 Operating income 126,286 117,434 118,554 116,162 95,028 84,188 Interest income 1,185 3,554 3,002 4,188 11,074 4,751 Interest expense (74,813) (65,978) (73,530) (60,491) (49,657) (48,154) Equity in income of unconsolidated joint ventures 4,640 4,938 1,740 - - - Cumulative effect of accounting change - - (3,441) - - (1,534) --------- --------- --------- --------- --------- --------- Net Income $ 57,298 $ 59,948 $ 46,325 $ 59,859 $ 56,445 $ 39,251 ========= ========= ========= ========= ========= =========
Significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same as those used by the Company. NOTE 5 MORTGAGE NOTES AND OTHER DEBT PAYABLE Mortgage notes and other debt payable have various maturities through 2095 (weighted average scheduled remaining term equal to 5.1 years at December 31, 2003 - see Note 12) and consisted of the following:
DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Fixed-Rate debt: Mortgage notes and other debt payable $4,052,244 $2,523,701 Variable-Rate debt: Mortgage notes payable 1,672,496 1,472,310 Credit Facilities and bank loans 924,750 596,300 ---------- ---------- Total Variable-Rate debt 2,597,246 2,068,610 ---------- ---------- Total $6,649,490 $4,592,311 ========== ==========
Land, buildings and equipment related to the mortgage notes payable with an aggregate cost of approximately $9,467,917 at December 31, 2003 have been pledged as collateral. Certain properties, including those within the portfolios collateralized by commercial mortgage-backed securities, are subject to financial performance covenants, primarily debt service coverage ratios. 28 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) FIXED RATE DEBT MORTGAGE NOTES AND OTHER DEBT PAYABLE Mortgage notes and other debt payable consist primarily of fixed rate non-recourse notes collateralized by individual or groups of properties or equipment. Also included in mortgage notes and other debt payable as of December 31, 2003 are $100,000 of ten-year senior unsecured notes, bearing interest at a fixed rate of 7.29% per annum, which were issued by PDC in March 1998 and were assumed by the Company in conjunction with the acquisition of JP Realty (Note 2). Interest payments on these notes are due semi-annually on March 11 and September 11 of each year and principal payments of $25,000 are due annually beginning March 2005. The fixed rate notes bear interest ranging from 1.81% to 10.00% per annum (weighted average of 6.42% per annum), and require monthly payments of principal and/or interest. Certain properties are pledged as collateral for the related mortgage notes. Substantially all of the mortgage notes payable as of December 31, 2003 are non-recourse to the Company. Certain mortgage notes payable may be prepaid but are generally subject to prepayment penalty of a yield-maintenance premium or a percentage of the loan balance. Certain loans have cross-default provisions and are cross-collateralized as part of a group of properties. Under certain cross-default provisions, a default under any mortgage notes included in a cross-defaulted package may constitute a default under all such mortgage notes and may lead to acceleration of the indebtedness due on each property within the collateral package. In general, the cross-defaulted properties are under common ownership. However, GGP Ivanhoe debt collateralized by two GGP Ivanhoe centers (totaling $125,000) is cross-defaulted and cross-collateralized with debt collateralized (totaling $435,000) by 11 Consolidated Centers. VARIABLE RATE DEBT MORTGAGE NOTES AND OTHER DEBT PAYABLE Variable rate mortgage notes and other debt payable at December 31, 2003 consisted primarily of approximately $495,746 of collateralized mortgage-backed securities, approximately $1,176,750 of mortgage notes collateralized by individual properties and $924,750 of unsecured debt of which $789,000 is outstanding under the Company's 2003 Credit Facility as described below. Approximately $500,000 of the variable rate debt is currently subject to fixed rate swap agreements as described below. The loans bear interest at a rate per annum equal to LIBOR plus 60 to 250 basis points. COMMERCIAL MORTGAGE-BACKED SECURITIES In August 1999, the Company issued $500,000 of commercial mortgage-backed securities (the "Ala Moana CMBS") collateralized by the Ala Moana Center. The securities were comprised of notes which bore interest at rates per annum ranging from LIBOR plus 50 basis points to LIBOR plus 275 basis points (weighted average equal to LIBOR plus 95 basis points), calculated and payable monthly. The notes were repaid in December 2001 with a portion of the proceeds of the GGP MPTC financing described below. In conjunction with the issuance of the Ala Moana CMBS, the Company arranged for an interest rate cap agreement, the effect of which was to limit the maximum interest rate the Company would be required to pay on the securities to 9% per annum. In September 1999, the Company issued $700,229 of commercial mortgage-backed securities (the "GGP-Ivanhoe CMBS") cross-collateralized and cross-defaulted by a portfolio of nine regional malls and an office complex adjacent to one of the regional malls (four regional malls and the office complex owned by GGP Ivanhoe III and five regional malls 100% owned by the Company). The GGP-Ivanhoe CMBS was comprised of notes which bore interest at rates per annum ranging from LIBOR plus 52 basis points to LIBOR plus 325 basis points (weighted average equal to LIBOR plus approximately 109 basis points), calculated and payable monthly. The notes were repaid in December 2001 with a portion of the proceeds of the GGP MPTC financing described below. In conjunction with the issuance of the GGP-Ivanhoe CMBS, the Company arranged for an interest rate cap agreement, the effect of which was to limit the maximum interest rate the Company would be required to pay on the securities to 9.03% per annum. In early December 