-----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, FxdwDLzaM6AK/8EmAk6VdzX8MHLQ18PLzOyFVCoXXS+Pt2B3j11VTzzxV+fMWPje 4No0HTNTGT1bMIhWcIH2Fw== 0000950137-98-000141.txt : 19980119 0000950137-98-000141.hdr.sgml : 19980119 ACCESSION NUMBER: 0000950137-98-000141 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19980116 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL GROWTH PROPERTIES INC CENTRAL INDEX KEY: 0000895648 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 421283895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-11656 FILM NUMBER: 98508331 BUSINESS ADDRESS: STREET 1: 55 WEST MONROE ST STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3125515000 MAIL ADDRESS: STREET 1: 55 WEST MONROE ST STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60603 10-K/A 1 FORM 10K AMENDED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---------------------- --------------------- COMMISSION FILE NUMBER 1-11656 GENERAL GROWTH PROPERTIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 42-1283895 - ------------------------------- ---------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 55 W. MONROE - SUITE 3100 CHICAGO, ILLINOIS 60603 - --------------------------------------- ------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 551-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ---------------------------- ----------------------------------------- COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- / / Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 25, 1997, the aggregate market value of the 27,798,947 shares of Common Stock held by non-affiliates of the registrant was $854,817,620 based upon the closing price on the New York Stock Exchange composite tape on such date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) As of March 25, 1997, there were 30,789,185 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual stockholders meeting to be held on May 15, 1997 are incorporated by reference into Part III. 2 PART I ITEM 1. BUSINESS GENERAL General Growth Properties, Inc. (the "Company") was formed in 1986 by Martin Bucksbaum and Matthew Bucksbaum. On April 15, 1993, an initial public offering (the "IPO") of the common stock (the "Common Stock") of the Company and certain related transactions were completed. During May 1995, the Company completed a follow-on stock offering of 4,500,000 shares of Common Stock. In connection with the IPO, the Company and Messrs. Bucksbaum, members of their family and trusts for the benefit of them and their families (collectively, the "Bucksbaums") formed GGP Limited Partnership (the "Operating Partnership"). As a result of the IPO and related transactions, the Company and the Operating Partnership owned 1% and 99%, respectively, of eighteen property partnerships, each of which owned an enclosed mall shopping center. The Operating Partnership also owned 100% of three additional shopping centers. At December 31, 1996, the Company together with the Operating Partnership owned 100% of thirty enclosed regional shopping centers (the "Original Centers") and 50% of Quail Springs, 38.2% of the stock of GGP/Homart, Inc., 15.4% of the stock of CenterMark Properties Inc., and a non-voting preferred stock interest in General Growth Management, Inc. ("GGMI"). Currently, the Company owns a 63% general partnership interest in the Operating Partnership, and various minority interests, primarily the Bucksbaums, own the remaining 37% limited partnership interest. The Company, as general partner of the Operating Partnership, is engaged in the ownership, operation, management, leasing, acquisition, development, expansion and financing of enclosed mall shopping centers. See the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K for certain financial information required by this Item 1. On February 11, 1994, the Company, through the Operating Partnership, acquired 40% of the outstanding stock of CenterMark Properties, Inc. ("CenterMark"). CenterMark owned interests in sixteen enclosed regional shopping centers and three power centers (collectively, the "CenterMark Centers") and other real estate, including fourteen free-standing department stores net leased to May Company and a 116-unit apartment project in LaJolla, California. On December 19, 1995, the Company sold 25% of its 40% interest in CenterMark for $72.5 million and granted the buyer an option to purchase its remaining interest. On June 28, 1996, the option was exercised by the buyer to purchase the remaining interest in two transactions. See "Recent Developments - CenterMark Acquisition and Disposition" below. On December 22, 1995 the Company, through the Operating Partnership's ownership of stock in GGP/Homart, Inc. ("GGP/Homart") acquired a 38.2% interest in substantially all of the regional mall assets and liabilities that were owned by Homart Development Co., an indirect wholly-owned subsidiary of Sears, Roebuck & Co. GGP/Homart currently owns interests in twenty-six shopping centers (the "Homart Centers") and one property under development. Together, the Original Centers, the CenterMark Centers and the Homart Centers comprise the Operating Partnership portfolio ("the "Portfolio Centers"). During 1996, the Operating Partnership, acting through GGP Management, Inc., acquired General Growth Management, Inc. ("GGMI"). GGMI is an affiliate of the Company and is currently the largest third party owned regional mall management company in the United States. See "Acquisition of GGMI" below. RECENT DEVELOPMENTS CENTERMARK ACQUISITION AND DISPOSITION On February 11, 1994, the Company, through the Operating Partnership, together with Westfield U.S. Investments Pty. Limited ("Westfield") and five real estate investment funds sponsored by Goldman Sachs & Co. acquired all of the outstanding stock of CenterMark (the "CenterMark Stock") for approximately $1 billion (including both assumption of existing and new mortgage indebtedness aggregating approximately $542 million). On December 19, 1995, the Company sold 25% of its 40% interest in CenterMark to Westfield for $72.5 million, and also granted Westfield an option which was exercisable on or before September 30, 1996, to purchase its remaining CenterMark stock for $217.5 million. On June 28, 1996, Westfield exercised its option to acquire the remaining 30% of the outstanding CenterMark Stock. The first payment of $87 million was received on July 1, 1996, and the second payment of $130.5 million was received on January 2, 1997. The aggregate financial statement gain from the sale transactions approximated $143 million. -2- 3 HOMART REGIONAL MALL PORTFOLIO ACQUISITION On December 22, 1995, the Company through the Operating Partnership, jointly with four other investors formed GGP/Homart to acquire Homart Development Company from Sears, Roebuck & Co. The Company acquired 38.2% of the stock of GGP/Homart for approximately $179 million including certain transaction costs. The Company also committed to invest up to an additional $30.6 million to fund new projects as well as certain redevelopment costs. As of December 31, 1996, the Company had contributed $17.2 million of the additional equity. On January 21, 1997, an additional $5.7 million of capital was contributed to GGP/Homart by the Company. GGP/Homart holds interests in twenty-six regional shopping malls and one property currently under development in Waterbury, Connecticut. On October 2, 1996, GGP/Homart opened West Oaks Mall, a new development, located in Ocoee, (Orlando) Florida. The Company obtained a $125 million interim loan to facilitate the acquisition of its interest in GGP/Homart. On January 31, 1996, the interim loan was reduced to $75 million with $50 million of excess proceeds from a $340 million refinancing. The remaining $75 million was repaid in July, 1996, with the proceeds from the sale of the Company's interest in CenterMark. PROPERTY ACQUISITIONS AND DEVELOPMENTS ACQUISITIONS During the fourth quarter of 1996, the Company acquired 100% ownership in five properties, Park Mall, Sooner Fashion Mall, Lakeview Square, Lansing Mall and Westwood Mall, and a 50% interest in Quail Springs Mall. Park Mall in Tucson, Arizona was acquired on October 4, 1996, for 1,000,000 shares of newly issued common stock and $24 million in cash. Sooner Fashion Mall and 50% of Quail Springs Mall, in Norman and Oklahoma City, Oklahoma, respectively, were acquired on November 27, 1996, for 895,928 newly issued common shares, the assumption of $8.6 million of mortgage debt and the payment of $16.7 million in cash. On December 6, 1996, the Company acquired Lakeview Square, Lansing Mall and Westwood Mall, all located in south central Michigan, for an aggregate purchase price of $132.2 million which consisted of $92.4 million of mortgage debt assumption ($4.4 million of which was retired at closing) and 1,445,000 newly issued Operating Partnership Units. DEVELOPMENTS During 1996, the Company acquired two new development sites located in Iowa City, Iowa and Grand Rapids, Michigan. The Iowa City site is currently under development and is scheduled to open in July 1998. In February of 1996, the Company opened Eagle Ridge Mall in Winterhaven, Florida, which had previously been under development. ACQUISITION OF GGMI On December 22, 1995, GGP Management, Inc. was formed to manage, lease, develop and operate enclosed malls. The Operating Partnership owned 100% of the non-voting preferred stock ownership interest in GGP Management, Inc. representing 95% of the equity interest. Key employees of the Company held the remaining 5% ownership interest therein, which interest was in the form of common stock which was entitled to all of the voting rights in GGP Management, Inc. In August of 1996, GGP Management, Inc. acquired General Growth Management, Inc. ("GGMI") through arm's length negotiations for approximately $51,500, which was accounted for as a purchase, by completing the following steps: GGP Management, Inc. borrowed approximately $39,900 from the Operating Partnership, and used the loan proceeds to acquire 1,555,855 newly-issued common shares of the Company from the Company. GGP Management, Inc. then exchanged the 1,555,855 common shares and 453,791 Operating Partnership Units (contributed by the Operating Partnership) for 100% of the outstanding shares in GGMI. GGP Management, Inc. was then merged into GGMI with GGMI as the surviving entity. The Operating Partnership currently holds all of the non-voting preferred stock ownership interest in GGMI representing 95% of the equity interest. Five key employees of the Company hold the remaining 5% equity interest through ownership of 100% of the common stock which is entitled to all voting rights in GGMI. None of these individuals previously held any ownership interest in GGMI, except for Robert Michaels. Mr. Michaels through an ESOP owned less than 1% of the stock of GGMI immediately prior to its acquisition by GGP Management, Inc. Immediately prior to and immediately following the merger of GGMI with GGP Management, Inc., Mr. Michaels held none of the Company's outstanding Common Stock. GGMI can not distribute funds until its available cash flow exceeds all accumulated preferred dividends owed to the preferred stockholders. Any dividends in excess of the preferred cumulative dividend are allocated 95% to the preferred stockholders and 5% to the common stockholders. The interest only loan from the Operating Partnership to GGMI bears interest at 14% and matures in 2016. GGMI may make principal payments on the loan if it has sufficient cash flow. GGMI manages, leases, and performs various other services for the Original Centers, GGP/Homart and other properties owned by unaffiliated parties. THE SHOPPING CENTER BUSINESS Success in the highly competitive real estate shopping center business depends upon many factors, including general economic conditions, increases or decreases in operating expenses and interest rates, changes in demographics, and competitive pressures. The Portfolio Centers compete with numerous shopping alternatives in seeking to attract retailers to lease space as retailers themselves face increasing competition from discount shopping centers, outlet malls, discount shopping clubs, direct mail and telemarketing. Below are detailed descriptions of the type of competitor the Portfolio Centers face. Fox River Mall is an enclosed super regional mall located in Appleton, Wisconsin. It consists of the main building, an adjacent community center and nine outparcels totalling 1,090,016 square feet. The mall is anchored by Dayton's, Younkers, JCPenney, Sears and Target. The primary competition for Fox River consists of three centers. One of the centers, located 26 miles northeast, consists of 601,630 square feet and is anchored by Elder Beerman, Kohl's, Montgomery Ward and Shopko. This center offers merchandise with lower price points and more discount retailers than Fox River Mall. A 903,538 square foot center located 29 miles northeast is anchored by Boston Store, JCPenney and Younkers. This center lacks a fashion anchor similar to the Dayton's at Fox River and is not easily accessible in its downtown location. In addition, a 328,775 square foot community center located approximately three miles from Fox River is anchored by Kohl's and Shopko. This center primarily serves as a convenience shopping facility for residents on the north side of Appleton and offers little direct competition to Fox River. Bellis Fair is a 764,124 square foot regional shopping center located on Interstate 5 in Bellingham, Washington, 90 miles north of Seattle and 25 miles south of the Canadian border. The Mall is anchored by JCPenney, Bon Marche, Sears, Target and Mervyns. The primary competition for Bellis Fair consists of discount retailers. While these discount retailers help draw Canadian shoppers they in turn attract shoppers to Bellis Fair due to its stronger, fashion oriented tenant mix. The discount retailers that compete with Bellis Fair include Ross Dress for Less, Home Base, Office Depot, Good Guys, Circuit City and Wal-Mart. Other competition includes a 110,000 square foot center located 15 miles north that also helps draw Canadian shoppers. Located approximately 25 miles south is a 525,000 square foot center anchored by Bon Marche, Sears and Emporium. This center lacks the desirable national tenant mix available at Bellis Fair. As a whole, these outlet centers have little impact on Bellis Fair's core market. Natick Mall is a 1,138,252 square foot regional mall located in Boston, Massachusetts. The mall is anchored by Filene's, Macy's, Lord & Taylor, Jordan Marsh and Sears. Natick Mall is situated in a highly competitive market of regional malls, yet the center's excellent location makes it the dominant retail facility in the trade area. The primary competition for Natick Mall consists of an upscale 444,000 square foot specialty retail center with an adjacent 300,000 square foot center. The specialty center is anchored by Bloomingdales Homestore and Filenes. The 300,000 square foot adjacent center is anchored by Henri Bendel. These centers offer unique upscale merchants with a much smaller number of tenants and a more limited fashion mix than is offered at Natick. A 1,250,000 square foot center located approximately 22 miles north is anchored by Sears, Lord & Taylor, Filene's and Macy's. A 1988 renovation to this center, which included the addition of a second level of mall shops, has secured its strong competitive position in the northwest suburban Boston community, yet its market demographics remain weaker than Natick's. A new 1,100,000 square foot center located approximately 20 miles west is anchored by Sears, JCPenney and Filenes. This center offers a more moderately priced tenant mix and is also located in a weaker demographic area than Natick's market area. In addition, a 1,370,000 square foot center is located 25 miles southeast and is anchored by Sears, Filene's, Lord Taylor and Macy's. This center contains similar tenants to and the same anchors as Natick. Because of its good location and tenant mix, it poses the most direct competition to Natick Mall. In addition to competition from other centers which the Company's centers face, other companies, catalogues, direct mail and telemarketers also pose direct competition to the Company's Centers. Management believes that the shopping center business is evolving from having primarily a development-orientation to one which has more of a operations-oriention. This evolution necessitates the implementation of new approaches to shopping center management and -3- 4 leasing. Management's strategies include the integration of mass merchandise retailers with traditional department stores, specialty leasing, entertainment-oriented tenants, proactive property management and leasing, strategic expansions and acquisitions, and selective new shopping center developments. These approaches should enable the Company to operate and grow successfully in today's value-oriented environment. Most of the Original Centers are strategically located nationwide in middle markets where they have strong competitive positions. The Original Centers' geographic diversification should mitigate the effects of regional economic conditions and local factors. The CenterMark Centers and the Homart Centers are primarily concentrated in areas not served by the Original Centers. In addition, most of the CenterMark Centers and Homart Centers are located in major markets which further diversify the Portfolio Centers in terms of geographic region and market type of the Company's enclosed mall shopping centers. As used herein, the term "GLA" refers to gross retail space, including anchors and mall tenant areas; the term "Mall GLA" refers to gross retail space, excluding anchors; the term "Anchor" refers to a department store or other large retail store; the term "Mall Stores" refers to stores (other than anchors) that are typically specialty retailers who lease space in shopping centers; and the term "Freestanding GLA" means gross leasable area of freestanding retail stores or convenience stores located along the perimeter of a center's parking area. BUSINESS OF THE COMPANY The Company, as general partner of the Operating Partnership, is engaged in the ownership, operation, management, leasing, acquisition, development, expansion and financing of enclosed mall shopping centers (the "Portfolio Centers"). The Portfolio Centers currently consist of thirty-one Original Centers, twenty-six Homart Centers located in fifteen states and through January 2, 1997, the nineteen CenterMark centers located in eight states. Thirty-two of the fifty-seven Original Centers and Homart Centers have been expanded, renovated or developed since 1990 and several other centers are currently being redeveloped and/or expanded. In addition, over $350 million was spent by the former owners of the CenterMark Centers from 1989 to 1993 to modernize, redevelop, expand and remerchandise many of the properties. The Company is the asset manager of the Original Centers, making all key strategic decisions. It retains final authority over all operating matters and supervises GGMI, the property manager of the Original Centers. GGMI performs day-to-day property management functions including leasing, construction management, data processing, maintenance, accounting, marketing, promotion and security at the Original Centers pursuant to the management agreement. The Company, along with its stockholders in GGP/Homart, makes all key strategic decisions for the Homart Centers. The Company is the asset manager of the Homart Centers, executing the strategic plans and overseeing the day-to-day activites performed by GGMI. GGMI is currently the property manager for twenty-one of