2001, the Operating Partnership and certain Unconsolidated Real Estate 29 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) Affiliates completed the placement of $2,550,000 of non-recourse commercial mortgage pass-through certificates (the "GGP MPTC"). The GGP MPTC was initially collateralized by 27 malls and one office building, including 19 malls owned by certain Unconsolidated Real Estate Affiliates. At December 31, 2003, the GGP MPTC has a current outstanding balance of approximately $1,600,000 ($734,304 by Unconsolidated Real Estate Affiliates) and is collateralized by 17 malls and one office building, including 10 malls owned by Unconsolidated Real Estate Affiliates. The GGP MPTC is comprised of both variable rate and fixed rate notes which require monthly payments of principal and interest. The certificates represent beneficial interests in three loan groups made by three sets of borrowers (GGP/Homart-GGP/Homart II, GGPLP and GGP Ivanhoe III). The original principal amount of the GGP MPTC was comprised of $1,235,000 attributed to the Operating Partnership, $900,000 to GGP/Homart and GGP/Homart II and $415,000 to GGP Ivanhoe III. The three loan groups are comprised of variable rate notes with a 36 month initial maturity (with two no cost 12-month extension options), variable rate notes with a 51 month initial maturity (with two no cost 18-month extension options) and fixed rate notes with a 5 year maturity. The 36 month variable rate notes bear interest at rates per annum ranging from LIBOR plus 60 to 235 basis points (weighted average equal to 79 basis points), the 51 month variable rate notes bear interest at rates per annum ranging from LIBOR plus 70 to 250 basis points (weighted average equal to 103 basis points) and the 5 year fixed rate notes bear interest at rates per annum ranging from approximately 5.01% to 6.18% (weighted average equal to 5.38%). The extension options with respect to the variable rate notes are subject to obtaining extensions of the interest rate protection agreements which were required to be obtained in conjunction with the GGP MPTC. The GGP MPTC yielded approximately $470,000 (including amounts attributed to the Unconsolidated Real Estate Affiliates) which were utilized for loan repayments on other properties and temporary investments in cash equivalents and marketable securities. On closing of the GGP MPTC financing, approximately $94,996 of such proceeds attributable to GGP/Homart and GGP/Homart II were loaned to the Operating Partnership. The $16,596 loan by GGP/Homart was repaid by the Operating Partnership in October 2002. The $78,400 loan by GGP/Homart II currently bears interest at a rate per annum of LIBOR plus 135 basis points on the remaining outstanding balance (approximately $8,867 at December 31, 2003). Although the loan is currently scheduled to mature on March 31, 2005 (Note 4), the Operating Partnership currently expects to repay this loan in full by the end of 2004. Concurrent with the issuance of the certificates, the Company purchased interest rate protection agreements (structured to limit the Company's exposure to interest rate fluctuations), and simultaneously an equal amount of interest rate protection agreements were sold to fully offset the effect of these agreements and to recoup a substantial portion of the cost of such agreements. Further, to achieve a more desirable balance between fixed and variable rate debt, the Company initially entered into certain swap agreements (notational amount equal to $666,933). Approximately $575,000 of such swap agreements were with independent financial services firms. The notional amounts of such swap agreements decline over time to an aggregate of $25,000 at maturity of the 51 month variable rate loans (assuming both 18 month no-cost extension options are exercised). These swap agreements convert the related variable rate debt to fixed rate debt currently bearing interest at a weighted average rate of 4.47% per annum. Such swap agreements have been designated as cash flow hedges and hedge the Company's exposure to forecasted interest payments on the related variable rate debt. The remaining approximately $91,933 of such swap agreements were with GGP Ivanhoe III to provide Ivanhoe with only variable rate debt. As of July 1, 2003, in conjunction with the acquisition of the remaining 49% of GGP Ivanhoe III, the swap agreements between the Company and GGP Ivanhoe III were cancelled (Note 4). CREDIT FACILITIES As of July 31, 2000, the Company obtained an unsecured revolving credit facility (the "Revolver") in a maximum aggregate principal amount of $135,000 (cumulatively increased to $185,000 through December 2001). The outstanding balance of the Revolver was fully repaid from a portion of the proceeds of the GGP MPTC financing described above and the Revolver was terminated. The Revolver bore interest at a floating rate per annum equal to 30 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) LIBOR plus 100 to 190 basis points, depending on the Company's average leverage ratio. The Revolver was subject to financial performance covenants including debt to value and net worth ratios, earnings ratios and minimum equity values. In January 2001, GGMI borrowed $37,500 under a new revolving line of credit obtained by GGMI and an affiliate, which was guaranteed by General Growth and the Operating Partnership. This revolving line of credit was scheduled to mature in July 2003 but was fully repaid in December 2001 from a portion of the proceeds of the GGP MPTC financing described above and the line of credit was terminated. The interest rate per annum with respect to any borrowings varied from LIBOR plus 100 to 190 basis points depending on the Company's average leverage ratio. In conjunction with the 2002 acquisition of JP Realty, an existing $200,000 unsecured credit facility (the "PDC Credit Facility") with a balance of approximately $120,000 was assumed. At December 31, 2002, approximately $130,000 was outstanding on the PDC Credit Facility, all of which was repaid in 2003 primarily from the proceeds from a new credit facility obtained in April 2003 described below. The PDC Credit Facility had a scheduled maturity of July 2003 and bore interest at the option of the Company at (i) the higher of the federal funds rate plus 50 basis points or the prime rate of Bank One, NA, or (ii) LIBOR plus a spread of 85 to 145 basis points as determined by PDC's credit rating. In April 2003, the Company reached an agreement with a group of banks to establish a new revolving credit facility and term loan (the "2003 Credit Facility") with initial borrowing availability of approximately $779,000 (which was subsequently increased to approximately $1,250,000). At closing, approximately $619,000 was borrowed under the 2003 Credit Facility, which has a term of three years and provides for partial amortization of the principal balance in the second and third years (currently approximately $28,293 in 2004 and $36,101 in 2005). The proceeds were used to repay and consolidate existing financing including amounts due on the PDC Credit Facility (which was terminated upon repayment), the Term Loan and the JP Realty acquisition loan. The amount outstanding on the 2003 Credit Facility at December 31, 2003 was approximately $789,000. Amounts borrowed under the 2003 Credit Facility bear interest at a rate per annum of LIBOR plus 100 to 175 basis points depending upon the Company's leverage ratio. As of December 31, 2003, the applicable weighted average interest rate was 2.5%. INTERIM FINANCING As of July 31, 2000, the Company obtained an unsecured term loan (the "Term Loan") in a maximum principal amount of $100,000. As of September 30, 2001, the maximum principal amount of the Term Loan was increased to $255,000 and, as of such date, all amounts available under the Term Loan were fully drawn. Term Loan proceeds were used to fund ongoing redevelopment projects and repay a portion of the remaining balance of the bank loan described in the prior paragraph immediately above. During the fourth quarter of 2001, approximately $48,000 of the principal amount of the Term Loan was repaid from a portion of the 2001 Offering. The Term Loan, which was repaid in April 2003 by the 2003 Credit Facility, bore interest at a rate per annum of LIBOR plus 100 to 170 basis points depending on the Company's average leverage ratio. In July 2002, in conjunction with the JP Realty acquisition, the Company obtained a new $350,000 loan from a group of banks. The loan, with an outstanding principal balance of $275,000 at December 31, 2002, bore interest at a rate (as elected by the borrower) per annum equal to LIBOR plus 150 basis points and was scheduled to mature on July 9, 2003. The loan was refinanced in April 2003 by the 2003 Credit Facility. During August 2002, the Company, through Victoria Ward, arranged for an aggregate of $150,000 in loans from two separate groups of banks. On August 23, 2002, the Company borrowed an initial $80,000 and, on September 19, 2002, the Company borrowed an additional $70,000. The two-year loans provide for quarterly partial amortization of principal, bear interest at a rate per annum of LIBOR plus 100 basis points, and require the remaining balance to be paid at maturity (unless extended, under certain conditions, for an 31 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) additional nine months). During June 2003, the Company obtained two new acquisition loans totaling approximately $307,000 for the purchases of Saint Louis Galleria and Coronado Center as described in Note 3. The $176,000 loan collateralized by Saint Louis Galleria currently bears interest at a rate per annum of LIBOR plus 165 basis points and the loan collateralized by Coronado Center (approximately $101,000 as of the date of this report) currently bears interest at a rate per annum of LIBOR plus 91 basis points. Both loans require monthly payments of interest-only and are scheduled to mature in five years assuming the exercise by the Company of three one-year, no-cost extension options on each of the loans. In addition and as described in Note 3, the Company also obtained in 2003 four new acquisition loans totaling approximately $588,250 for the purchases of Lynnhaven Mall, Sikes Senter, The Maine Mall and Glenbrook Square. The loans initially bear interest at LIBOR plus a range of 70 to 125 basis points and generally mature in five years assuming the exercise by the Company of all no-cost extension options. CONSTRUCTION LOAN In connection with the acquisition of JP Realty, the Company assumed a $47,340 construction loan of Spokane Mall Development Company Limited Partnership, and a $50,000 construction loan of Provo Mall Development Company, Ltd., in both of which PDC is the general partner. The loans, which bore interest at a rate per annum of LIBOR plus 150 basis points, were scheduled to mature in July 2003 but were replaced in January 2003 with a new long-term non-recourse mortgage loan. The new loan, allocated $53,000 to the Provo Mall and $42,000 to the Spokane Mall, is collateralized by the two malls, bears interest at a rate per annum of 4.42% and matures in February 2008. LETTERS OF CREDIT As of December 31, 2003 and 2002, the Company had outstanding letters of credit of $11,830 and $12,104, respectively, primarily in connection with special real estate assessments and insurance requirements. NOTE 6 INCOME TAXES INCOME TAXES GGMI, one of the Company's subsidiaries, is a taxable corporation and accordingly, Federal and state income taxes on its net taxable income are payable by GGMI. For the years ended December 31, 2003, 2002 and 2001, the Company's Federal income tax expense was zero as a result of prior (and current year losses in 2001) net operating losses incurred by GGMI. State and local income and other taxes have not been and are not expected to be significant. GGMI has recognized a benefit provided for income taxes in the amount of $810, $2,696 and $0 for 2003, 2002 and 2001, respectively. A net deferred tax asset, net of valuation allowance, is included in other liabilities at December 31, 2003 and 2002 and is summarized as follows:
2003 2002 -------- -------- Deferred tax asset $ 13,276 $ 14,086 Less valuation allowance 8,143 8,953 -------- -------- Net deferred tax asset $ 5,133 $ 5,133 ======== ========
The net deferred tax asset is primarily comprised of net operating loss carryforwards which are currently scheduled to expire in subsequent years through 2021. At December 31, 2003, the Company concluded that it was more likely than not that this net deferred tax asset will be realized in future periods. Distributions paid on the Company's common and preferred stock and their tax status are presented in the following tables. The tax status of the Company's distributions in 2003, 2002 and 2001 may not be indicative of future periods. The portion of distributions paid in 2003 shown below as unrecaptured Section 1250 capital gains are designated as capital gain distributions for tax purposes. 32 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts)
2003 2002 2001 ------ ------ ------ Distributions declared per common share $ 1.02 $0.890 $0.747 Return of capital - 0.177 0.179 Ordinary income 1.003 0.710 0.568 Unrecaptured Section 1250 capital gains 0.017 0.003 -
2003 2002 2001 ------ ------ ------ Distributions declared per preferred share $1.431 $1.812 $1.812 Ordinary income 1.403 1.802 1.812 Unrecaptured Section 1250 capital gains 0.028 0.010 -
NOTE 7 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 of Consolidated Centers held as of December 31, 2003 are as follows:
Year Amount 2004 $ 637,724 2005 584,820 2006 520,544 2007 463,687 2008 406,287 Subsequent 1,498,570
Minimum future rentals do not include amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of shopping center operating expenses. Such operating leases are with a variety of tenants, including national and regional retail chains and local retailers, and consequently, the Company's credit risk is concentrated in the retail industry. NOTE 8 TRANSACTIONS WITH AFFILIATES NOTES RECEIVABLE-OFFICERS From 1998 through April 30, 2002 certain officers of the Company issued to the Company an aggregate of $24,997 of promissory notes in connection with their exercise of options to purchase an aggregate of 2,703,000 shares (split-adjusted) of the Company's Common Stock. As of April 30, 2002, the Company's Board of Directors decided to terminate the availability of loans to officers to exercise options on the Common Stock. In conjunction with this decision, the Company and the officers restructured the terms of the promissory notes, including the approximately $2,823 previously advanced in the form of income tax withholding payments made by the Company on behalf of such officers. The previous notes, which bore interest at a rate equal to LIBOR plus 50 basis points, were full recourse to the officers, were collateralized by the shares of Common Stock issued upon exercise of such options, provided for quarterly payments of interest and were payable to the Company on demand. Each of the officers repaid no less than 60% of the principal and 100% of the interest due under such officer's note as of April 30, 2002 and the remaining amounts, approximately $10,141 as of April 30, 2002, were represented by the amended and restated promissory notes. These amended and restated, fully recourse notes are payable in monthly installments of principal and interest (at a market rate which varies monthly computed at LIBOR plus 125 basis points per annum) until fully repaid in May 2009 (or within 90 days of the officer's separation from the Company, if earlier). In October 2002, a voluntary prepayment of approximately $500 was received from one of the officers. As of December 31, 2003, the current outstanding balance under the promissory notes was $7,250, of which approximately $775 relating to income tax withholding payments has been reflected in prepaid expenses and other assets and approximately $6,475 has been reflected as a reduction of Stockholders' Equity. 33 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) NOTE 9 EMPLOYEE BENEFIT AND STOCK PLANS 1993/2003 INCENTIVE PLANS The Company's 1993 Stock Incentive Plan (which expired according to its terms in April 2003) provided incentives to attract and retain officers and key employees. In addition to certain grants of restricted stock as discussed below, options were 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 the grant. The term of the options were fixed by the Compensation Committee, but no option was exercisable more than 10 years after the date of the grant. Options granted to officers and key employees were for 10-year terms and were generally exercisable in either 33 1/3% or 20% annual increments from the date of the grants. However, during 2000, 159,957 options were granted to certain employees under the 1993 Stock Incentive Plan with the same terms as the TSOs granted in 2000 under the 1998 Incentive Plan as described and defined below. Options granted to non-employee directors were exercisable in full commencing on the date of grant and were scheduled to expire on the tenth anniversary of the date of the grant. In February 2003, the Company's Board of Directors recommended the adoption of the Company's 2003 Incentive Stock Plan, to replace the 1993 Stock Incentive Plan. The 2003 Incentive Stock Plan, which was approved by the shareholders at the May 2003 annual meeting, provides for the issuance of up to 9,000,000 shares of Common Stock. A summary of the status of options granted under the Company's 1993 Stock Incentive Plan and the 2003 Incentive Stock Plan as of December 31, 2003, 2002 and 2001 and changes during the years ended on those dates is presented below.