the Homart Centers, and the joint venture partners manage the other five Homart Centers. The goal for each Portfolio Center is to maximize the sales of their retail tenants, thereby increasing both the potential to receive both percentage rents from existing tenants and higher minimum rents from new tenants. Management believes that sales will be maximized by maintaining a quality relationship with retailers, generating high customer traffic and incorporating new strategies such as the use of entertainment tenants, theaters, ice rinks and museums. Company management believes that per share growth in its "Funds from Operations", which is defined as net income (loss) before non-cash expenses and certain gains or losses on sales and investments, is the key factor in enhancing stockholder value. It is management's objective to achieve growth in Funds from Operations through development of new shopping centers, acquisition of additional shopping centers, expansions, renovations, leasing vacant space, and proactive management to increase cash flow in the exisiting Portfolio Centers. Funds from Operations can also be affected by external factors, such as inflation or increases in disposable consumer income. ORIGINAL CENTERS BUSINESS The Original Centers consisted of thirty-one enclosed mall shopping centers as of December 31, 1996. The Original Centers are located throughout the United States with a concentration in the Midwest. A detailed listing on page 11 includes the center, location, year opened, square footage and anchors. On December 31, 1996, the Original Centers contained approximately 21 million square feet of total GLA, and approximately 10 million square feet of mall stores. As of such date, there were approximately 121 anchors and more than 2,300 mall stores. CENTERMARK'S BUSINESS CenterMark is engaged in owning, operating, managing, leasing, expanding and redeveloping regional shopping centers and power centers and other related properties. CenterMark currently owns interests in the nineteen CenterMark Centers, fourteen separate department store properties net leased to The May Company and certain other real estate investments. The CenterMark Centers are located primarily in major metropolitan areas, including suburbs of Los Angeles and San Diego, California; Hartford, Connecticut; Portland, Oregon; St. Louis, Missouri; and Washington D.C. The -4- 5 CenterMark Centers contain approximately 15.8 million square feet of total GLA, including approximately 60 Anchors operating under 17 trade names and more than 1,800 Mall Stores operating under approximately 960 trade names. GGP/HOMART'S BUSINESS GGP/Homart is primarily engaged in owning, operating, expanding and redeveloping regional shopping centers. GGP/Homart currently owns interests in twenty-six existing centers and one center under construction in Waterbury, Connecticut. The Homart Centers are located primarily in major metropolitan areas, including suburbs of San Diego and San Francisco, California; Phoenix, Arizona; Houston and Dallas - Fort Worth, Texas; Philadelphia, Pennsylvania; Miami/Ft. Lauderdale, Florida; and Washington, D.C. The Homart Centers contain approximately 22.7 million square feet of total GLA and approximately 7.9 million square feet of Mall Stores. There are approximately 109 Anchors and more than 2,500 Mall Stores in the Homart Centers. As of December 31, 1996, GGP/Homart owned 100% of sixteen Homart Centers and varying percentages of the other eleven Homart Centers. THE PORTFOLIO CENTERS The Portfolio Centers consist of seventy five properties, including one center that is partially owned by both GGP/Homart and CenterMark. Sixty-one of the seventy-five Portfolio Centers are enclosed mall shopping centers with at least two major department stores as Anchors and a wide variety of smaller Mall Stores. At most of the Portfolio Centers, additional Freestanding Stores are located along the perimeter of the parking area. Each Portfolio Center provides ample surface parking for shoppers. The Portfolio Centers: - range in size between approximately 340,000 and 1,373,000 square feet of total GLA and between approximately 125,000 and 530,000 square feet of Mall and Freestanding GLA. The smallest Portfolio Center has approximately 40 stores, and the largest has over 175 stores; - have approximately 287 Anchors, operating under approximately 64 trade names; and - have approximately 7,000 Mall and Freestanding Stores. The average size of the 75 Portfolio Centers is approximately 795,000 square feet of GLA, including all Anchors, Mall Stores and Freestanding Stores. The average Mall and Freestanding GLA per Portfolio Center is approximately 310,000 square feet. As of December 31, 1996, the Original Centers contain approximately 20.9 million square feet of GLA consisting of Anchors (whether owned or leased), Mall Stores and Freestanding Stores. The CenterMark Centers and the Homart Centers contain GLA of approximately 15.8 million square feet and 22.7 million square feet, respectively. The Company's share of total revenues from the Portfolio Centers and GGMI increased from $229.1 million in 1995 to $363.4 million in 1996. No single Portfolio Center generated more than 8% of the Company's total 1996 pro rata revenues. In 1996, total Mall Store sales at all of the Portfolio Centers increased by approximately 4.7%. The Portfolio Centers weighted average Mall Store rent per square foot from leases that expired in 1996 was $18.79. As a result of market rents being higher than the rents under many of the expiring leases, the weighted average Mall Store rent per square foot on new and renewal leases during 1996 was $23.71, or $4.92 per square foot more than the above-indicated average for expiring leases. Total mortgage debt on the Original Centers including 50% of Quail Springs' debt at December 31, 1996 was approximately $1,177.1 million. Of this amount, $401.7 million was variable rate debt, and the remaining $775.4 million was fixed rate debt. The weighted average interest rate on the Company's debt was approximately 7.18% as of December 31, 1996. The Company's share of mortgage debt on the Homart Centers (38.2% of the debt on centers owned entirely by GGP/Homart and 38.2% of GGP/Homart's share of debt on joint venture properties) was approximately $324.4 million at December 31, 1996. $110.4 million was variable rate debt, and $214.0 million was fixed rate debt. The weighted average interest rate of the Company's share of debt attributable to the Homart Centers was approximately 7.51% as of December 31, 1996. The Company's pro rata share of total consolidated -5- 6 debt was $1,501.5 million as of December 31, 1996, and its weighted average interest rate was approximately 7.25%. In most cases, the land underlying the Portfolio Centers is owned in fee; however, in five of the Original Centers, all or part of the underlying land is owned by a third party that leases the land pursuant to a ground lease. The Company leases the land under Knollwood Mall and Rio West Mall. It also leases a portion of the Fallbrook Mall land and a portion of the SouthShore and Bayshore parking areas. The leases contain various purchase options in favor of the Company and typically provide for a right of first refusal in favor of the Company in the event of a proposed sale of the property by the Landlord. In addition, Prince Kuhio Plaza, one of the Homart Centers, is located on land leased pursuant to a long-term ground lease. ANCHORS Anchors have traditionally been a major factor in the public's image of an enclosed shopping center. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Anchors either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rates that are generally lower than the rents charged to Mall Store tenants. Although the Portfolio Centers receive a smaller percentage of their operating income from Anchors than from Mall Stores, strong Anchors play an important part in maintaining customer traffic and making the Portfolio Centers desirable locations for Mall Store tenants. Anchors accounted for approximately 6% of the Portfolio Centers' pro rata consolidated minimum rent during 1996. The following table indicates the parent company of each Anchor and sets forth the number of stores and square feet owned or leased by each Anchor at the Original Centers and the Homart Centers as of December 31, 1996. -6- 7 GENERAL GROWTH PROPERTIES, INC. PORTFOLIO ANCHORS(1) As of December 31, 1996
Total Square Feet Name Stores (000's) - ----------------------------------------------------------- ------ ----------- Sears 47 5,648 JCPenney 45 4,181 Dayton Hudson Daytons 2 269 Hudsons 3 304 Mervyns 18 1,482 Target 14 1,455 ----- ------- Sub-Total Dayton Hudson 37 3,510 ----- ------- Dillards 24 3,580 May Department Stores Company Filenes 4 682 Filenes Home Store 1 36 Foleys 6 1,064 Lord & Taylor 3 335 Robinsons-May 3 497 ----- ------- Sub-Total May Department Stores Company 17 2,614 ----- ------- Proffitt's Younkers 4 355 Herbergers 1 71 Parisian 1 95 ----- ------- Sub-Total Proffitt's 6 521 ----- ------- Federated Department Stores Burdines 2 283 Lazarus 1 50 Macys 6 1,030 Richs 1 240 The Bon Marche 1 100 ----- ------- Sub-Total Federated Department Stores 11 1,703 ----- ------- Montgomery Ward & Co. Montgomery Ward 5 617 Lechmere 1 69 ----- ------- Sub-Total Montgomery Ward & Co. 6 686 ----- ------- Harcourt General Neiman-Marcus 1 132 Mercantile Stores Bacons 1 187 Castner Knott 1 101 Gayfer's 1 213 Joslins 1 171 JB White 1 181 ----- ------- Sub-Total Mercantile Stores 5 853 ----- ------- Kohls 2 177 TJ Maxx 2 76 Burlington Coat Factory 1 101 KMart 4 357 Wal-Mart 2 197 All About Sports 1 335 Elder-Beerman 2 142 Emporium 1 50 Gottschalks 1 173 Hills Department Store 2 175 Ross Dress For Less 3 96 Service Merchandise 1 34 Bealls 2 47 Belk 1 122 Belk-Lindsey 1 82 Belk Men's 1 34 Boscov 1 185 Dicks Sporting Goods 1 80 Harris 1 150 Jordan Marsh 1 210 Liberty House 1 50 Oshman's Sporting Goods 1 64 Saks Fifth Avenue 1 120 Scheels All Sports 1 50 Steinbachs 1 55 Strawbridge & Clothier 1 218 The Bon Ton 1 82 Toys R Us 1 47 Woolworth(1) 1 50
(1) Excludes the CenterMark Portfolio. 7 8 MALL AND FREESTANDING STORES The Portfolio Centers have an aggregate of approximately 7,000 Mall and Freestanding Stores. As of December 31, 1996, national or regional chains leased approximately 91% of the space occupied in the Portfolio Centers consisting of Mall Stores and Freestanding Stores. The following table reflects the tenant representation by category in the Original Centers as of December 31, 1996. Management believes that similar tenant representation by category existed in the Portfolio Centers as of December 31, 1996.
- -------------------------------------------------------------------------------------------------------------------------------- % OF SQ. FT. IN TENANT CATEGORIES ORIGINAL CENTERS TYPES OF TENANTS/PRODUCTS SOLD - -------------------------------------------------------------------------------------------------------------------------------- Women's Apparel 21% Women's apparel - -------------------------------------------------------------------------------------------------------------------------------- Men's Apparel 2% Men's apparel - -------------------------------------------------------------------------------------------------------------------------------- Apparel 13% Unisex apparel, children's apparel, lingerie, formalwear - -------------------------------------------------------------------------------------------------------------------------------- Shoes 11% Shoes - -------------------------------------------------------------------------------------------------------------------------------- Specialty Food 2% Candy, coffee, nuts, chocolate, health food/vitamins - -------------------------------------------------------------------------------------------------------------------------------- Food 9% Restaurant, food court - -------------------------------------------------------------------------------------------------------------------------------- Gifts 7% Cards, candles, engraving stores other gift or novelty - -------------------------------------------------------------------------------------------------------------------------------- Jewelry 3% Fine jewelry and costume jewelry - -------------------------------------------------------------------------------------------------------------------------------- Music/Electronics 7% Music, electronics, computer and software, video rental - -------------------------------------------------------------------------------------------------------------------------------- Specialty 24% Photo studios and development, beauty and nail salons, pharmacy and sundries, variety stores, pet stores, newsstands, jewelry repair, shoe repair, tailor, optical, video games, sporting goods, shops for home/bath/kitchen, rugs, fabric stores, beds/waterbeds, luggage, perfume, tobacco, toys, cameras, sunglasses, books - -------------------------------------------------------------------------------------------------------------------------------- Total 100% - --------------------------------------------------------------------------------------------------------------------------------
Typical tenants in Women's Apparel include The Limited, Casual Corner, Talbots and Lerner. Men's Apparel includes tenants such as J Riggings and Nicks for Men. The Apparel category typically includes Gap, Eddie Bauer, American Eagle, Buckle, Victoria's Secret and Gymboree. The Shoes category often includes tenants such as Kinney, Footlocker and Payless Shoesource. Specialty Food tenants often include General Nutrition Center, Mr. Bulky, and Barnie's Coffee and Tea Company. The Food category typically includes restaurants such as Garfield's, fast food restaurants such as Arby's, and food court tenants such as Sbarro. Typical tenants in the Gifts Category include Disney, Things Remembered, Kirlin's Hallmark, and Spencer. Jewelry tenants typically include Friedman's Jewelers and Golden Chain Gang. The Music/Electronics category includes tenants such as Camelot Music, Radio Shack, Suncoast Pictures, and Waldensoftware. Specialty tenants include Mastercuts, One Hour Photo, California Nails, Lechter's, Kay-Bee Toys, Dollar Tree, Lemstone Books, Garden Botanika and many others. The table below shows the mall shop tenants (excluding department stores) in the Original Centers with more than 50,000 total square feet on December 31, 1996. Management believes that similar square footage percentages existed in the Portfolio Centers as of December 31, 1996.
- -------------------------------------------------------------- TOTAL TENANT NAME SQ. FT. % OF TOTAL - -------------------------------------------------------------- LANE BRYANT 151,329 2.3% VICTORIA'S SECRET 127,936 2.0% PAYLESS SHOESOURCE/PAYLESS KID 117,550 1.8% LERNER NEW YORK 101,905 1.6% FOOT LOCKER 92,859 1.4% MAURICES 90,567 1.4% RADIO SHACK 87,499 1.3% DEB 86,751 1.3% DISC JOCKEY/REEL COLLECTIONS 86,128 1.3% KAY-BEE TOYS STORES 84,205 1.3% WALDENBOOKS/WALDENKIDS 82,374 1.3% FAMOUS FOOTWEAR 81,777 1.2% CHAMPS 69,905 1.1% AMERICAN EAGLE OUTFITTERS 61,882 0.9% BUCKLE, THE 60,465 0.9% B DALTON BOOKSELLERS 60,385 0.9% FOOTACTION/FOOTACTION FOR KIDS 56,823 0.9% CASUAL CORNER 54,856 0.8% LIMITED EXPRESS 54,212 0.8% LENSCRAFTERS 52,501 0.8% GENERAL NUTRITION CENTER 50,467 0.8% - --------------------------------------------------------------
The Portfolio Centers derived approximately 92% of their 1996 revenues from Mall and Freestanding Stores, which comprise approximately 40% of the Portfolio Centers' total GLA. No single retailer accounted for more than 8% of leased Mall and Freestanding GLA or more than 8% of the 1996 annualized base rent. EXPANSIONS AND RENOVATIONS Most of the Portfolio Centers were designed to allow for expansion and growth through the addition of new Anchors or Mall and Freestanding Stores. Six Original Centers and five Homart Centers are in the process of an expansion, Anchor addition or renovation. The expansion and renovation of a Portfolio Center often increases customer traffic, trade area penetration and typically improves the competitive position of the property. Two of the larger renovation and expansion projects are the renovation and expansion of Chapel Hills Mall and the expansion of Fox River Mall. Chapel Hills, a 957,251 square foot center located in Colorado Springs, Colorado, is currently undergoing the addition of a three level 203,000 square foot Dillards department store and adjoining parking deck. The project is scheduled to be completed and open in the first quarter of 1997. The Company will begin a renovation that will include the addition of an Ice Rink, a two-level Borders Book Store, a food court expansion, new skylights, new ceilings, hand rails, remodeled restrooms and flooring upgrades. The ice rink is slated to open in June 1998, and the renovation is expected to be completed in late 1998. Fox River, a 1,090,016 square foot center, located in Appleton, Wisconsin is beginning preparation for an expansion of its food court. The 35,000 square foot project will include a 7,300 square foot restaurant/brew pub, eight new permanent food court locations and an additional 300 seats, bringing the total seating capacity to 850 seats. The modifications should be substantially complete by the end of 1997. ACQUISITIONS The Company continues to seek desirable properties for acquisition. In 1996, the Company also acquired interests in six other properties for approximately $230 million. The Company's management believes that it, together with the Operating Partnership, have the following competitive advantages and reasons to acquire enclosed shopping malls: - The funds necessary for a cash acquisition of a shopping center can be obtained by the Company and the Operating Partnership from a combination of sources, including mortgage or unsecured financing or the issuance of public debt or equity. - The Company and the Operating Partnership have the flexibility to pay for an acquisition with a combination of cash, Common Stock or limited partnership units in the Operating Partnership. This creates the opportunity for tax-advantaged transactions for sellers. - Management's expertise allows it to evaluate proposed acquisitions for their increased profit potential. Additional profit can originate from many sources including expansions, remodeling, remerchandising, and more efficient management of the property. 