2003 2002 2001 ----------------------- ---------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ ----- ------ ----- ------ ----- Outstanding at beginning of year 1,590,309 $12.45 1,629,657 $10.64 2,226,957 $10.45 Granted 760,500 $16.96 612,000 $15.84 639,000 $11.32 Exercised (845,922) $12.28 (642,048) $11.13 (1,050,000) $10.53 Forfeited (22,800) $11.76 (9,300) $9.99 (186,300) $11.36 --------- --------- --------- Outstanding at end of year 1,482,087 $14.86 1,590,309 $12.45 1,629,657 $10.64 ========= ========= ========= Exercisable at end of year 234,087 $13.67 586,809 $10.93 652,500 $10.17 Options available for future grants 8,971,500 3,876,642 4,479,342 Weighted average per share fair value of options granted during the year $1.33 $1.21 $1.02
The following table summarizes information about stock options outstanding pursuant to the 1993 Stock Incentive Plan and the 2003 Incentive Stock Plan at December 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------- ------------------------------- WEIGHTED AVERAGE NUMBER REMAINING WEIGHTED AVERAGE OPTIONS WEIGHTED AVERAGE RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AT 12/31/03 LIFE PRICE AT 12/31/03 PRICE - --------------- ----------- -------------- ---------------- ----------- ---------------- $9.27 - $10.73 101,757 6.0 years $10.16 41,757 $10.41 $11.32 - $13.58 474,330 7.2 years $12.04 132,330 $12.38 $16.68 - $17.09 882,000 8.9 years $16.74 36,000 $16.82 $20.20 - $21.96 24,000 9.6 years $21.74 24,000 $21.74 --------- --------- ------ ------- ------ 1,482,087 8.2 years $14.86 234,087 $13.67 ========= =======
34 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) 1998 INCENTIVE PLAN General Growth also has an incentive stock plan entitled the 1998 Incentive Stock Plan (the "1998 Incentive Plan"). Under the 1998 Incentive Plan, stock incentive awards in the form of threshold-vesting stock options ("TSOs") may be granted to employees. The exercise price of the TSOs to be granted to a participant will be the Fair Market Value ("FMV") of a share of Common Stock on the date the TSO may be granted. The threshold price (the "Threshold Price") which must be achieved in order for the TSO to vest will be determined by multiplying the FMV on the date of grant by the Estimated Annual Growth Rate (currently set at 7% in the 1998 Incentive Plan) and compounding the product over a five-year period. Shares of the Common Stock must achieve and sustain the Threshold Price for at least 20 consecutive trading days at any time over the five years following the date of grant in order for the TSO to vest. TSOs granted may have a term of up to 10 years but must vest within 5 years of the grant date in order to avoid forfeiture. Increases in the price of the Common Stock since the respective grant dates caused the TSOs granted in 1999, 2000 and 2001 to become vested in 2002 and the TSOs granted in 2002 and 2003 to become vested in 2003 as detailed below. The vesting of the TSOs resulted in the recognition of approximately $14,908 and $11,818 of compensation expense in the years ended December 31, 2003 and 2002 respectively. The aggregate number of shares of Common Stock which may be subject to TSOs issued pursuant to the 1998 Incentive Plan may not exceed 6,000,000, subject to certain customary adjustments to prevent dilution. The following is a summary of the options under the 1998 Incentive Plan that have been awarded as of December 31, 2003:
TSO GRANT YEAR 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Exercise price $ 16.77 $ 13.58 $ 11.58 $ 9.99 $ 10.56 Threshold Vesting Stock Price $ 23.52 $ 19.04 $ 16.23 $ 14.01 $ 14.81 Fair value of options on grant date $ 1.31 $ 1.13 $ 0.74 $ 0.50 $ 0.45 Original Grant Shares 900,000 779,025 989,988 753,090 941,892 Fortefied at December 31, 2003 (56,928) (117,987) (142,011) (168,726) (281,985) Vested and exchanged for cash at December 31, 2003 (549,594) (495,693) (610,011) (438,288) (460,623) Vested and exercise at December 31, 2003 (89,964) (81,486) (166,341) (141,000) (187,218) --------- --------- --------- --------- --------- 1998 incentive Plan TSOs outstanding at December 31, 2003 203,814 83,859 71,625 5,076 12,066 ========= ========= ========= ========= =========
The fair value of each option grant for 2003, 2002 and 2001 for the 1993 Stock Incentive Plan, the 2003 Incentive Stock Plan and the 1998 Incentive Plan was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
2003 2002 2001 ---- ---- ---- Risk-free interest rate 4.28% 4.49% 4.79% Dividend yield 6.21% 6.37% 6.46% Expected life 9.9 years 7.6 years 4.6 years Expected volatility 16.95% 19.57% 19.48%
EMPLOYEE STOCK PURCHASE PLAN During 1999, General Growth established the General Growth Properties, Inc. Employee Stock Purchase Plan (the "ESPP") to assist eligible employees in acquiring a stock ownership interest in General Growth. A maximum of 1,500,000 shares of Common Stock is reserved for issuance under the ESPP. Under the ESPP, eligible employees make payroll deductions over a six-month purchase period, at which time the amounts withheld are used to purchase shares of Common Stock at a purchase price equal to 85% of the lesser of the closing price of a share on Common Stock on the first or last trading day of the purchase period. Purchases of stock under the ESPP are made on the first business day of the next month after the close of the purchase 35 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) period. As of January 2, 2004, an aggregate of 870,569 shares of Common Stock have been sold under the ESPP, including 76,055 shares for the purchase period ending December 31, 2003 which