8 9 DEVELOPMENT The Company, through the Operating Partnership, intends to pursue development when warranted by the potential financial returns. During 1996, the Company acquired 100% of two new development sites located in Iowa City, Iowa and Grand Rapids, Michigan. The Company and its affiliates are currently developing an enclosed shopping center in Waterbury, Connecticut and completing predevelopment work on the site recently acquired in Iowa City, Iowa. Coral Ridge Mall, a 1,000,000 square foot enclosed regional mall located in Iowa City, Iowa, is scheduled to open in the summer of 1998. Brass Mill, a GGP/Homart project includes a 950,000 square foot enclosed mall and a 200,000 square foot power center in Waterbury, Connecticut. The mall currently has a total of 130,180 square feet signed or out for signature. Sears, JCPenney, Lechmere and Filenes have executed leases in conjunction with the development of the enclosed mall. The power center, Brass Mills Commons has 109,000 square feet executed or out for signature including Barnes & Noble and Kids 'R Us. As of December 31, 1996, $50 million has been incurred in the construction of the mall and power center. The Grand Opening is scheduled for September 17, 1997. ENVIRONMENTAL MATTERS Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with its ownership and operation of the Portfolio Centers, the Company, the Operating Partnership or the relevant Property Partnership, may be potentially liable for such costs. All of the Portfolio Centers have been subject to Phase I environmental assessments, which are intended to discover information regarding, and to evaluate the environmental condition of, the surveyed and surrounding properties. The Phase I assessments included an historical review, a public records review, a preliminary investigation of the site and surrounding properties, screening for the presence of asbestos, polychlorinated biphenyls ("PCBs") and underground storage tanks and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations. Where the Phase I assessment so recommended, a Phase II assessment was conducted to further investigate any issues raised by the Phase I assessment. In each case where Phase I and/or Phase II assessments resulted in specific recommendations for remedial actions, management has either taken or scheduled the recommended action. Neither the Phase I nor the Phase II assessments have revealed any environmental liability that the Company believes would have a material effect on the Company's business, assets or results of operations, nor is the Company aware of any such liability. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Portfolio Centers will not be affected by tenants and occupants of the Portfolio Centers, by the condition of properties in the vicinity of the Portfolio Centers (such as the presence of underground storage tanks) or by third parties unrelated to the Operating Partnership or the Company. EMPLOYEES As of March 25, 1997, the Company and GGMI had approximately 3,000 full-time employees. None of the employees are subject to a collective bargaining agreement and the Company has not experienced a labor-related work stoppage. QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST AND TAXABILITY OF DISTRIBUTIONS The Company currently qualifies as a real estate investment trust pursuant to the requirements contained under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the "Code"). If, as the Company contemplates, such qualification continues, the Company will not be taxed on its real estate investment trust taxable income. During 1996, the Company distributed (or was deemed to have distributed) 100% of its taxable income to stockholders. Cash distributions in the amount of $1.72 per share were paid in 1996. Of that amount, $.808 (47.0%) was ordinary income, based on the taxable income of the Company and $.912 (53.0%) was a long-term capital gain from the sale of a portion of the CenterMark stock. 9 10 ITEM 2. PROPERTIES The Company's investment in real estate as of December 31, 1996 consisted of its interests in the Portfolio Centers, development in progress and certain other real estate . As described elsewhere herein, as of December 22, 1995, the Company acquired, through the Operating Partnership, 38.2% of GGP/Homart. GGP/Homart owns interests in the Homart Centers and certain other real estate assets. The Company completed the sale of its remaining interest in CenterMark on January 2, 1997. As a result of the sale, the Company no longer has an ownership interest in the CenterMark Centers. The majority of the mall income is derived from rents received through long term leases with retail tenants. The long term leases require the tenant to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases defined in the lease. Another component of the lease is percentage rent. Percentage rent is paid by the tenant if their sales exceed an agreed upon minimum annual amount. Percentage rent is calculated by multiplying the sales in excess of the minimum annual amount by a percentage defined in the lease agreement. Long term leases generally contain a provision for the mall to recover expenses incurred in the day-to-day operations including common area maintenance and real estate taxes. The recovery is calculated by multiplying the tenants pro-rata share of space by the total recoverable expense amounts. The Company's management believes that all of its Properties described herein which are owned by the Company, in whole or in part, are adequately covered by insurance. The following tables set forth certain information regarding the Original Centers and the Homart Centers as of December 31, 1996. The first table depicts the Original Centers and the second table depicts the Homart Centers. 10 11 ORIGINAL CENTERS
TOTAL GLA/MALL YEAR AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES - ---------------------------- ---------------- ---------------- ----------------------------------------------------- --------- Bayshore Mall 1987/ 616,036/ Gottschalks, JCPenney, Sears, Mervyn's, Ross Dress Eureka, California 1989 346,021 for Less None Bellis Fair Mall 1988/ 764,124/ Bellingham, Washington N/A 350,961 The Bon Marche, JCPenney, Sears, Target, Mervyn's None Birchwood Mall 1990/ 607,048/ Port Huron, Michigan 1991 280,994 Younkers, JCPenney, Sears, Target None Capital Mall 1978/ 537,513/ Jefferson City, Missouri 1985 307,828 Dillard's, JCPenney, Sears None Chapel Hills Mall 1982/ 957,251/ Colorado Springs, Colorado 1986 420,234 Joslin's, Sears, Mervyn's, KMart, JCPenney, Dillard's None Colony Square Mall 1981/ 548,851/ Zanesville, Ohio 1987 290,847 Lazarus, Elder-Beerman, JCPenney, Sears None Columbia Mall 1985/ 727,013/ Columbia, Missouri 1987 311,569 Dillard's, JCPenney, Sears, Target None Eagle Ridge Mall 1996/ 615,357/ Winter Haven, Florida N/A 317,638 Dillard's, JCPenney, Sears None Fallbrook Mall West Hills, California 1966/ 1,017,869/ JCPenney, Target, Mervyn's, KMart, Burlington Coat (Los Angeles, California) 1985 465,855 Factory None Fox River Mall 1984/ 1,090,016/ Appleton, Wisconsin 1991 525,320 Dayton's, Younkers, JCPenney, Sears, Target None Gateway Mall 1990/ 640,508/ Springfield/Eugene, Oregon 1990 357,243 The Emporium, Sears, Target None Grand Traverse Mall 1992/ 578,277/ Traverse City, Michigan N/A 312,989 Hudson's, JCPenney, Target, TJ Maxx None Greenwood Mall 1979/ 772,802/ Bowling Green, Kentucky 1987 393,749 Castner Knott, JCPenney, Sears, Dillard's None Knollwood Mall St. Louis Park, Minnesota 1955/ 511,496/ (Minneapolis, Minnesota) 1981 300,896 Montgomery Ward, Kohl's, TJ Maxx None Lakeview Mall 1993/ 614,230/ Battle Creek, Michigan N/A 322,637 Hudson's, JCPenney, Sears None Lansing Mall 1969/ 830,213/ Lansing, Michigan N/A 386,811 Hudson's, JCPenney, Mervyn's, Montgomery Ward None Lockport Mall 1971/ 345,894/ Lockport, New York 1984 125,497 Montgomery Ward, Hills, Bon Ton None Mall of the Bluffs Council Bluffs, Iowa 1986/ 587,193/ (Omaha, Nebraska) 1988 353,559 Dillard's, JCPenney, Target None Natick Mall 1966/ 1,138,252/ Natick, Massachusetts 1994 431,066 Sears, Filene's, Lord & Taylor, Macy's, Jordan Marsh None Oakwood Mall 1986/ 753,400/ Dayton's, JCPenney, Target, Sears, Scheel's All Eau Claire, Wisconsin 1991 288,324 Sports None Park Mall 1974/ 857,274/ Tucson, Arizona N/A 338,961 Sears, Dillard's, Macy's None Piedmont Mall 1984/ 659,866/ Danville, Virginia 1995 187,168 Belk, Hills, JCPenney, Sears, Belk Mens None
11 12 ORIGINAL CENTERS
TOTAL GLA/MALL YEAR AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED GLA ANCHOR LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES - ---------------------------- ---------------- ---------------- ----------------------------------------------------- --------- The Pines 1986/ 607,874/ Pine Bluff, Arkansas 1990 268,165 Dillard's, JCPenney, Sears, Wal-Mart None Quail Springs Mall (2) 1980/ 1,016,395/ Oklahoma City, Oklahoma N/A 328,542 Dillard's, Foley's, JCPenney, Sears None Rio West Mall 1981/ 366,121/ Gallup, New Mexico 1991 184,988 Beall's, JCPenney, KMart None River Falls Mall Clarksville, Indiana 1990/ 744,405/ (Louisville, Kentucky) N/A 399,367 Bacons, Wal-Mart, Toys "R" Us, All About Sports None River Hills Mall 1991/ 647,235/ Mankato, Minnesota 1996 285,186 Herberger's, JCPenney, Target, Sears None Sooner Fashion Square 1976/ 466,165/ Norman, Oklahoma N/A 199,933 Dillard's, JCPenney, Sears, Service Merchandise None SouthShore Mall 1981/ 339,825/ Aberdeen, Washington N/A 150,498 JCPenney, Sears, KMart None Westwood Mall 1972/ 465,218/ Jackson, Michigan N/A 147,124 Elder-Beerman, JCPenney, Montgomery Ward None West Valley Mall 1995/ 557,715/ Tracy, California N/A 281,097 Gottschalks, JCPenney, Target, Ross Dress for Less None MALLS UNDER DEVELOPMENT - ----------------------- Coral Ridge Mall 1998/ 900,000/ Iowa City, Iowa N/A 300,000 Dillard's, Younkers, Sears, JCPenney, Target None
(1) In some cases, where a center's location is part of a larger metropolitan area, the metropolitan area is identified in parentheses. (2) The Company owns 50% of Quail Springs Mall. 12 13 HOMART CENTERS
TOTAL GLA/MALL YEAR OWNERSHIP AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED INTEREST % GLA ANCHOR LOCATION(1) OR EXPANDED OF GGP/HOMART (SQUARE FEET) (2) ANCHORS VACANCIES - ------------------------------- ---------------- ------------- ----------------- ------------------------------------ --------- Dillard's, JCPenney, Mervyn's, Arrowhead Towne Center 1993/ 1,135,603/ Montgomery Ward, Glendale, Arizona 1996 33.3 397,656 Robinson's-May None Bay City Mall 1991/ 527,246/ Sears, Target, JCPenney, Bay City, Michigan 1993 100 211,595 Younkers None Chula Vista Center 1960/ 884,314/ Macy's, Sears, JCPenney, Chula Vista, California 1994 100 302,364 Mervyn's None Columbiana Centre 1990/ 789,018/ Sears, Parisian's, Dillard's, Columbia, South Carolina 1992 100 251,130 J. B. White None Deerbrook Mall Humble, Texas 1984/ 1,199,864/ Sears, Mervyn's, Macy's, (Houston, Texas) N/A 100 362,936 Foley's, JCPenney None Eden Prairie Center 1976/ 863,399/ Sears, Target, Kohl's, Eden Prairie, Minnesota 1994 100 325,973 Mervyn's None (Minneapolis, Minnesota) Lakeland Square 1988/ 904,910/ Sears, Mervyn's, Belk-Lindsey, Lakeland, Florida 1994 50 291,780 Dillard's, JCPenney, Burdines None Meriden Square 1971/ 725,265/ Sears, JCPenney, Filene's None Meriden, Connecticut 1993 50 290,439 (Hartford, Connecticut) Moreno Valley Mall 1992/ 1,034,788/ Sears, Robinson's-May, Moreno Valley, California N/A 100 429,254 JCPenney, Harris' None Neshaminy Mall 1968/ 945,779/ Sears, Strawbridge & Clothier, Bensalem, Pennsylvania N/A 50 308,988 Boscov's, Woolworth None Newgate Mall 1981/ 688,856/ Sears, Mervyn's, Dillard's, Ogden, Utah 1994 100 275,692 Oshman's None New Park Mall 1980/ 1,107,837/ Sears, Macy's, Mervyn's, Newark, California 1993 50 388,005 JCPenney None North Point Mall Alpharetta, Georgia 1993/ 1,362,574/ Sears, JCPenney, Lord & Taylor, (Atlanta, Georgia) N/A 100 396,287 Mervyn's, Rich's, Dillard's None The Parks at Arlington 1988/ 1,190,857/ Sears, Dillard's, Mervyn's, Arlington, Texas N/A N/A 359,912 Foley's, JCPenney None The Pavilions at Buckland Hills 1990/ 963,120/ Sears, Filene's, JCPenney, Lord & Manchester, Connecticut 1994 N/A 327,284 Taylor, Filene's Home Store, Dick's None Sporting Goods Pembroke Lakes Mall 1992/ 1,063,859/ Sears, Burdine's, JCPenney, Pembroke Pines, Florida N/A 100 337,235 Mervyn's, Dillard's None Prince Kuhio Plaza 1985/ 475,765/ Sears, Liberty House, Woolworth, Hilo, Hawaii N/A 100 166,191 JCPenney None Rolling Oaks Mall 1988/ 758,584/ San Antonio, Texas 1992 50 297,727 Sears, Dillard's, Foley's, Beall's None Sequoia Mall and Tower Plaza 1975/ 345,940/ Visalia, California N/A 100 172,940 Sears, Mervyn's, Ross Dress for Less None Steeplegate Mall 1990/ 446,598/ Concord, New Hampshire N/A 100 162,655 Sears, JCPenney, Steinbach One Superstition Springs Center 1990/ 1,075,054/ Sears, JCPenney, Dillard's, East Mesa, Arizonia 1994 33.3 368,361 Mervyn's, Robinson's-May None Tysons Galleria 1988/ 808,771/ Macy's, Saks Fifth Avenue, McLean, Virginia N/A 100 296,838 Neiman Marcus None
13 14 HOMART CENTERS
TOTAL GLA/MALL YEAR OWNERSHIP AND FREESTANDING NAME OF CENTER/ OPENED/REMODELED INTEREST % GLA ANCHOR LOCATION(1) OR EXPANDED OF GGP/HOMART (SQUARE FEET) (2) ANCHORS VACANCIES - ------------------------------- ---------------- ------------- ----------------- ------------------------------------ --------- Vista Ridge Mall 1989/ 1,052,617/ Sears, Dillard's, Foley's, Lewisville, Texas 1991 80 379,555 JCPenney None Washington Park Mall 1984/ 351,486/ Bartlesville, Oklahoma 1986 100 157,190 Sears, Dillard's, JCPenney None West Oaks Mall Ocoee, Florida 1996/ 1,015,160/ (Orlando, Florida) N/A 100 312,626 Dillard's, Sears, JCPenney, Gayfers None The Woodlands Mall The Woodlands, Texas 1994/ 1,028,033/ Sears, Dillard's, Mervyn's, (Houston, Texas) N/A 50 350,082 Foley's None MALLS UNDER DEVELOPMENT - ----------------------- Brass Mill Center/Commons 1997/ 1,185,199/ Sears, Filene's, Lechmere, Waterbury, Connecticut N/A 100 528,608 JCPenney None
(1) In cases where a Center's location is part of a larger metropolitan area, the metropolitan area is identified in parenthesis. (2) Includes square footage added in redevelopment/expansion projects. (3) GGP/Homart's participation is subordinated to certain preferred returns to its Joint Venture Partners. For other information concerning the Original Centers and the Homart Centers see "Item 1 - Business - Business of the Company" and "Item 1 - Business - GGP/Homart's Business", and for information concerning the mortgage debt encumbering the Original Centers see Note 7 to the Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company, the Operating Partnership and the Property Partnerships are not currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company, the Operating Partnership, the Property Partnerships or their properties, CenterMark, or GGP/Homart other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance. For information about certain environmental matters, see "Item 1 - Business - Environmental Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the Company's stockholders during the fourth quarter of fiscal 1996. 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") and trades under the symbol "GGP". As of March 25, 1997, the 30,789,185 outstanding shares of Common Stock were held by approximately 965 stockholders of record. The closing price per share of Common Stock on the NYSE on such date was $30.75 per share. Set forth below are the high and low sales prices per share of Common Stock as reported on the composite tape, and the distributions per share of Common Stock declared for each such period.
Price 1996 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1996 $24.00 $20.63 $.43 June 30, 1996 $24.63 $20.63 $.43 September 30, 1996 $26.00 $23.50 $.43 December 31, 1996 $32.75 $23.88 $.43 Price 1995 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1995 $22.63 $20.38 $.41 June 30, 1995 $21.75 $19.38 $.41 September 30, 1995 $20.63 $19.00 $.41 December 31, 1995 $21.63 $18.50 $.43 Price 1994 ------------------ Declared Quarter Ending High Low Distribution - -------------------- ------------------ ------------ March 31, 1994 $21.50 $19.63 $.39 June 30, 1994 $22.00 $19.25 $.39 September 30, 1994 $22.63 $19.50 $.39 December 31, 1994 $22.63 $19.25 $.41
15 16 Set forth below is certain information about sales made by the Company and/or the Operating Partnership of securities during the fourth quarter of 1996, which sales were not registered under the Securities Act of 1933, as amended. The sales were all made in connection with the acquisition of the malls and interests therein indicated below, were effected in reliance upon the exemption contained in Section 4 (2) of the Securities Act of 1933, as amended and/or Regulation D promulgated thereunder, and were not underwritten offerings.
Offering Price or Date Issuer Security Amount Purchaser Consideration - -------------------------------------------------------------------------------------------------- 10/04/96 Company Common Stock 1,000,000 K-GAM Limited Park Mall Partnership 11/27/96 Company Common Stock 895,928 The Equitable Life Sooner Fashion Mall Assurance Society and 50% of Quail of the United Springs Mall States 12/06/96 Operating Units(1) 1,445,000 Forbes-Cohen Lakeview Square, Partnership Properties, Lansing Mall and Lakeview Square Westwood Mall Associates and Jackson Properties
(1) Holders of the units sold by the Operating Partnership have the right, on or after December 7, 1997, to require that the Operating Partnership redeem such units for cash; provided, however, that the Company may assume the Operating Partnership's obligations and redeem the units for cash or shares of the Company's Common Stock on a one-for-one basis. 16 17 SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table sets forth selected financial data for the Company and should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report.
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ----------- OPERATING DATA Revenue $ 217,405 $ 167,396 $ 152,583 $ 142,210 $ 119,050 Operating Expenses 75,954 63,968 63,118 55,073 46,379 Depreciation and Amortization 39,809 30,855 28,190 25,377 22,074 Interest Expense, Net 66,439 46,334 42,995 37,495 47,249 Equity in Net Income (Loss) of Unconsolidated Affiliates 17,589 9,274 6,096 - (620) Gain on the sale of a portion of CenterMark 43,821 33,397 - - - Net Income Before Minority Interest 96,613 68,910 24,376 24,265 2,728 Minority Interests (1) (34,580) (25,856) (9,518) (9,823) (2,728) Extraordinary Item (2,291) - (693) (1,832) - Net Income 59,742 43,054 14,165 12,610 - Earnings Per Share Before Extraordinary Item 2.20 1.69 .65 .63 - Net Earnings Per Share 2.12 1.69 .62 .55 - Distributions Declared Per Share 1.72 1.66 1.58 1.05 - CASH FLOW DATA Operating Activities $ 52,688 $ 60,660 $ 48,936 $ 53,077 $ 24,313 Investing Activities (14,771) (469,204) (145,253) (111,408) (38,358) Financing Activities (40,268) 421,225 96,380 52,587 16,421 FUNDS FROM OPERATIONS (Unaudited) Funds From Operations (2) Operating Partnership $ 108,526 $ 81,214 $ 69,610 $ 47,810 $ 25,422 Minority Interest (39,841) (30,915) (27,927) (19,189) (25,422) Funds From Operations Company 68,685 50,299 41,683 28,621 - BALANCE SHEET DATA Investment in Real Estate Assets $1,639,440 $1,547,621 $ 996,125 $ 786,008 $ 668,979 Total Assets 1,757,717 1,455,982 906,533 789,455 629,500 Total Debt 1,169,493 1,027,932 607,561 453,437 728,310 Stockholders' Equity/(Deficit) 330,267 229,383 154,426 173,013 (116,237)
(1) Current minority holders (primarily the Bucksbaums) who were previously the sole stockholders of the Company. (2) Represents net income before minority interest excluding straight line rent plus real estate depreciation and amortization and adjusted for equity in net income (loss) of unconsolidated affiliates (including related depreciation and amortization). Funds From Operations does not represent cash flow from operations as defined by Generally Accepted Accounting Principles (GAAP) and is not necessarily indicative of cash available to fund all cash requirements. FUNDS FROM OPERATIONS Funds from Operations is used by the real estate industry and investment community as a primary measure of the performance of real estate companies. The National Association of Real Estate Investment Trusts ("NAREIT") defines Funds from Operations as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. In calculating its Funds from Operations, the Company also excludes non-cash straight line rent and gains on land sales, if any. The NAREIT definition of Funds from Operations does not exclude the aforementioned items. The Company's Funds from Operations may not be directly comparable to similarly titled measures reported by other real estate investment trusts. Funds from Operations does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure ofthe Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions.
RECONCILIATION OF NET INCOME DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO FFO: - --------------------------------------------------------------------------------------- 1996 1995 1994 --------- -------- -------- Net income $ 59,742 $ 43,054 $ 14,165 Extraordinary item - charges related to early retirement of debt 2,291 693 Allocations to Operation Partnership Unitholders 34,580 25,856 9,518 Gain on sales (43,975) (33,397) Straight line rents (6,195) (2,997) Pro Forma adjustments (a) (499) Depreciation and amortization 62,083 48,698 45,733 --------- -------- -------- Funds From Operations $ 108,526 $ 81,214 $ 69,610 ========= ======== ========
(a) 1994 includes pro forma adjustments to account for the acquisition of 40% of CenterMark as though it occurred on January 1, 1994. 17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto appearing later in this Annual Report. FORWARD LOOKING INFORMATION Forward looking statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations 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 or expectation. Words such as "expects", "anticipates", "intends", "plans", "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, interest rate trends, cost of capital and capital requirements, availability of real estate properties, competition from other companies and venues for the sale/distribution of goods and services, shifts in customer demands, tenant bankruptcies, changes in operating expenses, including employee wages, benefits and training, governmental and public policy changes and the continued availability of financing in the amounts and the terms necessary to support the Company's future business. CERTAIN INFORMATION ABOUT THE PORTFOLIO CENTERS At December 31, 1996, the Company together with the Operating Partnership owned 100% of thirty enclosed regional shopping centers (the "Original Centers") and 50% of Quail Springs, 38.2% of the stock of GGP/Homart, Inc., 15.4% of the stock of Centermark Properties Inc., and a non-voting preferred stock interest in General Growth Management, Inc. ("GGMI"). CenterMark owns interests in nineteen shopping centers (the "CenterMark Centers") and other properties. GGP/Homart owns interests in twenty-six shopping centers (the "Homart Centers") and one center under development. Together, the Original Centers, the CenterMark Centers and the Homart Centers comprise the operating partnership portfolio (the "Portfolio Centers"). Virtually all of the Company's revenues are derived from fixed minimum rents, percentage rents and recoveries of operating expenses from its tenants. Inasmuch as the Company's financial statements reflect the use of the equity method to account for its investments in CenterMark, GGP/Homart, GGMI and Quail Springs Mall, the discussion of results of operations below relates primarily to the revenues and expenses of the Original Centers. On December 31, 1996, the Portfolio Centers were approximately 85.4% leased. Excluding certain shopping centers that are currently undergoing redevelopment, the occupancy of the Portfolio Centers which are not currently undergoing redevelopment on December 31, 1996, was approximately 86.3%. Comparable mall store sales are sales of those tenants that were open the previous 12 months. Therefore comparable mall store sales in 1996 are of those tenants that were operating the entire year of 1995. Comparable mall store sales averaged $260 per square foot at the Portfolio Centers in 1996. In 1996, total mall store sales at the Portfolio Centers increased by 4.7% over 1995, and comparable mall store sales increased by 2.2% over 1995. After appropriate weighting based upon the relative contributions to total 1996 portfolio net operating income made by each of the Original Centers, the Homart Centers and the CenterMark Centers, the average Mall Store rent per square foot from leases that expired in 1996 was $18.79. The Portfolio Centers benefited from increasing rents inasmuch as the weighted average mall store rent per square foot on new and renewal leases executed during 1996 was $23.71, or $4.92 per square foot above the average for expiring leases. RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995 Total 1996 revenues increased by $50.0 million or 29.9% to $217.4 million from $167.4 million in 1995. Of this increase, $44.4 million was generated from increased minimum rents, tenant recoveries, percentage rents and other income. A majority of the increases came from new developments that were placed in service during 1995 and five properties that were acquired in 1996. The remaining $5.6 million was generated by straight line rents of $1.9 million and fee revenue of $3.7 million. The fee revenue was primarily generated by asset management services performed for GGP/Homart. Total 1996 operating expenses, including depreciation and amortization, increased by $20.9 million or 22.1% to $115.8 million in 1996 compared to $94.8 million in 1995. This increase consists of $3.0 million of real estate taxes and management fees, $8.9 million of depreciation expense, $1.7 million increase in provision for doubtful accounts and $7.3 million of property operating and general and administrative expenses from all properties, including five properties acquired during the fourth quarter of 1996. Net interest expense increased by $20.1 million or 43.4% to $66.4 million in 1996 compared to $46.3 million in 1995. The acquisitions and development of new properties, net of interest cost savings as a result of the use of the CenterMark sale proceeds, accounted for a $27.7 million increase. Additional interest cost savings due to lower interest rates reduced net interest expense by $4.3 million. Interest income increased by $3.3 million of which $2.8 million was interest income from GGMI. Equity in net income of unconsolidated affiliates increased by $8.3 million, from $9.3 million in 1995 to $17.6 million in 1996, or an 89% increase. Approximately $8.7 million of the increase is attributable to the Company's 38.2% interest in GGP/Homart's net income. The increase of $0.8 million in CenterMark's net income 18 19 was due to changing from the equity method to the cost method of accounting as a result of the Company's reduced ownership interest in CenterMark (see Note 3 of notes to consolidated financial statements). The Company's investment in Quail Springs Mall accounted for a $0.1 million increase and GGMI accounted for a decrease of approximately $1.3 million. In addition, the Company had a gain of $43.8 million on the sale of a portion of its interest in CenterMark on July 1, 1996. As of that date, the Company's interest in CenterMark was reduced to 15.4%. Net income increased by $16.6 million in 1996 to $59.7 million from $43.1 million in 1995. The increase resulted from a larger gain on CenterMark in the amount of $6.6 million (net of minority interest share) and a combination of the aforementioned items. COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994 Total 1995 revenues increased by $14.8 million or 9.7% to $167.4 million compared to $152.6 million in 1994. Of this increase, $8.9 million or 6.0% came from increased revenues generated by twenty-one of the Original Centers that were owned throughout the two-year period. Of this increase, $5.8 million was generated by higher minimum rents, $2.3 million was derived from additional costs recovered from tenants, and the remaining $0.8 million was from higher percentage rents and other income. The remaining $5.9 million increase in total revenues, or 3.7% came from new acquisitions, developments and other sources for 1995. Of this increase from new sources, $5.1 million was generated from minimum rents, tenant recoveries, percentage rents and other income from Piedmont Mall, West Valley Mall and Natick Mall. The other $0.8 million of revenues from new sources were primarily gross fees received for other asset management, property management and other services performed for GGP/Homart, Inc. Total 1995 operating expenses, including depreciation and amortization, increased by $3.5 million or 3.8% to $94.8 million in 1995 compared to $91.3 million in 1994. Of this increase, $0.9 million or 1% was from higher expenses for twenty-one of the Original Centers that were owned throughout the two-year period. The $0.9 million net increase was from a combination of $0.7 million of increased real estate taxes, $1.7 million of increased property operating expenses and $2.1 million of higher depreciation expense, less a $1.9 million reduction in management fees and a $1.7 million reduction in the provision for doubtful accounts. The remaining $2.6 million increase in total expenses, or 2.8%, was from expenses on properties added in 1995 (Piedmont, West Valley and Natick) and from incremental general and administrative expenses for providing services. The $2.6 million increase consists of $0.3 million of real estate taxes and management fees, $0.5 million of depreciation expense and $1.8 million of additional property operating and general and administrative expenses. Net interest expense for 1995 was $46.3 million, an increase of $3.3 million or 7.7% over 1994 net interest expense of $43.0 million. $1.4 million or 3.2% of the increase was attributable to new borrowings for Piedmont, West Valley and Natick Malls, which were not owned in 1994. The other $1.9 million or 4.5% of increased interest expense was primarily from higher interest rates on variable rate loans of approximately $1.5 million. The remaining $0.4 million of increased interest expense was from interest on new financing used to acquire GGP/Homart near the end of 1995. Equity in net income of unconsolidated affiliates increased by $3.2 million, from $6.1 million in 1994 to $9.3 million in 1995, or a 52% increase. $2.5 million, or 41% of the increase was from higher earnings from CenterMark, and the remaining $0.6 million, or 9% of the increase was the Company's 38.2% share of net income from GGP/Homart which was purchased near the end of 1995. In addition, the Company had a gain of $33.4 million on the sale of 25% of its interest in CenterMark on December 19, 1995. As of that date, the Company's interest in CenterMark was reduced to 30%. Net income increased by $28.9 million in 1995, to $43.1 million from $14.2 million in 1994. The increase resulted from the gain of $20.7 million (net of minority interest share) plus an $8.2 million net increase resulting from a combination of the aforementioned items. 19 20 LIQUIDITY AND CAPITAL RESOURCES The Company uses operating cash flow as the principal source of funding for recurring capital expenditures such as tenant construction allowances and minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants. Funding alternatives for acquisitions, new development, expansions and major renovation programs at individual centers include construction loans, mini-permanent loans, long-term project financing, additional property level or Company level equity investments, unsecured Company level debt or secured loans collateralized by individual shopping centers. On April 15, 1993, the Company completed its IPO, resulting in net cash proceeds to the Company of approximately $383 million, most of which was used to repay outstanding debt. In January 1994, the Operating Partnership established a $208.5 million line of credit, and approximately $140 million of it was used, in addition to $42 million of cash on hand, to acquire 40% of the stock of CenterMark. On May 23, 1995, the Company completed a follow-on stock offering of 4.5 million shares of its Common Stock at $20.75 per share. Net proceeds after underwriting discounts and other costs were approximately $88 million. On July 1, 1995, the Operating Partnership issued an additional 832,936 units in connection with the acquisition of Piedmont Mall. During 1996, 1,833,949 additional units were issued as consideration (net of conversions from operating partnership units to common stock). The Bucksbaums received an additional 453,791 units when the Company purchased GGMI. On December 6, 1996, 1,445,000 units were issued as a portion of the purchase price for Lakeview Square, Lansing Mall and Westwood Mall (see Note 5 of notes to consolidated financial statements). During 1996, 64,842 units that were issued during 1995 in connection with the acquisition of Piedmont Mall, were converted to a like amount of shares of Common Stock. The Company issued a total of 3,516,625 common shares during 1996. During the year 64,842 units were converted to common shares and 1,555,855 and 1,895,928 common shares were issued in connection with the acquisition of GGMI and ownership interests in two malls. After these transactions, there were 30,789,185 shares of common stock outstanding and 17,934,410 units outstanding as of December 31, 1996. Assuming full conversion of the Operating Partnership units into shares of the Company, there would be 48,723,595 shares of common stock outstanding. During 1995, the Company opened a $120 million construction loan facility to complete the development of new malls in Tracy, California (West Valley Mall) and Winter Haven, Florida (Eagle Ridge Mall). Approximately $111.7 million of this facility was drawn as of December 31, 1996. The remaining available loan proceeds will be sufficient to fund the additional leasing costs for both projects. On December 19, 1995, the Operating Partnership sold 25% of its interest in CenterMark for $72.5 million. Concurrently with the sale of stock, the Operating Partnership granted the buyer an option to purchase its remaining CenterMark stock for $217.5 million. On June 28, 1996, the buyer's option to purchase the Operating Partnership's remaining interest in CenterMark was exercised. The first payment of $87 million was received in July and was used to retire the interim loan arranged as part of the GGP/Homart acquisition. The second installment of $130.5 million was received on January 2, 1997, and was used to pay down existing loans (see Note 7 of notes to consolidated financial statements). Effective on December 22, 1995, the Operating Partnership purchased a 38.2% interest in GGP/Homart and 100% of Natick Mall. The equity investment made for both acquisitions was approximately $261 million. In addition, a $183 million 7 year loan with interest at 6% was obtained for Natick Mall. There were three sources of funds for the $261 million of year-end investments, namely a $125 million interim bank loan, a $63.5 million draw on the Company's line of credit and the $72.5 million of proceeds from the sale of CenterMark stock. On January 31, 1996, the interim loan was reduced to $75 million when the Company closed on a $340 million permanent nonrecourse loan on nine properties. Existing loans on the properties totaled $290 million, and the $50 million of excess loan proceeds were used to reduce the aforementioned interim loan. On October 15, 1996, approximately $200 million of mortgage debt on seven of the Original Centers matured. These mortgages were replaced with a $250 million short term, floating rate loan at LIBOR plus 100 basis points. The excess proceeds were used to pay down a credit facility arranged by the Company during 1996. -20- 21 The GGP/Homart and Quail Springs Mall investments are accounted for on the equity method. Accordingly, indebtedness on the books of those entities is not reflected on the Company's balance sheet. The Operating Partnership's 38.2% share of GGP/Homart's debt at December 31, 1996, was approximately $324 million and its 50% share of Quail Springs Mall debt at December 31, 1996, was $8.6 million. Accordingly, together with its direct mortgage debt of $1,169 million, total "consolidated pro rata debt" at December 31, 1996, was approximately $1,502 million. At December 31, 1996, the stock market value of the common stock and partnership units outstanding (48,723,595 x $32.25 share) was approximately $1,571 million. DEVELOPMENT The Company, through the Operating Partnership, intends to pursue development when warranted by the potential financial returns. During 1996, the Company acquired 100% of two new development sites located in Iowa City, Iowa and Grand Rapids, Michigan. The Company and its affiliates are currently developing an enclosed shopping center in Waterbury, Connecticut and completing predevelopment work on the site recently acquired in Iowa City, Iowa. Coral Ridge Mall, a 1,000,000 square foot enclosed regional mall located in Iowa City, Iowa, is scheduled to open in the summer of 1998. Brass Mill, a GGP/Homart project includes a 950,000 square foot enclosed mall and a 200,000 square foot power center in Waterbury, Connecticut. The mall currently has a total of 130,180 square feet signed or out for signature. Sears, JCPenney, Lechmere and Filenes have executed leases in conjunction with the development of the enclosed mall. The power center, Brass Mills Commons has 109,000 square feet executed or out for signature including Barnes & Noble and Kids 'R Us. As of December 31, 1996, $50 million has been incurred in the construction of the mall and power center. The Grand Opening is scheduled for September 17, 1997. The Company is comfortable with this level of debt given that a substantial majority of the financing is (or is presently expected to be converted to) long-term fixed rate debt. EBITDA to interest expense coverage is expected to be at least 2.0 times, leaving a substantial cushion for unanticipated costs. There are no current plans to raise additional equity capital. However, if additional capital is required, the Company believes that it will be able to obtain an interim bank loan, obtain mortgage financing on unencumbered assets or raise additional equity capital. The Company will continue to constantly monitor its capital structure and plans to make new investments if they can be acquired and financed in a manner that is likely to increase stockholder value. SUMMARY OF INVESTING ACTIVITIES Net cash used by investing activities in 1996 was $14.8 million, compared to a use of $469.2 million in 1995. Cash flow from investing activities was effected by the timing of acquisitions, development and improvements to real estate properties, requiring a use of cash of approximately $121.1 million in 1996 compared to $380.0 in 1995. Natick Mall was acquired in 1995 for approximately $265.0 million. The sale of portions of CenterMark provided cash flow of $87.0 million in 1996 and $72.5 million in 1995. Investments in GGP/Homart used $19.1 million of cash flow in 1996 compared to a use of $178.0 million in 1995. GGP/Homart was acquired during 1995. Distributions received from GGP/Homart in 1996 were $13.8 million. The collection of notes receivable from affiliates increased cash flow from investing activities by $12.6 million in 1996. Net cash used by investing activities in 1995 was $469.2 million compared to $145.3 million in 1994. Acquisitions, developments of real estate and improvements and additions to property used $380.0 million of cash flow in 1995 compared to a use of $37.1 million in 1994. The acquisition of Natick Mall and development activity at Eagle Ridge and West Valley accounted for the majority of the increase in 1995 compared to 1994. The sale of short-term investments created a $61.8 million increase in cash flow in 1994. Proceeds from the sale of a portion of CenterMark increased cash flow $72.5 million in 1995. Distributions from CenterMark were $23.5 million in 1995 compared to $14.6 million in 1994. Investments in unconsolidated affiliates used $178.0 million of cash flow in 1995 in connection with the acquisition of GGP/Homart, compared to a $181.5 million used in the CenterMark acquisition during 1994. SUMMARY OF FINANCING ACTIVITIES Financing activities in 1996 used $40.3 million of cash compared to a $421.2 million source of cash flow in 1995. The net change in cash flow from financing activities form 1995 to 1996 is made up of three main components. First, distributions decreased cash flow from 1995 to 1996 by $8.9 million due to the increased distribution rate and additional shares and Operating Partnership Units outstanding during 1996 compared to 1995. Net borrowing activity was a $37.7 million source in 1996 compared to a $400.7 million source of cash flow in 1995. The financing associated with the acquisitions of GGP/Homart and Natick Mall accounted for the majority of activity in 1995. The third main component is the net proceeds from the sale of common stock totaling $87.9 million in May of 1995 and none in 1996. Financing activities in 1995 created a source of cash flow totaling $421.2 million compared to a $96.4 million source of cash flow in 1994. The net change of $324.8 million is primarily due to three components. First, distributions decreased cash flow $7.9 million more in 1995 compared to 1994. This was primarily due to the issuance of additional shares in connection with the follow-on stock offering in May of 1995 and the increased distribution rate. Second, net borrowings increased cash flow $400.7 million in 1995 compared to an increase of $154.1 million in 1994. The increased borrowing activity was primarily attributable to the financing activities related to the acquisitions of GGP/Homart and Natick Mall. Third, the follow-on stock offering in 1995 contributed an increase of $87.9 million in cash flow net of stock issuance costs. REIT REQUIREMENTS In order to remain qualified as a real estate investment trust for federal income tax purposes, the Company must distribute 100% of capital gains and at least 95% of its taxable income to stockholders. The following factors, among others, will affect funds from operations and, accordingly, influence the decisions of the Board of Directors regarding distributions: (i) scheduled increases in base rents of existing leases; (ii) changes in minimum base rents and/or percentage rents attributable to replacement of existing leases with new or replacement leases; and (iii) changes in occupancy rates at existing Portfolio Centers and procurement of leases for newly developed Portfolio Centers. The Company anticipates that its funds from operations, together with existing loan facilities and additional borrowing capacity, will provide adequate liquidity to conduct its operations, fund administrative and operating costs and interest payments and allow distributions to the Company's stockholders in accordance with the Internal Revenue Code's requirements for qualification as a real estate investment trust and to avoid any Company or entity level federal income or excise tax. During 1996, the Company distributed approximately 70% of its funds from operations. Of the distributions paid to Company stockholders in 1996, approximately 47.0% were taxable as ordinary income and approximately 53.0% were taxable as long-term capital gain, due to the sale of a portion of the CenterMark stock. The Company currently plans to maintain its policy of increasing its distributions at a slower rate of growth than increases, if any, in Funds from Operations. Despite this general policy, the Company's Board of Directors will continue to evaluate the level of distributions on a quarterly basis and will typically consider increasing the quarterly distribution after the results of each year's operations have been reviewed. Given the critical importance of the holiday selling season, the Board of Directors plans to make its typical annual evaluation of a possible distribution increase on or about the end of the first quarter of each year, after the results of the previous year's holiday selling season have been thoroughly analyzed. ECONOMIC CONDITIONS Since April 1993, inflation has been relatively low and has not had a significant detrimental impact on the Company. Should inflation rates increase in the future, substantially all of the tenants' leases contain provisions designed to mitigate the negative impact of inflation. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years which may enable the Company to replace or renew expiring leases with new leases at higher base and/or percentage rents, if rents of the existing leases are below the then-existing market rates. Finally, most of the leases require the tenants to pay their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. A number of local, regional and national retailers filed for bankruptcy protection during the last three years. During 1996, more stores closed due to bankruptcy and/or poor performance than in the prior year. Most of the bankrupt retailers reorganized their operations and/or sold stores to stronger operators. Although some leases were terminated by virtue of the lease cancellation rights afforded by the bankruptcy laws, the -21- 22 impact on Company earnings was negligible. Over the last three years, the provision for doubtful accounts has averaged only $1.8 million per year, which represents approximately 1% of average total revenues of $179 million. The difficult retail sales climate has probably contributed to the relatively flat average occupancy. The Company may be able to increase earnings if retail sales improve, market rental rates rise and currently vacant space can be leased. At the end of 1996, the Company had approximately $1.5 billion of consolidated pro rata debt (including the Company's share of GGP/Homart's debt). The weighted average interest rate on the consolidated pro rata debt was approximately 7.25% at year end, a 50 basis point reduction from the prior year. During 1996, the Company decreased its ratio of floating rate debt to total debt by approximately 10% to 34%. The Company continues to seek fixed rate loans in an effort to capitalize on the relatively low current fixed interest rate environment. Approximately $512 million of the total consolidated pro rata debt at year end bears interest at various floating rates. Construction financing accounts for $137 million of the $512 million of floating rate debt. On January 2, 1997, the Company retired $110 million of the floating rate debt with the proceeds from the CenterMark transaction (see Note 3 of notes to consolidated financial statements). The Company is in the process of arranging permanent fixed rate financing for approximately half of the remaining floating rate debt. On December 22, 1995, the Company acquired 38.2% of GGP/Homart which currently has interests in twenty-six malls and one under development. The Company currently has an interest in 75 shopping centers. The Company's portfolio has been diversified both geographically and by property type (both major and middle market properties) and this may mitigate the impact of a potential downturn at a particular property or in a particular region of the country. The shopping center business is still seasonal in nature. Mall stores typically achieve higher sales levels during the fourth quarter because of the holiday selling season. Although the Company has a year-long temporary leasing program, most of the rents received from short-term tenants are collected during the months of November and December. Thus, occupancy levels and revenue production are generally highest in the fourth quarter of each year and lower during the first and second quarters of each year. Total sales reported by retailers at the Company's properties increased by almost 3.4% in 1995 and 4.7% in 1996, indicating that the centers are maintaining their respective share of sales dollars in the finite retail market. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedules for the required information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY There is hereby incorporated by reference the information which appears under the captions "Election of Directors" and "Executive Officers" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. The executive officers serve at the pleasure of the Board of Directors. John Bucksbaum, Executive Vice President is the son of Matthew Bucksbaum, Chairman and Chief Executive Officer. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information which appears under the caption "Compensation of Executive Officers" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders; -22- 23 provided, however, that neither the Report of the Compensation Committee of the Board of Directors on Executive Compensation nor the Performance Graph set forth therein shall be incorporated by reference herein, in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is hereby incorporated by reference the information which appears under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership of Management" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information which appears under the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules. The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K. (b) Exhibits. See Exhibit Index on page S-1 -23- 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL GROWTH PROPERTIES, INC. By: /s/ Matthew Bucksbaum ------------------------------------- Matthew Bucksbaum, Chairman of the Board and Chief Executive Officer Date: January 15, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Robert Michaels President and Director January 15, 1998 - -------------------------- Robert Michaels /s/ John Bucksbaum Executive Vice President - January 15, 1998 - -------------------------- Director John Bucksbaum /s/ Bernard Freibaum Executive Vice President - January 15, 1998 - -------------------------- Chief Financial Officer and Bernard Freibaum Principal Accounting Officer /s/ Anthony Downs Director January 15, 1998 - -------------------------- Anthony Downs /s/ Morris Mark Director January 15, 1998 - -------------------------- Morris Mark /s/ Beth Stewart Director January 15, 1998 - -------------------------- Beth Stewart /s/ Lorne Weil Director January 15, 1998 - --------------------------- A. Lorne Weil -24- 25 INDEX TO CONSOLIDATED FINANCIAL STATEMENT AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE The following financial statements and financial statement schedule are included in Item 8 of this Annual Report on Form 10-K: General Growth Properties, Inc.