were purchased at a price of $17.98 per share. RESTRICTED STOCK In September 2002 and February 2003, certain officers were granted an aggregate of 150,000 and 105,000 shares, respectively, of restricted Common Stock pursuant to the 1993 Stock Incentive Plan. As the restricted stock represents an incentive for future periods, the compensation expense of approximately $3,245 for such restricted stock will be recognized ratably over the applicable vesting periods of the Common Stock (through September 2005 and February 2006, respectively). In addition, in February 2004, certain officers were granted an aggregate of 55,000 shares of Common Stock pursuant to the 2003 Stock Incentive Plan, subject only to a one year restriction on sale. Accordingly, the Company will recognize the full compensation cost of approximately $1,701 in the first quarter of 2004. MANAGEMENT SAVINGS PLAN The Company sponsors the General Growth Management Savings Plan and Employee Stock Ownership Plan (the "401(k) Plan") which permits all eligible employees to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Under the 401(k) Plan, the Company may make, but is not obligated to make, contributions to match the contributions of the employees. For the years ending December 31, 2003, 2002 and 2001, the Company has elected to make matching contributions of approximately $4,397, $4,196, and $3,851 respectively. NOTE 10 DISTRIBUTIONS PAYABLE On January 5, 2004, the Company declared a cash distribution of $.30 per share that was paid on January 30, 2004, to stockholders of record (2,081 owners of record) on January 15, 2004, totaling $65,193. Also on January 30, 2004, a distribution of $16,714 was paid to the limited partners of the Operating Partnership. As such declaration relating to the fourth quarter of 2003 did not occur until 2004, no amounts reflecting distributions payable to stockholders have been accrued at December 31, 2003 in the accompanying consolidated financial statements. On December 12, 2002, the Company declared a cash distribution of $0.24 per share that was paid on January 31, 2003, to stockholders of record (1,762 owners of record) on January 6, 2003, totaling $44,937. Also on January 31, 2003, a distribution of $14,080 was paid to the limited partners of the Operating Partnership. Also on December 12, 2002, the Company declared the fourth quarter 2002 preferred stock dividend, for the period from October 1, 2002 through December 31, 2002, in the amount of $0.4531 per share, payable to preferred stockholders of record on January 6, 2003 and paid on January 15, 2003. As described in Note 1, such preferred stock dividend was in the same amount as the Operating Partnership's distribution to the Company of the same date with respect to the PIERS Preferred Units held by the Company. NOTE 11 NETWORK DISCONTINUANCE COSTS During 2000 and 2001, the Company installed a broadband wiring and routing system that provides tenants at the Company's properties with the supporting equipment (the "Broadband System") to allow such tenants and mall locations to arrange high-speed cable access to the Internet. Certain of the properties acquired subsequent to July 1, 2001 do not have such an installation. Also during 2000 and 2001, the Company had also been engaged in Network Services development activities, an effort to create for retailers a suite of broadband applications to support retail tenant operations, on-line sales, and private wide area network services to be delivered by the Broadband System. The Company discontinued its Network Services development activities on June 29, 2001, as retailer demand for such services had not developed as anticipated. The discontinuance of the Network Services development activities resulted in a non-recurring, pre-tax charge to 2001 earnings of $66,000. The $66,000 charge was comprised of an 36 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) approximately $11,800 reduction in the carrying value of equipment that was intended to allow tenants access to the Network Services applications and approximately $54,200 in the write-off of capitalized Network Services development costs including approximately $9,600 in reserves for future costs and/or settlements of disputes with vendors. Reductions have subsequently been made in the Network discontinuance reserve as settlement discussions are continuing with other vendors and the Company has and will continue to reduce the Network discontinuance reserve as additional settlements are agreed to, which are currently expected to be fully settled in 2004 or 2005. The Company believes the remaining reserved amount is adequate to satisfy any remaining potential liabilities. The Company's investment in the Broadband System, which is comprised primarily of mall equipment and mall wiring, has been retained by the Company. The Company has a net carrying investment of approximately $32,800 in the Broadband System as of December 31, 2003. This net investment has been reflected in buildings and equipment and investment in Unconsolidated Real Estate Affiliates in the accompanying consolidated financial statements. NOTE 12 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 material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. The Company leases land or buildings at certain properties from third parties. The leases generally 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. All of the Company's ground leases with such third party landlords are classified as operating leases as none of the criteria that would require classification as a capital lease are present in such ground leases. Accordingly, rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Rental expense including participation rent related to these leases was $2,467, $1,642 and $664 for the years ended December 31, 2003, 2002 and 2001, respectively. From time to time 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. The following table aggregates the Company's contracted obligations and commitments subsequent to December 31, 2003: CONTRACTED OBLIGATIONS