Financial Statements Page(s) -------------------- ------- Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994. F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 to F-21 Financial Statement Schedule ---------------------------- Report of Independent Accountants F-22 Schedule III - Real Estate and Accumulated Depreciation F-23 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes hereof.
Westfield America, Inc. formerly CenterMark Properties, Inc. Consolidated Financial Statements Report of Independent Auditors G-1 Report of Independent Auditors G-2 Consolidated Balance Sheets as of March 31, 1997 (unaudited) December 31, 1996 and 1995 G-3 Consolidated Statements of Income for the three months ended March 31, 1997 and 1996 (unaudited) and for the years ended December 31, 1996 and 1995, the period from February 12, 1994 through December 31, 1994 and the period from January 1, 1994 through February 11, 1994 G-4 Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 1997 and 1996 (unaudited) and for the years ended December 31, 1996 and 1995, the period from February 12, 1994 through December 31, 1994 and the period from January 1, 1994 through February 11, 1994 G-5 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) and for the years ended December 31, 1996 and 1995, the period from February 12, 1994 through December 31, 1994 and the period from January 1, 1994 through February 11, 1994 G-6 Notes to Consolidated Financial Statements G-8 Schedule III Real Estate Investment and Accumulated Depreciation G-26
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes hereof. F-1 26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders General Growth Properties, Inc. We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects the consolidated financial position of General Growth Properties, Inc. as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Chicago, Illinois Coopers & Lybrand L.L.P. February 11, 1997 F-2 27 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, except for Per Share Amounts) ASSETS
DECEMBER 31, December 31, 1996 1995 ------------ ------------ Investment in real estate: Land $ 173,263 $ 144,517 Buildings and equipment 1,337,366 1,054,695 Less accumulated depreciation (188,744) (153,275) Developments in progress 44,439 49,680 ------------- ------------ Net property and equipment 1,366,324 1,095,617 Investment in Quail Springs Mall 15,077 Investment in CenterMark 64,769 120,082 Investment in GGP/Homart 193,270 178,647 ------------- ------------ Net investment in real estate 1,639,440 1,394,346 Cash and cash equivalents 15,947 18,298 Tenant accounts receivable, net 25,384 14,831 Deferred expenses, net 30,078 24,752 Investment in and note receivable from General Growth Management, Inc. 37,737 Prepaid and other assets 9,131 3,755 ------------- ------------ $ 1,757,717 $ 1,455,982 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $ 1,168,522 $ 1,025,130 Notes and contracts payable 971 2,802 Distributions payable 20,744 18,650 Accounts payable and accrued expenses 44,747 43,389 Accounts payable and accrued expenses - affiliates 89 1,211 ------------- ------------ 1,235,073 1,091,182 ------------- ------------ Minority interest in Operating Partnership 192,377 135,417 ------------- ------------ Commitments and contingencies Stockholders' equity: Preferred stock: $100 par value; 5,000,000 shares authorized; none issued Common stock: $.10 par value; 70,000,000 shares authorized; 30,789,185 shares issued and outstanding (27,272,560 as of December 31, 1995) 3,079 2,727 Additional paid-in capital 595,628 506,107 Retained earnings (deficit) (268,440) (279,451) ------------- ------------ Total stockholders' equity 330,267 229,383 ------------- ------------ $ 1,757,717 $ 1,455,982 ============= ============ The accompanying notes are an integral part of the consolidated financial statements.
F-3 28 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, except for Per Share Amounts)
YEAR ENDED DECEMBER 31, 1996 1995 1994 --------- --------- --------- Revenues: Minimum rents $ 140,468 $ 103,915 $ 94,931 Tenant recoveries 63,040 54,072 50,085 Percentage rents 5,412 4,793 4,266 Other 3,925 3,811 3,301 Fee Income 4,560 805 --------- --------- --------- Total revenues 217,405 167,396 152,583 --------- --------- --------- Expenses: Real estate taxes 16,332 13,012 12,140 Management fees to affiliate 2,713 2,463 4,362 Property operating 51,466 45,075 41,605 Provision for doubtful accounts 2,421 607 2,266 General and administrative 3,022 2,811 2,745 Depreciation and amortization 39,809 30,855 28,190 --------- --------- --------- Total expenses 115,763 94,823 91,308 --------- --------- --------- Operating income 101,642 72,573 61,275 Interest expense (70,272) (46,852) (43,612) Interest income 3,833 518 617 Equity in net income (loss) of unconsolidated affiliates: Quail Springs Mall 110 CenterMark 9,397 8,628 6,096 GGP/Homart 9,355 646 General Growth Management, Inc. (1,273) Gain on the sale of a portion of CenterMark stock 43,821 33,397 --------- --------- --------- Income before allocation to minority interest and extraordinary item 96,613 68,910 24,376 Income allocated to minority interest (34,580) (25,856) (9,518) --------- --------- --------- Income before extraordinary item 62,033 43,054 14,858 Extraordinary item (2,291) (693) --------- --------- --------- Net income $ 59,742 $ 43,054 $ 14,165 ========= ========= ========= Earnings per share before extraordinary item $ 2.20 $ 1.69 $ .65 Extraordinary item (.08) (.03) --------- --------- --------- Net earnings per share $ 2.12 $ 1.69 $ .62 ========= ========= ========= The accompanying notes are an integral part of the conolidated financial statements.
F-4 29 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands, except for Per Share Amounts)
Additional Retained Total Common Stock Paid-in Earnings Stockholders' Shares Amount Capital (Deficit) Equity ---------- ------- --------- ----------- ------------ Balance, December 31, 1993 22,772,560 $ 2,277 $ 427,997 $ (257,261) $ 173,013 Net income 14,165 14,165 Capital contribution, net of minority interest 3,229 3,229 Cash distributions declared ($1.58 per share) (35,981) (35,981) ---------- ------- --------- ----------- ------------ Balance, December 31, 1994 22,772,560 2,277 431,226 (279,077) 154,426 Net income 43,054 43,054 Issuance of common stock: Follow-on offering, less $5,482 of offering costs 4,500,000 450 87,443 87,893 Cash distributions declared ($1.66 per share) (43,428) (43,428) Adjustment for minority interest in operating partnership (12,562) (12,562) ---------- ------- --------- ----------- ------------ Balance, December 31, 1995 27,272,560 $ 2,727 $ 506,107 $ (279,451) $ 229,383 Exercise of stock options 66,667 7 1,381 1,388 Purchase and retirement of common stock (66,667) (7) (1,443) (1,450) Net income 59,742 59,742 Cash distributions declared ($1.72 per share) (48,731) (48,731) Acquisitions: General Growth Management, Inc. less $38 of issuance costs 1,555,855 156 39,675 39,831 Real estate investments 1,895,928 190 49,511 49,701 Conversion of operating partnership units to common stock 64,842 6 1,315 1,321 Adjustment for minority interest in operating partnership (918) (918) ---------- ------- --------- ----------- ------------ Balance, December 31, 1996 30,789,185 $ 3,079 $ 595,628 $ (268,440) $ 330,267 ========== ======= ========= =========== ============ The accompanying notes are an integral part of the consolidated financial statements.
F-5 30 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1996 1995 1994 ------------ ---------- ----------- Cash flows from operating activities: Net income $ 59,742 $ 43,054 $ 14,165 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 34,580 25,856 9,518 Gain on the sale of a portion of CenterMark stock (43,821) (33,397) Extraordinary items 2,291 693 Equity in net income of unconsolidated affiliate (17,589) (9,274) (6,096) Provision for doubtful accounts 2,421 607 2,266 Depreciation 35,469 26,104 24,324 Amortization 4,340 4,751 3,867 Net changes in: Tenant accounts receivable (12,974) (6,723) (1,510) Prepaid and other assets (20,258) (1,963) 9,282 Accounts payable and accrued expenses 8,487 11,645 (7,573) ------------ ---------- ----------- Net cash provided by operating activities 52,688 60,660 48,936 ------------ ---------- ----------- Cash flows from investing activities: Acquisition/development of real estate and improvements and additions to properties (121,138) (379,976) (37,100) Decrease in short-term investments 61,832 Collection of notes receivable from affiliates 12,649 Proceeds from the sale of a portion of CenterMark stock 87,000 72,500 Distributions received from CenterMark 21,531 23,462 14,600 Distributions received from GGP/Homart 13,791 Investment in CenterMark (181,521) Investment in GGP/Homart (19,058) (178,001) Increase in deferred expenses (9,546) (7,189) (3,064) ------------ ---------- ----------- Net cash used in investing activities (14,771) (469,204) (145,253) ------------ ---------- ----------- Cash flows from financing activities: Cash distributions paid to common stockholders (47,604) (41,037) (35,070) Cash distributions paid to minority interest (27,861) (25,494) (23,511) Gross proceeds from sale of common stock 93,375 Payment of stock issuance costs (38) (5,482) Proceeds from issuance of mortgage and other notes payable 705,815 506,450 190,000 Principal payments on mortgage and other notes payable (668,107) (105,728) (35,876) Retirement of common stock (net of sale proceeds) (62) Increase in deferred financing costs (2,411) (859) (3,895) Prepayment penalty on early retirement of debt (693) Capital contribution 5,425 ------------ ---------- ----------- Net cash provided by financing activities (40,268) 421,225 96,380 ------------ ---------- ----------- Net change in cash and cash equivalents (2,351) 12,681 63 Cash and cash equivalents at beginning of year 18,298 5,617 5,554 ------------ ---------- ----------- Cash and cash equivalents at end of year $ 15,947 $ 18,298 $ 5,617 ============ ========== =========== Supplemental disclosure of cash flow information: Interest paid $ 73,386 $ 51,310 $ 42,985 Interest capitalized 5,947 5,409 913 Supplemental schedule of non-cash investing and financing activities: Acquisition of real estate and General Growth Management, Inc. (1996) 244,787 37,558 Operating partnership units and stock issued as consideration for additional real estate investments 89,438 17,908 acquisition of General Growth Management, Inc. 51,497 Mortgage debt assumed as consideration for additional real estate investments 103,852 19,650 The accompanying notes are an integral part of the consolidated financial statements.
F-6 31 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION General Growth Properties, Inc. (the "Company"), a Delaware corporation, was formed in 1986 to own and operate enclosed mall shopping centers. On April 15, 1993, the Company completed its initial public offering of 18,975,000 shares of common stock and a business combination involving entities under varying common ownership. Proceeds from the initial public offering were used to acquire a majority interest in GGP Limited Partnership (the "Operating Partnership") which was formed to succeed to substantially all of the interests in eighteen enclosed mall general partnerships (the "Property Partnerships") owned and controlled by the Company and its original stockholders, Martin and Matthew Bucksbaum, and trusts established for the benefit of the stockholders' families (the "Bucksbaums"). The proceeds were used to repay existing indebtedness and acquire three additional centers (the "IBM Centers"). In May of 1995, the Company completed a follow-on stock offering of 4,500,000 common shares. Net proceeds were used to reduce the outstanding balance of the Company's credit facility. OPERATING PARTNERSHIP The Operating Partnership commenced operations on April 15, 1993 and at December 31, 1996, the Company together with the Operating Partnership owned 100% of thirty enclosed regional shopping centers (the "Original Centers"), a 15.4% interest in CenterMark Properties, Inc. (see Note 3), a 38.2% interest in GGP/Homart, Inc. (see Note 4), a non-voting preferred stock ownership interest in General Growth Management, Inc. (see Note 6) and a 50% interest in Quail Springs Mall (see Note 5). At December 31, 1996, the Company owned a 63% general partnership interest in the Operating Partnership and various minority interests own the remaining 37% limited partnership interest. The minority interest in the Operating Partnership is held primarily by trusts for the benefit of families of the original stockholders which initially owned and controlled the Company and is represented by units of limited partnership interests ("Units"). The Units can be exchanged, with certain restrictions, for shares of the Company on a one-for-one basis. The Bucksbaum's Units can be exchanged for cash, at the Company's election, if the Bucksbaums own 25% or more of the outstanding common stock of the Company at the time of the exchange. The Unitholders also share equally with the stockholders on a per share basis in any distributions by the Operating Partnership. F-7 32 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) Changes in Operating Partnership Units for the three years ending December 31, 1996, are as follows:
Units ----------- December 31, 1993 15,267,525 ----------- December 31, 1994 15,267,525 Acquisition of Piedmont Mall 832,936 ----------- December 31, 1995 16,100,461 Acquisition of General Growth Management, Inc. (issued to Bucksbaums) 453,791 Acquisition of Lakeview Square, Lansing and Westwood Malls 1,445,000 Conversion to common stock (64,842) ----------- December 31, 1996 17,934,410 ===========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying financial statements of the Company have been prepared on a consolidated basis which include the accounts of the Company, its majority owned Operating Partnerships and its subsidiaries. All significant intercompany balances and transactions have been eliminated. REVENUE RECOGNITION Minimum rent revenues are recognized on an accrual basis over the terms of the related leases which approximates a straight-line basis. Percentage rents are recognized on an accrual basis. Recoveries from tenants for taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. The Company provides an allowance for doubtful accounts against the portion of accounts receivable which is estimated to be uncollectible. Accounts receivable in the accompanying consolidated balance sheets are shown net of an allowance for doubtful accounts of $5,117 and $2,259 as of December 31, 1996 and 1995, respectively. CASH AND CASH EQUIVALENTS For purposes of the consolidated statements, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The carrying amount approximates fair value due to the short maturity of these investments. DEFERRED EXPENSES Deferred expenses consist principally of financing fees and leasing commissions which are amortized over the terms of the respective agreements. Deferred expenses in the accompanying consolidated balance sheets are shown net of accumulated amortization of $21,996 and $20,827 as of December 31, 1996 and 1995, respectively. F-8 33 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) PROPERTIES Real estate assets are stated at cost. Interest and real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets. Statement of Financial Accounting Standards No. 121, "Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of" was issued in 1995 and requires the real estate assets of the Company to be reviewed for impairment. Based principally on a review of cash flows, management has determined that the fair value of its real estate assets exceeds their carrying value. Depreciation expense is computed using the straight-line method based upon the following estimated useful lives:
YEARS ----- Buildings and Improvements 40 Equipment and fixtures 10
Construction allowances paid to tenants are capitalized and depreciated over the average lease term. Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are capitalized. INVESTMENT IN AFFILIATES The Company acquired a 40% interest in CenterMark Properties, Inc. ("CenterMark") in February 1994 and a 38.2% interest in GGP/Homart, Inc. ("GGP/Homart") in December 1995. In December 1995, and July 1996 the Company sold 25% and 35%, respectively, of its 40% interest in CenterMark resulting in a 15.4% interest at December 31, 1996 after giving effect to a CenterMark private offering. During 1996, the Company acquired a non-voting preferred stock interest in General Growth Management, Inc. ("GGMI") (See Note 6) and a 50% interest in Quail Springs Mall. The Company accounts for its investment in affiliates using the equity method whereby the cost of an investment is adjusted for the Company's share of equity in net income or loss from the date of acquisition and reduced by distributions received. Due to currently unpaid and accrued preferences as described in Note 6 on the preferred stock, the Operating Partnership was entitled to 100% of the earnings and cash flow generated by GGMI in 1996. Subsequent to the July 1996 sale, the investment in CenterMark is accounted for using the cost method whereby distributions received are included in income instead of its share of equity in net income or loss. INCOME TAXES The Company elected to be taxed as a real estate investment trust under sections 856-860 of the Internal Revenue Code of 1986, commencing with its taxable year beginning January 1, 1993. In order to qualify as a real estate investment trust, the Company is required to distribute at least 95% of its ordinary taxable income and 100% of capital gains to stockholders and to meet certain asset and income tests as well as certain other requirements. As a real estate investment trust, the Company will generally not be liable for Federal income taxes, provided it satisfies the necessary requirements. As a result, Federal income taxes on the net income of the Company are payable personally by the stockholders of the Company. Accordingly, the consolidated statements of operations do not reflect a provision for income taxes. State income taxes are not significant. The Property Partnerships were not liable for Federal income taxes, as each partner recognized its proportionate share of the Property Partnerships' income or loss in its tax return. During 1996, the Operating Partnership acquired a non-voting preferred stock ownership interest in GGMI, a taxable subchapter C Corporation. As a result, state and Federal income taxes on its net taxable income are payable by GGMI. F-9 34 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) EARNINGS PER SHARE Per share amounts are based on the weighted average of common and common equivalent shares (stock options) outstanding of 28,145,091 for 1996, 25,521,875 for 1995 and 22,772,560 for 1994. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MINORITY INTEREST Income before minority interest is allocated to the limited partners (the "Minority Interest") based on their ownership percentage of the Operating Partnership. The ownership percentage is determined by dividing the numbers of Operating Partnership Units held by the Minority Interest by the total Operating Partnership Units outstanding. The issuance of additional shares of common stock or Operating Partnership Units changes the percentage ownership of both the Minority Interest and the Company. Since a Unit is convertible into common stock and thus equivalent to a common share, such transactions are treated as capital transactions and result in an allocation between stockholders' equity and Minority Interest in the balance sheet to account for the change in the ownership of the underlying equity in the Operating Partnership. 3. CENTERMARK ACQUISITION AND DISPOSITION On February 11, 1994, the Company, jointly with two other unaffiliated parties, acquired 100% of the stock of CenterMark from The Prudential Insurance Company of America. The Company and Westfield U.S. Investments Pty. Limited each acquired 40% of the stock of CenterMark and several real estate investment funds sponsored by Goldman Sachs & Co. acquired the remaining 20%. The Company's portion of the cash purchase price for the CenterMark stock, including certain transaction costs, was approximately $182,000. CenterMark elected real estate investment trust status for income tax purposes. The CenterMark portfolio includes interests in several major regional shopping malls and power centers. The Company sold 25% of its interest in CenterMark on December 19, 1995, to Westfield U.S. Investments Pty. Limited for a purchase price of $72,500. As a result of the sale, the Company's ownership was reduced to 30% of the outstanding CenterMark stock. Concurrently with the sale of the stock, the Company also granted Westfield U.S. Investments Pty. Limited an option to purchase the remainder of the Company's CenterMark stock ("Option Stock") for $217,500. On June 28, 1996, Westfield U.S. Investments, Pty. Limited exercised its option to acquire the remaining 30% of the outstanding CenterMark stock in two transactions. The first payment in the amount of $87,000 was received on July 1, 1996, and the second payment in the amount of $130,500 was received on January 2, 1997. Proceeds from the first payment were used to repay the remaining balance outstanding on the Company's interim loan facility that was utilized in connection with the acquisition of GGP/Homart (see Note 4). The proceeds received from the second payment were primarily used to repay existing indebtedness (see Note 7) in 1997 and will result in a gain of approximately $66,000. F-10 35 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 4. GGP/HOMART ACQUISITION On December 22, 1995, the Company jointly with four other investors acquired 100% of the stock of GGP/Homart, Inc. ("GGP/Homart") from Sears, Roebuck and Co. The other investors in GGP/Homart are the New York State Common Retirement Fund, the Equitable Life Insurance Company of Iowa, USG Annuity & Life Company and The Trustees of the University of Pennsylvania. The Company acquired 38.2% of GGP/Homart for approximately $179,000 including certain transaction costs. The stockholders of GGP/Homart agreed to contribute up to $80,000 of additional capital as required, through the end of 1997. As of December 31, 1996, the stockholders had contributed $45,000 of additional capital. On January 21, 1997, an additional $15,000 of capital was contributed by the stockholders. GGP/Homart owns interests in twenty-six regional shopping malls and one property currently under development. The Operating Partnership arranged a $125,000 interim loan facility in conjunction with the acquisition of GGP/Homart. On July 1, 1996, the interim loan facility was retired with proceeds from the sale of a portion of the CenterMark stock (see Note 3). GGP/Homart elected real estate investment trust status for income tax purposes. On October 2, 1996, GGP/Homart opened West Oaks Mall, a new development, located in Ocoee, (Orlando) Florida. GGP/Homart currently has one property under development, Brass Mill Center and Commons. Brass Mill Center is located in Waterbury, Connecticut, and is scheduled to open in the fall of 1997. The following is summarized financial information for GGP/Homart since the date of acquisition.