2004 2005 2006 2007 2008 SUBSEQUENT TOTAL ---- ---- ---- ---- ---- ---------- ----- Long-term debt $ 449,439 $ 363,691 $1,230,975 $ 557,357 $1,460,849 $2,587,179 $6,649,490 Retained Debt 4,050 7,822 31,270 168,403 199 10,911 222,655 Ground leases 2,469 2,455 2,417 2,384 2,373 87,010 99,108 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 455,958 $ 373,968 $1,264,662 $ 728,144 $1,463,421 $2,685,100 $6,971,253 ========== ========== ========== ========== ========== ========== ==========
NOTE 13 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses the financial accounting and reporting for asset retirement costs and related obligations and was adopted by the Company on January 1, 2003. The Company does not believe the impact of the adoption of SFAS 143 on its current or future operations or financial results will be significant. In February 2002, the FASB announced the rescission of Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt". Generally, such rescission has the effect of suspending the treatment of debt extinguishment costs as extraordinary items. The rescission is effective for the year ended December 31, 2003. Accordingly, in the comparative 37 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) statements presented in 2003, the Company has reclassified to other interest costs approximately $1,343 and $14,022 of debt extinguishment costs recorded in 2002 and 2001, respectively, that had been classified under then current accounting standards as extraordinary items. On November 25, 2002, the FASB published Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") prescribes the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees it has issued. FIN 45 also reaffirms that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for the Company's December 31, 2002 consolidated financial statements. As the Company does not typically issue guarantees on behalf of its unconsolidated affiliates or other third-parties, the adoption of FIN 45 did not have a significant impact on the Company's financial statements or disclosures. In January 2004, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities" ("VIEs"), to improve financial reporting of special purpose and other entities. The Company has adopted FIN 46 as of December 31, 2003. Certain VIEs that are qualifying special purpose entities ("QSPEs") will not be required to be consolidated under the provisions of FIN 46. In addition, FIN 46 expands the disclosure requirements for the beneficiary of a significant or a majority of the variable interests to provide information regarding the nature, purpose and financial characteristics of the entities. The Company has certain special purpose entities, primarily created to facilitate the issuance of its commercial mortgage-backed securities (Note 5) and other securitized debt or to facilitate the tax-increment financing of certain improvements at its properties. Because these special purpose entities are QSPEs, which are exempted from consolidation, these special purpose entities are not required to be consolidated in the Company's consolidated financial statements. As the Company's Unconsolidated Real Estate Affiliates constitute businesses (as defined in FIN 46) or have operating agreements granting the independent third-party joint venturers substantive participating rights, the implementation of FIN 46 did not result in the consolidation of any previously unconsolidated affiliates. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The effective date of a portion of the Statement has been indefinitely postponed by the FASB. The Company did not enter into new financial instruments subsequent to May 2003 which would fall within the scope of this statement. No transactions, arrangements or financial instruments of the Company have been identified that appear to meet the criteria for liability recognition in accordance with paragraphs 9 and 10 under SFAS 150 due to the indefinite life of the joint venture arrangements. Accordingly, even if the effectiveness of the measurement and classification provision of these paragraphs is no longer postponed, the Company does not expect that it will be required to reclassify the liquidation amounts of such minority interests to liabilities. NOTE 14 PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Due to the impact of the acquisitions made or committed to during 2001, 2002 and 2003 as described in Note 3, historical results of operations may not be indicative of future results of operations. The pro forma condensed consolidated statement of operations for the year ended December 31, 2003 includes adjustments for the acquisitions made or committed to during 2003 as described in Notes 3 and 4 as if such transactions had occurred on January 1, 2003. 