DECEMBER 31, December 31, Balance Sheet as of 1996 1995 - ------------------- ------------ ------------ Assets: Net investment in real estate $ 1,007,008 $ 832,910 Investment in real estate partnerships 179,228 229,128 Other assets 55,957 45,689 ------------ ------------ $ 1,242,193 $ 1,107,727 ============ ============ Liabilities and Stockholders' Equity: Mortgage and other notes payable $ 689,773 $ 546,505 Accounts payable and accrued expenses 83,547 111,869 Stockholders' equity 468,873 449,353 ------------ ------------ $ 1,242,193 $ 1,107,727 ============ ============ Period from YEAR ENDED December 22 through DECEMBER 31, 1996 December 31, 1995 ----------------- ------------------- Summary of Operations Revenues $ 145,689 $ 4,782 Operating costs (62,002) (2,040) Depreciation and amortization (20,824) (455) Interest expense (40,575) (1,248) Equity in net income of real estate partnerships 2,434 314 Minority interest (239) - ----------------- ---------------- Net income $ 24,483 $ 1,353 ================= ================ Significant accounting policies used by GGP/Homart are the same as those used by the Company.
F-11 36 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 5. PROPERTY ACQUISITIONS AND DEVELOPMENTS ACQUISITIONS During the fourth quarter of 1996, the Company acquired 100% ownership in five properties, Park Mall, Sooner Fashion Mall, Lakeview Square, Lansing Mall and Westwood Mall, and a 50% interest in Quail Springs Mall. On October 4, 1996, Park Mall in Tucson, Arizona was acquired for one million shares of newly issued common stock and the payment of $23,995 in cash. Sooner Fashion Mall and 50% of Quail Springs Mall, in Norman and Oklahoma City, Oklahoma, respectively, were acquired on November 27, 1996, for 895,928 newly issued common shares, the assumption of $8,636 of mortgage debt and the payment of $16,695 in cash. On December 6, 1996, the Company acquired Lakeview Square, Lansing Mall and Westwood Mall, all located in south central Michigan for an aggregate purchase price of $132,148. The purchase price consisted of $92,411 of mortgage debt assumption, of which $4,436 was retired at closing, and 1,445,000 newly issued Operating Partnership Units. During 1995, the Operating Partnership acquired 100% ownership interests in two enclosed regional malls, Piedmont Mall in Danville, Virginia and Natick Mall in Natick, Massachusetts. Piedmont Mall was acquired on July 1, 1995, by assuming $19,650 of mortgage debt, issuing $17,908 (832,936 Units) of Operating Partnership Units and the payment of approximately $1,700 in cash. Natick Mall was acquired on December 22, 1995, in conjunction with the GGP/Homart transaction, for an aggregate purchase price of approximately $265,000 consisting of $82,000 in cash and a mortgage loan for $183,000. The acquisitions were accounted for utilizing the purchase method and accordingly, are included in the Operating Partnership's results of operations from the dates of acquisition. DEVELOPMENTS During 1996, the Company acquired two new development sites located in Iowa City, Iowa, and Grand Rapids, Michigan. The Iowa City site is currently under development and is scheduled to open in the summer of 1998. The Company had two properties under development during 1995, West Valley Mall in Tracy, California and Eagle Ridge Mall in Winter Haven, Florida. West Valley opened during the fourth quarter of 1995 and Eagle Ridge opened in February of 1996. In September of 1995, the Company arranged a $120,000 construction loan facility for both developments, collateralized in part by mortgages on West Valley and Eagle Ridge. 6. ACQUISITION OF GENERAL GROWTH MANAGEMENT, INC. On December 22, 1995, GGP Management, Inc. was formed to manage, lease, develop and operate enclosed malls. The Operating Partnership owned 100% of the non-voting preferred stock ownership interest in GGP Management, Inc. representing 95% of the equity interest. Key employees of the Company held the remaining 5% ownership interest therein, which interest was in the form of common stock which was entitled to all of the voting rights in GGP Management, Inc. In August 1996, GGP Management, Inc. acquired General Growth Management, Inc. ("GGMI") through arm's length negotiations for approximately $51,500, which was accounted for as a purchase by completing the following steps: GGP Management, Inc. borrowed approximately $39,900 from the Operating Partnership, and used the loan proceeds to acquire 1,555,855 newly-issued common shares of the Company from the Company. GGP Management, Inc. then exchanged the 1,555,855 common shares and 453,791 Operating Partnership Units (contributed by the Operating Partnership) for 100% of the outstanding shares in GGMI. GGP Management, Inc. was then merged into GGMI with GGMI as the surviving entity. The Operating Partnership currently holds all of the non-voting preferred stock ownership interest in GGMI representing 95% of the equity interest. Five key employees of the Company hold the remaining 5% equity interest through ownership of 100% of the common stock which is entitled to all voting rights in GGMI. GGMI can not distribute funds until its available cash flow exceeds all accumulated preferred dividends owed to the preferred stockholders. Any dividends in excess of the preferred cumulative dividend are allocated 95% to the preferred stockholders and 5% to the common stockholders. The interest only loan from the Operating Partnership to GGMI bears interest at 14% and matures in 2016. GGMI may make principal payments on the loan if it has sufficient cash flow. GGMI manages, leases, and performs various other services for the Original Centers, GGP/Homart and other properties owned by unaffiliated parties. F-12 37 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 7. MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995, consisted of the following:
Carrying Amount Of Notes December 31, Period Estimated Final Property Pledged ------------------------ Interest Payment Balloon Payment Maturity as Collateral 1996 1995 Rate Terms at Maturity Date - ---------------------------------------------------------------------------------------------------- Bellis Fair(a) $ 73,000 $ - 7.340% (b) $ 45,380 02/15/16 Birchwood 39,549 39,940 8.750% 323 (c) 38,323 09/01/99 Colony Square (l) 22,614 Columbia (l) 45,277 Eagle Ridge(d) 55,584 37,167 (e) (f) 55,584 09/30/98 Fallbrook (l) 41,429 Fox River (l) 58,088 Gateway (o) 41,676 Grandville 11,441 8.500% (f) 11,441 (g) Knollwood 15,561 15,814 (h) 149 (c) 06/01/16 Lakeview Square 27,561 10.000% 268 (c) 23,430 06/15/06 Lansing 1,096 13.250% 19 (c) 841 07/01/99 Lansing 125 9.750% 3 (c) 01/01/02 Lansing 13,648 9.250% 146 (c) 8,240 09/01/04 Lansing 787 9.880% 9 (c) 10/01/10 Lansing 31,957 9.350% 281 (c) 06/15/20 Lockport (l) 6,990 6.500% Mall of the Bluffs 36,655 37,018 8.750% 299 (c) 35,510 09/01/99 Natick 183,000 183,000 6.000% (i) 177,463 12/22/02 Oakwood 35,691 36,044 8.750% 291 (c) 34,584 09/01/99 Piedmont 14,075 14,075 8.000% (j) 11/15/17 Piedmont 3,040 3,115 8.000% (k) 11/15/13 Piedmont 2,224 Rio West (l) 13,470 River Falls (o) 40,000 SouthShore (l) 9,931 West Valley(d) 56,155 43,758 (e) (f) 56,155 09/30/98 Westwood 12,597 9.850% 102 (c) 11,930 11/01/99 Interim Loan Facility 125,000 Credit Facility 40,000 (e) (f) 40,000 02/01/97 Six properties 208,500 Seven properties(l) 250,000 (m) (f) 250,000 10/15/97 Three properties(n) 115,000 6.880% (b) 104,877 02/15/06 Five properties(o) 152,000 6.410% (f) 152,000 02/15/01 ---------- ---------- $1,168,522 $1,025,130 ========== ==========
(a) Bellis Fair is cross collateralized with the properties in notes (n) and (o). (b) The loan requires payments of interest only through February 15, 2001. After this date payments of principal and interest are required through maturity. (c) Amount represents the monthly payment of interest plus principal. (d) Each of these two properties has a $60,000 construction loan. (e) The interest rate is 150 basis points above LIBOR (LIBOR was 5.375% at December 31, 1996). (f) The loan requires monthly payments of interest only. (g) Note is due and payable when a construction loan is arranged for the project. (h) This mortgage consists of two notes: one with an original principal balance of $16,175 that bears interest at 9.75% and a second note with an original principal balance of $1,500 that bears interest at 10.375%. (i) The loan requires monthly payments of $915 of interest for the first five years and payments of $1,179 of principal and interest for the remaining two years. (j) The bond requires monthly payments of $94 of interest through 11/30/16, the principal amount will amortize over the last 12 months. (k) The bond requires monthly payments of interest and principal that vary from $13 to $32. (l) Seven properties are cross collateralized for the non recourse facility; Colony Square, Columbia, Fallbrook, Fox River, Lockport, Rio West and SouthShore. (m) The interest rate is 100 basis points above LIBOR (LIBOR was 5.375% at December 31, 1996). (n) The three properties are Chapel Hills, Grand Traverse and Pines Mall. The loans are cross-collateralized with the properties in notes (a) and (o). (o) The five properties are Bayshore, Capital, Gateway, Greenwood and River Falls Mall. The loans are cross- collateralized with the properties in notes (a) and (n). F-13 38 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) Based on borrowing rates available to the Company at the end of 1996 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes payable approximates carrying value at December 31, 1996 and 1995. Principal amounts due under mortgage notes payable mature as follows:
Year Amount Maturing ---- --------------- 1997 $ 304,531 1998 115,138 1999 125,047 2000 2,391 2001 154,637 Subsequent 466,778 --------------- Total $1,168,522 ===============
Land, buildings and equipment related to such mortgages, with an aggregate cost as of December 31, 1996, of approximately $1,527,754, have been pledged as collateral for the above debt. Certain property partnership assets are cross-collateralized or cross-defaulted pursuant to certain mortgage notes. CREDIT FACILITY In January 1994, the Operating Partnership arranged a $208,500 credit facility collateralized in part by six original centers, with an initial term of two years and two one-year extension options. Approximately $140,000 was borrowed as the initial draw on this facility to fund a portion of the cash purchase price paid by the Operating Partnership for its interest in CenterMark (see Note 3). In May 1995, the outstanding balance of the credit facility was reduced with the proceeds of the Operating Partnership's follow-on stock offering. The facility was retired on January 31, 1996 with the proceeds from a permanent mortgage financing. In December 1995, the Operating Partnership arranged a $125,000 interim loan facility to complete the GGP/Homart transaction. The interim loan facility was retired during 1996 with a permanent mortgage financing and proceeds of the CenterMark sale (see Note 3). CONSTRUCTION LOAN FACILITY In September 1995, the Operating Partnership closed a $120,000 construction loan facility collateralized in part by two new developments in Winter Haven, Florida and Tracy, California. The loan proceeds will be used to pay for construction and all other development costs of both projects. PERMANENT MORTGAGE FINANCING On January 31, 1996, the Operating Partnership closed a $340,000 multi-property loan package with Principal Mutual Life Insurance Company. The financing is non recourse and consists of cross collateralized first mortgages on nine wholly owned Original Centers as described in notes (a), (n) and (o) in the above table. The five year loans can be extended for five additional years. Proceeds were used to repay $340,000 of floating rate debt, consisting of approximately $290,000 of existing loans related to the credit facility, Gateway and River Falls mortgages, and $50,000 of interim financing which was used in connection with the acquisition of GGP/Homart. F-14 39 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) UNSECURED LINE OF CREDIT In August 1996, the Operating Partnership established a short-term revolving line of credit of $40,000. The unsecured line of credit was arranged for new developments, expansions, working capital and potential acquisitions. NON RECOURSE BRIDGE LOAN FACILITY On October 15, 1996, the Operating Partnership arranged a $250,000 one year bridge loan facility from Goldman Sachs Mortgage Company. The proceeds from this loan were used to pay off approximately $197,000 of maturing loans on seven wholly owned properties and to pay down the Operating Partnership's unsecured line of credit. The Operating Partnership is in the process of arranging a permanent loan to replace the bridge loan prior to its maturity on October 15, 1997. SUBSEQUENT FINANCING ACTIVITY On January 2, 1997, the Operating Partnership received $130,500 of proceeds from the sale of CenterMark (see Note 3). The proceeds were used to payoff and/or reduce a $12,597 mortgage collateralized by Westwood Mall, the unsecured line of credit balance of $40,000 and $70,000 of the $250,000 non recourse bridge facility. The remaining proceeds were used for working capital. 8. NOTES AND CONTRACTS PAYABLE Notes and contracts payable as of December 31, 1996, consist of notes totaling $971 payable in connection with certain real estate tax special assessments. The special assessment notes require periodic payment of interest at rates between 6% and 12.75% and mature at varying dates between 1997 and 2004. The special assessment notes and land contract represent insignificant amounts, and it is not practical to estimate the fair value due to lack of market information. As of December 31, 1996 and 1995, the Operating Partnership had outstanding letters of credit of $6,200 and $6,247, respectively, in connection with special assessments and liability insurance requirements. F-15 40 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 9. RENTALS UNDER OPERATING LEASES The Company receives rental income from the leasing of retail shopping center space under operating leases. The minimum future rentals based on operating leases held as of December 31, 1996, are as follows:
Year Amount ---- -------- 1997 $138,322 1998 132,169 1999 124,370 2000 116,715 2001 105,477 Thereafter 513,714
Minimum future rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales or as reimbursement of shopping center operating expenses. No single tenant collectively accounts for more than 10% of the Company's total revenues. The tenant base includes national and regional retail chains and local retailers, and consequently the Company's credit risk is concentrated in the retail industry. 10. TRANSACTIONS WITH AFFILIATE GGMI has been contracted to provide management, leasing, development and construction management services to the property partnerships. In addition, certain shopping center advertising and payroll costs of the property partnerships are paid by GGMI and reimbursed by the Company. Total costs included in the consolidated financial statements related to agreements with GGMI are as follows:
Year Ended December 31, 1996 1995 1994 -------- -------- -------- Management and Leasing Fees $ 7,956 $ 8,514 $ 7,015 Cost Reimbursements 23,641 20,049 18,763 Development Costs 1,529 1,637 1,204
Interest paid and accrued to GG Development, including amounts capitalized, was $1,169 for the year ended December 31, 1994. In December 1996, the Operating Partnership acquired a development site located in Grand Rapids, Michigan from GG Development for $11,441. GG Development was liquidated subsequent to the acquisition. 11. GROUND LEASES The Company leases the Knollwood Mall land, Rio West Mall land, a portion of the Fallbrook Mall building and land and a portion of the SouthShore and Bayshore parking areas from third parties. The leases generally require fixed annual payments plus participation rentals. Rental expense including participation rent related to these leases was $590, $526 and $525 for the years ended December 31, 1996, 1995 and 1994, respectively. The leases provide for a right of first refusal in favor of the Company in the event of a proposed sale of the property by the landlord. F-16 41 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 12. STOCK INCENTIVE PLAN The Company's Stock Incentive Plan provides incentives to attract and retain officers and key employees. The Stock Incentive Plan originally consisted of 1,000,000 shares of common stock available for grant. On May 21, 1996, the number of shares under the plan were increased to 2,000,000. Options are granted by the Compensation Committee of the Board of Directors at an exercise price of not less than 100% of the fair market value of the Common Stock on the date of grant. The term of the option is fixed by the Compensation Committee, but no option shall be exercisable more than 10 years after the date of the grant. Options granted to employee-officers are for 10-year terms and are exercisable in either 33 1/3% or 20% annual increments from the date of the grants. Options granted to non-employee directors are exercisable in full commencing on the date of grant and expire on the tenth anniversary of the date of the grant. A summary of the status of the Company's stock options as of December 31, 1996, 1995 and 1994 and changes during the year ended on those dates is presented below.
1996 1995 1994 ---------------------- ------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ------------------- -------------------- Outstanding at beginning of year 425,500 $ 19.50 173,500 $ 20.89 160,000 $ 21.58 Granted 502,000 $ 27.97 312,000 $ 19.02 163,500 $ 20.81 Exercised (66,667) $ 20.81 Forfeited (33,333) $ 20.81 Cancelled (60,000) $ 21.03 (150,000) $ 21.54 ----------------------- ------------------- -------------------- Outstanding at end of year 827,500 $ 24.48 425,500 $ 19.50 $ 173,500 $ 20.89 ======================= =================== ==================== Exercisable at end of year 267,500 161,500 55,500 Options available for future grants 1,105,833 574,500 826,500 Weighted average per share fair value of options granted during the year $ 2.28 $ 1.53
The fair value of each option grant for 1996 and 1995 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1996 1995 --------- --------- Risk free interest rate 5.78% 5.68% Dividend yield 7.75% 7.75% Expected life 4.0 years 4.0 years Expected volatility 18.8% 18.8%
F-17 42 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------- ----------------------- Weighted Average Weighted Weighted Number Remaining Average Options Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/96 Life Price at 12/31/96 Price - --------------- ----------- ----------- -------- ----------- ---------- $19.00 - $28.00 827,500 9.3 years $24.48 267,500 $22.46
The Company has applied Accounting Principles Board Opinion 25 and selected interpretations in accounting for its plan. Accordingly, no compensation costs have been recognized. Had compensation costs for the Company's Plan been determined based on the fair value at the grant date for options granted in 1996 and 1995 in accordance with the method required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been reduced to the pro forma amounts as follows:
Year Ended December 31, 1996 1995 ------------ ------------ Net Income As Reported $59,742 $43,054 Pro Forma $59,536 $42,991 Net Income per share As Reported $ 2.12 $ 1.69 Pro Forma $ 2.12 $ 1.69
F-18 43 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 13. EXTRAORDINARY ITEMS The extraordinary items resulted from prepayment costs and unamortized deferred financing costs related to the early extinguishment of mortgage notes payable. 14. DISTRIBUTIONS PAYABLE On December 17, 1996, the Company declared a cash distribution of $.43 per share payable January 31, 1997, to stockholders of record on December 31, 1996, totaling $13,239. In addition, a distribution of $7,505 will be paid to the limited partners of the Operating Partnership. On December 15, 1995, the Company declared a cash distribution of $.43 per share payable January 31, 1996, to stockholders of record on December 29, 1995, totaling $11,727. In addition, a distribution of $6,923 was paid to the limited partners of the Operating Partnership. On December 30, 1994, the Company declared a cash distribution of $.41 per share payable January 31, 1995, to stockholders of record on January 17, 1995, totaling $9,337. In addition, a distribution of $6,259 was paid to the limited partners of the Operating Partnership. The allocations of the distributions declared and paid for income tax purposes are as follows: YEAR ENDED DECEMBER 31, 1996 1995 1994 -------- -------- -------- Ordinary Income 47.0% 51.6% 53.2% Capital Gain 53.0 48.4 - Return of Capital - - 46.8 ------- ------- ------- 100.0% 100.0% 100.0% ======= ======= =======
15. COMMITMENTS AND CONTINGENCIES In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position, results of operations or liquidity of the Company. The Company has entered into several contingent agreements for the acquisition of properties. Each acquisition is subject to satisfactory completion of due diligence and, in the case of developments, completion and occupancy of the project. F-19 44 GENERAL GROWTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except Per Share Amounts) 16. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Due to the impact of the acquisition of 100% of Lakeview Square Mall, Lansing Mall, Westwood Mall, Park Mall, and Sooner Mall and 50% of Quail Springs Mall, which occurred in the fourth quarter of 1996, the follow-on stock offering in 1995, acquisitions of Natick Mall and 38.2% of GGP/Homart in 1995, the acquisition of 40% of CenterMark in 1994 and the sale of 25% and 35% of the Company's interest in CenterMark during 1995 and 1996, historical results of operations may not be indicative of future results of operations. The pro forma condensed consolidated statements of operations for 1996 include adjustments for the acquisition of 100% of the five operating properties, 50% of Quail Springs Mall and the disposition of 35% of the original 40% interest in CenterMark Properties as if they had occurred on January 1, 1996. The pro forma condensed consolidated statements of operations for 1995 include adjustments for the acquisition of 100% of the five operating properties, 50% of Quail Springs Mall, GGP/Homart, the follow-on stock offering, Natick Mall and the disposition of 60% of the original 40% interest in CenterMark Properties as if they had occurred on January 1, 1995. The pro forma condensed consolidated statements of operations for 1994 include adjustments for the follow-on stock offering, the acquisitions of Natick Mall, 38.2% of GGP/Homart and the sale of 25% of the Company's interest in CenterMark as if these transactions had occurred on January 1, 1994. The pro forma information is based upon the historical consolidated statements of operations and does not purport to present what actual results would have been had the offerings, acquisitions, sale and related transactions, in fact, occurred at the previously mentioned dates, or to project results for any future period.
1996 1995 1994 ---------- ---------- --------- Total revenues $ 242,633 $ 228,030 $ 159,646 ---------- ---------- --------- Expenses: Property operating 80,700 76,188 61,088 Management fees 3,130 4,208 4,671 Depreciation and amortization 43,687 40,423 29,230 ---------- ---------- --------- Total expenses 127,517 120,819 94,989 ---------- ---------- --------- Operating income 115,116 107,211 64,657 Interest expense, net (72,997) (74,168) (49,496) Equity in net income/(loss) of unconsolidated affiliates Quail Springs Mall 998 927 CenterMark 10,350 8,023 4,573 GGP/Homart 9,355 9,075 7,924 General Growth Management, Inc. (1,273) ---------- ---------- --------- 61,549 51,068 27,658 Minority interest in operating partnership 22,952 19,202 9,929 ---------- ---------- --------- Pro forma net income (a) $ 38,597 $ 31,866 $ 17,729 ========== ========== ========= Pro forma earnings per share (b) $ 1.30 $ 1.09 $ 0.65 ========== ========== =========
(a) The pro forma adjustments include management fee and depreciation modifications and acquisition and disposition activity described in the above paragraph. The equity income from CenterMark reflects the reductions in ownership interest offset by the change from the equity method of accounting to the cost method in 1996 and 1995. Pro forma net income is before extraordinary item. (b) Earnings per share are based upon 29,717,353, 29,168,488 and 27,272,560 pro forma average shares of common stock outstanding for the years ended December 31, 1996, 1995 and 1994, respectively. F-20 45 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended First Second Third Fourth December 31, 1996 Quarter Quarter Quarter Quarter Total - --------------------------------------------------------------------------------------------------------------------------------- Total Revenues $ 56,367 $ 56,934 $ 51,569 $ 52,535 $217,405 Income before minority interest 9,810 11,607 58,275 16,921 96,613 Net income applicable to common shares 4,705 7,275 36,667 11,095 59,742 Net earnings per share(a) 0.18 0.27 1.33 0.36 2.12 Distributions declared per share 0.43 0.43 0.43 0.43 1.72 Weighted average shares outstanding (in thousands) 27,273 27,273 27,554 30,180 28,221
(a) Earnings per share for the four quarters do not add up to the annual earnings per share due to the issuance of additional stock and the gain on the sale of a portion of CenterMark stock in the third quarter.
Year Ended First Second Third Fourth December 31, 1995 Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------------------------------------------------- Total Revenues $ 39,180 $ 38,490 $ 42,509 $ 47,217 $167,396 Income before minority interest 6,420 7,659 10,033 44,798 68,910 Net income applicable to common shares 3,836 4,733 6,262 28,223 43,054 Net earnings per share 0.17 0.19 0.23 1.03 1.69 Distributions declared per share(b) 0.41 0.41 0.41 0.43 1.66 Weighted average shares outstanding (in thousands) 22,773 24,701 27,273 27,273 25,522
(b) Earnings per share for the four quarters do not add up to the annual earnings per share due to the issuance of additional stock and the gain on the sale of a portion of CenterMark stock in the fourth quarter. F-21 46 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders General Growth Properties, Inc. Our report on the consolidated financial statements of General Growth Properties, Inc. is included as page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index to Consolidated Financial Statements on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Chicago, Illinois Coopers & Lybrand L.L.P. February 11, 1997 F-22 47 General Growth Properties, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 1996
Col. A Col. B Col. C Col. D Col. E Costs Capitalized Gross Amounts at Which Initial Cost Subsequent to Acquisition Carried at Close of Period ---------------------- ------------------------ ---------------------------------- Building and Carrying Building and Description Encumbrances (a) Land Improvements (b) Improvements Costs (c) Land Improvements Total(d)(e) - ---------------- ---------------- ------ --------------- ------------ ----------- ----- ------------- ----------- Bayshore Mall, Eureka, CA $ 37,250 $3,004 $27,399 $19,478 $ 2,887 $3,005 $49,764 $52,769 Bellis Fair Mall, Bellingham, WA 73,000 7,616 47,040 5,752 6,122 7,485 58,914 66,399 Birchwood Mall, Port Huron, MI 39,549 1,769 34,575 4,621 1,967 3,043 41,163 44,206 Capital Mall Jefferson City, MO 16,500 4,200 14,201 2,340 0 3,913 16,541 20,454 Chapel Hills Colorado Springs, CO 36,750 4,300 34,017 10,159 37 4,300 44,213 48,513 Colony Square Mall Zanesville, OH 27,000 1,000 24,500 8,112 0 1,243 32,612 33,855 Columbia Mall Columbia, MO 56,000 5,383 19,663 6,263 1,369 5,383 27,295 32,678 Eagle Ridge Mall Lake Wales, FL 55,584 7,620 49,561 0 4,626 7,620 54,187 61,807 Developments in Progress 11,441 41,051 3,388 0 0 41,051 3,388 44,439 Fallbrook Mall, West Hills, CA 51,000 6,117 10,076 53,939 1,628 6,117 65,643 71,760 Fox River Mall Appleton, WI 88,000 2,701 18,291 21,041 1,820 2,701 41,152 43,853 Gateway Mall, Springfield, OR 30,750 8,728 34,707 4,910 7,521 8,728 47,138 55,866 General Growth Properties Chicago, IL 40,000 0 1,035 (946) 0 0 89 89 Grand Traverse Mall, Grand Traverse, MI 51,500 3,530 20,776 17,987 3,644 3,534 42,407 45,941 Greenwood Mall Bowling Green, KY 39,500 3,200 40,202 9,595 0 3,200 49,797 52,997 Knollwood Mall, St. Louis Park, MN 15,561 0 9,748 21,680 1,767 0 33,195 33,195 Lakeview Square Mall Battle Creek, MI 27,561 3,579 32,210 0 0 3,579 32,210 35,789 Col. F Col. G Col. H Col. I Accumulated Date of Date Life Upon Which Description Depreciation Construction Acquired Depreciation is Computed - --------------- ------------ ------------- ---------- ------------------------ Bayshore Mall, $11,374 1986-1987 (f) Eureka, CA Bellis Fair Mall, 15,369 1987-1988 (f) Bellingham, WA Birchwood Mall, 8,153 1989-1990 (f) Port Huron, MI Capital Mall 1,599 1993 (f) Jefferson City, MO Chapel Hills 3,619 1993 (f) Colorado Springs, CO Colony Square Mall 8,837 1986 (f) Zanesville, OH Columbia Mall 9,468 1984-1985 (f) Columbia, MO Eagle Ridge Mall 476 1995-1996 (f) Lake Wales, FL Developments in Progress 0 (f) Fallbrook Mall, 17,615 1984 (f) West Hills, CA Fox River Mall 11,461 1983-1984 (f) Appleton, WI Gateway Mall, 10,066 1989-1990 (f) Springfield, OR General Growth Properties 58 (f) Chicago, IL Grand Traverse Mall, 6,639 1990-1991 (f) Grand Traverse, MI Greenwood Mall 4,426 1993 (f) Bowling Green, KY Knollwood Mall, 10,422 1978 (f) St. Louis Park, MN Lakeview Square Mall 137 1996 (f) Battle Creek, MI
F-23 48 General Growth Properties, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 1996
Col. A Col. B Col. C Col. D Col. E Costs Capitalized Gross Amounts at Which Initial Cost Subsequent to Acquisition Carried at Close of Period ---------------------- ------------------------ ---------------------------------- Building and Carrying Building and Description Encumbrances (a) Land Improvements (b) Improvements Costs (c) Land Improvements Total(d)(e) - ---------------- ---------------- ------ --------------- ------------ ----------- ----- ------------- ----------- Lansing Mall Lansing, MI 47,613 6,978 62,800 0 0 6,978 62,800 69,778 Lockport Mall, Lockport, NY 7,000 800 10,000 3,449 24 800 13,473 14,273 Mall of the Bluffs, Council Bluffs, IA 36,655 1,860 24,016 6,101 2,529 2,084 32,646 34,730 Natick Mall Natick, MA 183,000 65,745 198,359 345 0 65,745 198,704 264,449 Oakwood Mall, Eau Claire, WI 35,691 3,267 18,281 11,426 1,712 3,267 31,419 34,686 Park Mall Tucson, AZ 0 4,996 44,994 0 10 4,996 45,004 50,000 Piedmont Mall, Danville, VA 17,115 2,000 38,000 530 21 2,000 38,551 40,551 The Pines, Pine Bluff, AR 26,750 1,489 17,627 6,002 1,365 1,276 24,994 26,270 Rio West Mall, Gallup, NM 9,000 0 19,500 2,852 0 0 22,352 22,352 River Falls Mall, Clarksville, IN 28,000 3,178 54,610 3,439 5,282 3,182 63,331 66,513 River Hills Mall, Mankato, MN 0 3,714 29,014 14,226 2,584 3,781 45,824 49,605 Sooner Fashion Mall Norman, OK 0 2,700 24,300 0 0 2,700 24,300 27,000 SouthShore Mall, 12,000 Aberdeen, WA 650 15,350 3,621 0 650 18,971 19,621 West Valley Mall, Tracy, CA 56,155 9,295 47,789 0 6,964 9,295 54,753 64,048 Westwood Mall Jackson, MI 12,597 2,658 23,924 0 0 2,658 23,924 26,582 ---------- -------- ---------- -------- ------- -------- ---------- ---------- Grand Totals $1,168,522 $213,128 $1,049,953 $236,922 $53,879 $214,314 $1,340,754 $1,555,068 ========== ======== ========== ======== ======= ======== ========== ========== Col. F Col. G Col. H Col. I Accumulated Date of Date Life Upon Which Description Depreciation Construction Acquired Depreciation is Computed - --------------- ------------ ------------- ---------- ------------------------ Lansing Mall Lansing, MI 264 1996 (f) Lockport Mall, Lockport, NY 3,317 1986 (f) Mall of the Bluffs, Council Bluffs, IA 10,016 1985-1986 (f) Natick Mall Natick, MA 5,124 1995 (f) Oakwood Mall, Eau Claire, WI 8,870 1985-1986 (f) Park Mall Tucson, AZ 141 1996 (f) Piedmont Mall, Danville, VA 1,281 1995 (f) The Pines, Pine Bluff, AR 7,355 1985-1986 (f) Rio West Mall, Gallup, NM 5,530 1986 (f) River Falls Mall, Clarksville, IN 13,396 1989-1990 (f) River Hills Mall, Mankato, MN 7,179 1990-1991 (f) Sooner Fashion Mall Norman, OK 60 1996 (f) SouthShore Mall, Aberdeen, WA 5,012 1986 (f) West Valley Mall, Tracy, CA 1,378 1995 (f) Westwood Mall Jackson, MI 102 1996 (f) -------- Grand Totals $188,744 ========
F-24 49 General Growth Properties, Inc. Notes to Schedule III (Dollars in Thousands) (a) See description of mortgage notes payable in Note 7 of Notes to Consolidated Financial Statements. (b) Initial cost for constructed malls is cost at end of first complete calendar year subsequent to opening. (c) Carrying costs consists of capitalized construction-period interest and taxes. (d) The aggregate cost of land, buildings and equipment for federal income tax purposes is approximately $1 billion.