38 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) The pro forma condensed consolidated statement of operations for the year ended December 31, 2002 includes adjustments for the acquisitions made or committed to during 2003 plus the acquisitions made in 2002 (as described in Notes 3 and 4), as if such transactions had occurred on January 1, 2002. The pro forma condensed consolidated statement of operations for the year ended December 31, 2001 includes the 2003 and 2002 acquisitions described above plus the 2001 acquisitions (as described in Notes 3 and 4), as if all such transactions had occurred on January 1, 2001. The pro forma information is based upon the historical consolidated statements of operations excluding extraordinary items, cumulative effect of accounting change and income (loss) from discontinued operations and does not purport to present what actual results would have been had the acquisitions, and related transactions, in fact occurred at the previously mentioned dates, or to project results for any future period. PRO FORMA FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 2003 2002 2001 ----------- ----------- ----------- Revenues: Minimum rent $ 893,095 $ 853,271 $ 803,660 Tenant charges 426,099 408,664 389,979 Other 122,453 120,332 101,524 ----------- ----------- ----------- Total revenues 1,441,647 1,382,267 1,295,163 ----------- ----------- ----------- Expenses: Real estate taxes 104,733 97,111 96,245 Other property operating 441,430 415,315 446,455 Depreciation and amortization 260,643 244,536 229,297 ----------- ----------- ----------- Total Expenses 806,806 756,962 771,997 ----------- ----------- ----------- Operating Income 634,841 625,305 523,166 Interest expense, net (317,534) (318,992) (357,921) Income allocated to minority interests (126,470) (123,945) (84,724) Equity in income of unconsolidated affiliates 87,784 78,770 67,884 ----------- ----------- ----------- Pro forma Income from continuing operations (a) 278,621 261,138 148,405 Pro forma convertible preferred stock dividends (13,030) (24,467) (24,467) ----------- ----------- ----------- Pro forma income from continuing operations available to common stockholders (a) $ 265,591 $ 236,671 $ 123,938 =========== =========== =========== Pro forma earnings from continuing operations per share- basic (b) $ 1.33 $ 1.28 $ 0.78 Pro forma earnings from continuing operations per share- diluted (b) $ 1.31 $ 1.23 $ 0.78
(a) The pro forma adjustments include management fee and depreciation modifications and adjustments to give effect to the acquisitions activity described above and does not include extraordinary items or the 2001 cumulative effect of accounting change. (b) Pro forma basic earnings per share are based upon weighted average common shares of 200,874,295 for 2003, 186,543,849 for 2002 and 158,534,463 for 2001, presented on a post-split basis (Note 1). Pro forma diluted per share amounts are based on the weighted average common shares and the effect of dilutive securities (stock options and, for 2002 and 2003 only, PIERS) outstanding of 215,078,600 for 2003, 212,553,009 for 2002 and 158,719,647 for 2001. 39 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) NOTE 15 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED FIRST SECOND THIRD FOURTH DECEMBER 31, 2003 QUARTER QUARTER QUARTER QUARTER - ----------------- ------- ------- ------- ------- Total revenues $271,788 $282,766 $325,565 $382,672 Operating income 108,369 115,394 142,740 181,799 Income from continuing operations 47,199 49,969 60,055 98,340 Income from discontinued operations 4,389 1,034 1,378 1,047 Net income available to common stockholders 45,511 44,050 61,433 99,387 Earnings from continuing operations- basic (b) 0.22 0.23 0.28 0.45 Earnings from continuing operations- diluted (b) 0.22 0.23 0.28 0.45 Earnings from discontinued operations- basic (b) 0.02 - 0.01 0.01 Earnings from discontinued operations- diluted (b) 0.02 - - 0.01 Earnings per share-basic (a) (b) 0.24 0.23 0.29 0.46 Earnings per share-diluted (a) (b) 0.24 0.23 0.28 0.46 Distributions declared per share (b) $0.24 $0.24 $0.00 $0.30 Weighted average shares outstanding (in thousands)-basic (b) 187,785 188,623 210,889 215,785 Weighted average shares outstanding (in thousands)-diluted (b) 213,696 189,386 215,264 216,790
YEAR ENDED FIRST SECOND THIRD FOURTH DECEMBER 31, 2002 QUARTER QUARTER QUARTER QUARTER - ----------------- ------- ------- ------- ------- Total revenues $203,137 $209,619 $255,845 $304,839 Operating income 85,005 88,784 115,114 138,576 Income from continuing operations 37,212 40,378 49,725 79,436 Income from discontinued operations 323 435 859 890 Net income available to common stockholders 31,418 34,696 44,467 74,210 Earnings from continuing operations- basic (b) 0.17 0.18 0.23 0.40 Earnings from continuing operations- diluted (b) 0.17 0.18 0.23 0.38 Earnings from discontinued operations- basic (b) - - 0.01 - Earnings from discontinued operations- diluted (b) - - 0.01 - Earnings (loss) per share-basic (a) (b) 0.17 0.18 0.24 0.40
40 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share amounts) Earnings (loss) per share-diluted (a) (b) 0.17 0.18 0.24 0.38 Distributions declared per share (b) $0.22 $0.22 $0.24 $0.24 Weighted average shares Outstanding (in thousands)-basic (b) 185,936 186,411 186,732 187,082 Weighted average shares Outstanding (in thousands)-diluted (b) 186,311 186,879 187,272 213,256
(a) Earnings (loss) per share for the four quarters do not add up to the annual earnings per share due to the issuance of additional stock during the year. (b) Due to the three-for-one stock split effective December 5, 2003, all share and per share amounts have been reflected on a post-split basis. NOTE 16 SUBSEQUENT EVENT In August 2004, the Company's Board of Directors approved plans to dispose of the industrial properties originally acquired in the JP Realty acquisition in July 2002. The sales closed on November 1, 2004 and a gain of approximately $11,000 was recognized. 41 -----END PRIVACY-ENHANCED MESSAGE-----