(e) Reconciliation of Real Estate ------------------------------------------- 1996 1995 1994 ----------- ---------- ----------- Balance at begining of year $ 1,248,892 $ 823,108 $ 786,008 Additions 306,176 425,784 37,100 ----------- ---------- ----------- Balance at close of year $ 1,555,068 $1,248,892 $ 823,108 =========== ========== =========== Reconciliation of Accumulated Depreciation --------------------------------------------- 1996 1995 1994 ----------- ---------- ----------- Balance at begining of year $ 153,275 $ 127,170 $ 102,846 Depreciation Expense 35,469 26,105 24,324 ----------- ---------- ---------- Balance at close of year $ 188,744 $ 153,275 $ 127,170 =========== ========== ==========
(f) Depreciation is computed based upon the following estimated lives: Buildings, improvements and carrying costs 40 years Tenant allowances 10-40 years Equipment and fixtures 10 years F-25 50 REPORT OF INDEPENDENT AUDITORS -------------------- To the Board of Directors of Westfield America, Inc.: We have audited the accompanying consolidated balance sheet of Westfield America, Inc. and Subsidiaries formerly CenterMark Properties, Inc. (the "Company") as of December 31, 1996 and the related consolidated statement of income, shareholders' equity and cash flows for the year then ended (our audit also includes the financial statement schedule on page G-26). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the consolidated financial position of Westfield America, Inc. and Subsidiaries as of December 31, 1996 and the consolidated results of operations and cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth thereof. Ernst & Young LLP Los Angeles, California February 28, 1997 G-1 51 REPORT OF INDEPENDENT AUDITORS -------------------- To the Board of Directors of Westfield America, Inc.: We have audited the accompanying consolidated balance sheet of Westfield America, Inc. and Subsidiaries, formerly CenterMark Properties, Inc. (the "Company"), as of December 31, 1995 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1995 and the periods from February 12, 1994 through December 31, 1994 and from January 1, 1994 through February 11, 1994. 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 conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the consolidated financial position of Westfield America, Inc. and Subsidiaries as of December 31, 1995 and the consolidated results of its operations and its cash flows for the year ended December 31, 1995 and the periods from February 12, 1994 through December 31, 1994 and from January 1, 1994 through February 11, 1994 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Los Angeles, California February 13, 1996, except for information as to earnings per share, dividends per share and average shares outstanding, for which the date is March 3, 1997. G-2 52 WESTFIELD AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS MARCH 31, DECEMBER 31, ---------- -------------------------- 1997 1996 1995 ---------- ---------- -------- (UNAUDITED) INVESTMENT IN REAL ESTATE: Land ....................................................................... $ 196,810 $ 196,810 $143,851 Buildings, improvements and equipment ...................................... 1,001,768 975,224 503,125 Less accumulated depreciation and amortization ............................. (121,533) (110,260) (52,657) ---------- ---------- -------- Net property and equipment .............................................. 1,077,045 1,061,774 594,319 Construction in progress ................................................... 33,135 49,821 5,447 Investments in unconsolidated real estate partnerships ..................... 103,422 106,488 135,484 Direct financing leases receivable ......................................... 91,860 92,351 94,234 ---------- ---------- -------- Net investment in real estate ........................................... 1,305,462 1,310,434 829,484 CASH AND CASH EQUIVALENTS ..................................................... 2,647 6,729 -- RESTRICTED CASH ............................................................... -- -- 100 ACCOUNTS AND NOTES RECEIVABLE (net of allowance of $6,305, $6,441 and $4,187 in 21,768 19,716 9,661 1997, 1996 and 1995, respectively) DEFERRED EXPENSES AND OTHER ASSETS, NET ....................................... 9,125 7,691 5,461 ---------- ---------- -------- Total assets ............................................................ $1,339,002 $1,344,570 $844,706 ========== ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Notes payable .............................................................. $ 783,285 $ 770,625 $426,781 Accounts payable and accrued expenses ...................................... 29,681 33,380 23,903 Distribution payable ....................................................... 1,952 21,981 13,603 Minority interest .......................................................... -- 54 -- ---------- ---------- -------- Total liabilities ....................................................... 814,918 826,040 464,287 ---------- ---------- -------- COMMITMENTS AND CONTINGENCIES ................................................. -- -- -- SHAREHOLDERS' EQUITY (NOTE 9): Common stock ............................................................... 529 529 453 Preferred stock ............................................................ 94,000 94,000 -- Additional paid-in capital ................................................. 424,001 424,001 379,966 Retained earnings .......................................................... 5,554 -- -- ---------- ---------- -------- Total shareholders' equity .............................................. 524,084 518,530 380,419 ---------- ---------- -------- Total liabilities and shareholders' equity .............................. $1,339,002 $1,344,570 $844,706 ========== ========== ========
The accompanying notes are an integral part of the consolidated financial statements. G-3 53 WESTFIELD AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) -------------------------
PERIOD FROM PERIOD FROM THREE MONTHS ENDED YEAR ENDED FEBRUARY 12, JANUARY 1, ----------------------- --------------------------- 1994 THROUGH 1994 THROUGH MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 11, 1997 1996 1996 1995 1994 1994 -------- -------- --------- --------- -------- -------- (UNAUDITED) REVENUES: Minimum rents ................ $ 30,742 $ 20,967 $ 106,393 $ 75,154 $ 58,750 $ 7,309 Tenant recoveries ............ 14,055 8,987 44,423 32,335 32,023 4,036 Percentage rents ............. 1,986 1,572 3,991 1,690 2,470 467 Service fee income from unconsolidated real estate partnerships .............. 120 475 1,282 2,148 6,213 957 -------- -------- --------- --------- -------- -------- Total revenues ............ 46,903 32,001 156,089 111,327 99,456 12,769 -------- -------- --------- --------- -------- -------- EXPENSES: Operating_recoverable ........ 13,771 8,916 44,487 31,184 29,477 4,326 Other operating .............. 992 721 4,513 3,061 -- -- Management fees .............. 928 728 3,495 1,828 -- -- Advisory fee (not payable) .................. -- -- 2,600 -- -- -- General and administrative ............ 236 153 808 776 7,129 2,543 Depreciation and amortization .............. 11,539 8,027 38,033 28,864 24,897 3,605 -------- -------- --------- --------- -------- -------- Total expenses ............ 27,466 18,545 93,936 65,713 61,503 10,474 -------- -------- --------- --------- -------- -------- OPERATING INCOME ................ 19,437 13,456 62,153 45,614 37,953 2,295 INTEREST EXPENSE, NET ........... (12,860) (7,482) (40,233) (27,916) (24,156) (481) OTHER INCOME: Equity in income (losses) of unconsolidated real estate partnerships ....... 1,293 733 3,063 3,359 (386) (2,151) Interest and other income .................... 312 230 776 789 1,830 340 -------- -------- --------- --------- -------- -------- INCOME BEFORE MINORITY INTEREST ..................... 8,182 6,937 25,759 21,846 15,241 3 MINORITY INTEREST IN EARNINGS OF CONSOLIDATED REAL ESTATE PARTNERSHIP ........... (218) (230) (1,063) -- -- -- -------- -------- --------- --------- -------- -------- NET INCOME ...................... $ 7,964 $ 6,707 $ 24,696 $ 21,846 $ 15,241 $ 3 ======== ======== ========= ========= ======== ======== Net Income allocable to preferred shares ....................... $ 1,998 $ 1 $ 4,264 $ 3 $ -- $ -- -------- -------- --------- --------- -------- -------- Net Income allocable to common shares ................ 5,966 6,706 20,432 21,843 15,241 3 -------- -------- --------- --------- -------- -------- $ 7,964 $ 6,707 24,696 21,846 15,241 3 ======== ======== ========= ========= ======== ======== Earnings per share .............. $ 0.11 $ 0.15 $ 0.42 $ 0.48 $ 0.34 DISTRIBUTIONS DECLARED PER COMMON SHARE ............. $ 0.01 $ 0.06 $ 1.51 $ 1.68 $ 0.81 WEIGHTED AVERAGE NUMBER OF COMMON SHARES ............. 53,481 45,109 49,383 44,978 44,902
The accompanying notes are an integral part of the consolidated financial statements. G-4 54 WESTFIELD AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS) -------------------------
TOTAL COMMON PREFERRED ADDITIONAL RETAINED SHAREHOLDERS' STOCK STOCK PAID-IN CAPITAL EARNINGS EQUITY ------- ------- --------------- -------- --------- BALANCES, JANUARY 1, 1994 ........................ $ 5,200 $ -- $ 657,630 $ 7,137 $ 669,967 Net income for the period from January 1, 1994 through February 11, 1994 ..................... -- -- -- 3 3 Capital contributions from Prudential ............ -- -- 48,000 -- 48,000 Distributions paid to Prudential ................. -- -- (460,558) (7,140) (467,698) Distribution of partnership interest to Prudential -- -- (4,888) -- (4,888) Capital contributions from GWG ................... -- -- 32,030 -- 32,030 ------- ------- --------- -------- --------- BALANCES, FEBRUARY 12, 1994 ...................... 5,200 -- 272,214 -- 277,414 Adjustment to reflect cost allocated to GWG's investment in CenterMark Properties, Inc. ..... (5,200) -- 179,826 -- 174,626 ------- ------- --------- -------- --------- BALANCES, FEBRUARY 12, 1994, as adjusted ......... -- -- 452,040 -- 452,040 Stock split, 8980.3983 shares to 1 ............... 451 -- (451) -- -- Net income for the period from February 12, 1994 through December 31, 1994 ..................... -- -- -- 15,241 15,241 Distributions on common stock .................... -- -- (21,258) (15,241) (36,499) ------- ------- --------- -------- --------- BALANCES, DECEMBER 31, 1994 ...................... 451 -- 430,331 -- 430,782 Net income for the year ended December 31, 1995 .. -- -- -- 21,846 21,846 Issuance of common stock ......................... -- -- 3,170 -- 3,170 Issuance of preferred stock ...................... 2 -- 50 -- 52 Distributions on common stock .................... -- -- (53,585) (21,843) (75,428) Distributions on preferred stock ................. -- -- -- (3) (3) ------- ------- --------- -------- --------- BALANCES, DECEMBER 31, 1995 ...................... 453 -- 379,966 -- 380,419 Net income for the year ended December 31, 1996 .. -- -- -- 24,696 24,696 Issuance of common stock ......................... 212 -- 342,109 -- 342,321 Cost of issuance of stock ........................ -- -- (29,000) -- (29,000) Repurchase of common stock ....................... (136) -- (217,864) -- (218,000) Issuance of preferred stock ...................... -- 94,000 -- -- 94,000 Advisory fee (not payable) ....................... -- -- 2,600 -- 2,600 Distributions on common stock .................... -- -- (53,810) (20,432) (74,242) Distributions on preferred stock ................. -- -- -- (4,264) (4,264) ------- ------- --------- -------- --------- BALANCES, DECEMBER 31, 1996 ...................... 529 94,000 424,001 -- 518,530 Net income for the three months ended March 31, 1997 (unaudited) .............................. -- -- -- 7,964 7,964 Distributions on common stock (unaudited) ........ -- -- -- (412) (412) Distributions on preferred stock (unaudited) ..... -- -- -- (1,998) (1,998) ------- ------- --------- -------- --------- BALANCES, MARCH 31, 1997 (UNAUDITED) .......... $ 529 $94,000 $ 424,001 $ 5,554 $ 524,084 ======= ======= ========= ======== =========
The accompanying notes are an integral part of the consolidated financial statements. G-5 55 WESTFIELD AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) ------------------
PERIOD FROM PERIOD FROM THREE MONTHS ENDED FEBRUARY 12, JANUARY 1, ----------------------- YEAR ENDED 1994 THROUGH 1994 THROUGH MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 11, 1997 1996 1996 1995 1994 1994 --------- --------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income .............................. $ 7,964 $ 6,707 $ 24,696 $ 21,846 $ 15,241 $ 3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ......................... 11,273 7,828 37,130 28,296 24,405 3,421 Amortization ......................... 349 393 1,466 854 492 184 Equity in (income) losses of unconsolidated real estate partnership ........................ (1,293) (733) (3,063) (3,359) 386 2,151 Minority interest in earnings of consolidated real estate partnership ................. 218 230 1,063 -- -- -- Advisory fee (not payable) ........... -- -- 2,600 -- -- Changes in assets and liabilities: Accounts receivable, net ............. (2,079) (2,162) (5,510) 2,525 41 (1,464) Deferred expenses and other assets ... (1,375) (387) (580) (605) (795) (3,473) Accounts payable and accrued expenses ........................... (3,479) (62) (1,914) (6,567) (19,105) 11,804 Deferred income taxes ................ (8) (6) -- -- -- (7,332) -------- -------- --------- -------- -------- --------- Net cash flows provided by operating activities ................. 11,570 11,808 55,888 42,990 20,665 5,294 -------- -------- --------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .................... (10,266) (5,522) (44,084) (12,787) (26,782) (5,304) Purchase of unconsolidated partnership interest ................. -- -- -- (2,000) -- -- Purchase of WPI, net of cash acquired ... -- -- (62,794) -- -- -- Cash distributions received from unconsolidated real estate partnerships .................. 4,359 1,717 10,786 16,558 29,961 267 Cash and cash equivalents of consolidated real estate partnership ................... -- 2,389 2,389 -- -- -- Repayment of direct financing leases receivable ........................... 491 459 1,883 1,786 1,360 -- Notes receivable advances ............... -- -- -- (268) (40) -- Notes receivable repayments ............. 27 24 107 186 815 119 Decrease (increase) in investments ...... -- -- -- 248 6,432 (709) Decrease (increase) in restricted cash .. -- 100 100 1,318 15,612 (17,030) Repayment of advances made to unconsolidated real estate partnerships ......................... -- -- -- 435 300 -- Capital contribution to unconsolidated real estate partnerships ............. -- -- -- -- (4,102) (844) -------- -------- --------- -------- -------- --------- Net cash flows (used in) provided by investing activities ................. $ (5,389) $ (833) $ (91,613) $ 5,476 $ 23,556 $ (23,501) -------- -------- --------- -------- -------- ---------
G-6 56 WESTFIELD AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) ------------------
PERIOD FROM PERIOD FROM THREE MONTHS ENDED FEBRUARY 12, FEBRUARY 12, ----------------------- YEAR ENDED 1994 THROUGH 1994 THROUGH MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 11, 1997 1996 1996 1995 1994 1994 --------- --------- ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock .. $ -- $ -- $ 340,405 $ -- $ -- $ 32,030 Proceeds from issuance of preferred stock -- -- 94,000 52 -- -- Purchase stock from common stockholders . -- -- (218,000) -- -- -- Stock issuance costs .................... -- -- (29,000) -- -- -- Cash distributions paid to preferred shareholders ......................... (2,241) (1) (2,070) (3) -- -- Cash distributions paid to common stockholders ......................... (20,198) (17,595) (69,568) (61,825) (36,499) -- Shareholder recontribution of distributions ........................ -- 1,759 3,426 3,170 -- -- Decrease in minority interest in consolidated real estate partnership .......................... (484) -- (316) -- -- -- Proceeds from notes payable ............. 22,755 23,381 114,172 16,700 -- 413,681 Principal payments on notes payable ..... (10,095) (17,054) (190,595) (20,816) (31,489) -- Capital contributions from Prudential ... -- -- -- -- -- 48,000 Cash distributions paid to Prudential ... -- -- -- -- -- (467,698) -------- -------- --------- -------- -------- --------- Net cash flows (used in) provided by financing activities ................. (10,263) (9,510) 42,454 (62,722) (67,988) 26,013 -------- -------- --------- -------- -------- --------- Net (decrease) increase in cash and cash equivalents ................. (4,082) 1,465 6,729 (14,256) (23,767) 7,806 CASH AND CASH EQUIVALENTS, beginning of period ............................... 6,729 -- -- 14,256 38,023 30,217 -------- -------- --------- -------- -------- --------- CASH AND CASH EQUIVALENTS, end of period ... $ 2,647 $ 1,465 $ 6,729 $ -- $ 14,256 $ 38,023 ======== ======== ========= ======== ======== =========
Supplemental cash flow information provided in Note 10. The accompanying notes are an intergral part of the consolidated financial statements G-7 57 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------- 1. ORGANIZATION AND CHANGE IN OWNERSHIP: Westfield America, Inc. ("WEA" or the "Company"), formerly CenterMark Properties, Inc., is primarily in the business of owning, operating, leasing, developing, redeveloping and acquiring super regional and regional retail shopping centers in major metropolitan areas in the United States. On February 11, 1994, 100% of the stock of WEA, formerly May Centers, Inc., and subsidiaries, was acquired from the Prudential Insurance Company of America ("Prudential") through a stock purchase agreement ("Stock Purchase Agreement") between Prudential and GGP Limited Partnership ("GGP"), Westfield U.S. Investments Pty. Limited ("WUSI"), a wholly owned subsidiary of Westfield Holdings Limited ("WHL"), and five real estate investment funds sponsored by Goldman Sachs & Co. ("Goldman"). The purchasers are collectively referred to as "GWG." The cash purchase price including transaction costs of $14,830 was approximately $420,000. In conjunction with the closing GWG contributed $32,030 to WEA, a portion of which was used to pay off revolving credit borrowings. Also, in conjunction with the acquisition, the Company entered into an agreement with CenterMark Management Company ("CMC"), a 50/50 partnership between General Growth CMP, L.P. and Westfield Services, Inc., a wholly owned subsidiary of WHL, to manage the properties in WEA's portfolio. Commencing January 1, 1995, CMC subcontracted such management rights to Westfield Corporation, Inc. ("WCI"), a wholly owned subsidiary of WHL. In July 1996, WCI purchased General Growth CMP L.P.'s partnership interest in CMC. In consideration for providing these management services, CMC will be reimbursed certain recoverable property operating costs and receive gross fees of 5% of minimum and percentage rents. As part of the Stock Purchase Agreement, the Company elected Real Estate Investment Trust ("REIT") status for income tax purposes. The above acquisition was accounted for as a purchase. Accordingly, the cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The results of operations and the financial position of the Company reflect the revaluation of the assets and liabilities of CMP to equal GWG's cost at February 11, 1994. In 1995, WUSI and WCI, both wholly owned subsidiaries of WHL acquired 25% of GGP's interest in the Company and concurrently acquired options to purchase the remaining combined 50% interest in the Company held by GGP and Goldman. On July 1, 1996, the Company was recapitalized (the "Recapitalization") whereby the Company's common stock split 8,980.3983 shares to one and the Company sold additional shares of both common and preferred stock to U.S. and foreign investors (see Note 9) for $434,405. In conjunction with the Recapitalization, the Company acquired the options to acquire GGP and Goldman's interest in the Company and agreed to exercise such options at two separate closing dates. On the first closing date, July 1, 1996, the Company used $218,000 of the Recapitalization proceeds to repurchase 40% of GGP's interest and 90% of Goldman's interest in the Company. On the second closing date, January 2, 1997, the Company purchased GGP's remaining interest in the Company for $130,500 from proceeds received from the sale of shares to an affiliate of WHL. The Recapitalization does not result in a sufficient change in ownership to warrant purchase accounting. On July 1, 1996, the Company used $62,794 of the Recapitalization proceeds to acquire indirect ownership of three regional shopping centers, Connecticut Post Mall, South Shore Mall and Trumbull G-8 58 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------- 1. ORGANIZATION AND CHANGE IN OWNERSHIP: (CONTINUED) Shopping Park (the "Acquired Properties") through the acquisition of substantially all the outstanding stock of Westland Properties, Inc., a company whose business consisted of operating the Acquired Properties. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: The Company conducts its business through its divisions, wholly-owned subsidiaries and affiliates. The consolidated financial statements include the accounts of the Company and all subsidiaries over which the Company is able to exercise significant control. The Company does not consider itself to be in control when the other partners have important approval rights over major actions. Investments as general and limited partner in non-controlled partnerships are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited financial statements for the three month periods ended March 31, 1997 and 1996 have been prepared in accordance with generally accepted accounting principles. In the opinion of management, such financial statements reflect all adjustments considered necessary for a fair presentation of the results of the respective interim periods and all such adjustments are of a normal, recurring nature. INVESTMENT IN REAL ESTATE: Buildings, improvements and equipment are stated at cost. Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest costs and real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets. Expenditures for repairs and maintenance are charged to expense when incurred. Certain repair and maintenance costs are chargeable to the tenants as provided in their leases. Such reimbursements are included in recoverable expenses in the Consolidated Statements of Income. Depreciation of property is computed on the straight-line method over the estimated useful lives of the property, which generally range from 3 to 50 years. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires impairment of losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In this case an impairment loss is recognized to the extent that the carrying amount exceeds the fair value of the assets. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Such assets are reported at the lower of their carrying amount or fair value, less cost to sell. The Company adopted Statement 121 in 1996 and the adoption had no effect. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments with an original maturity of three months or less at date of purchase to be cash equivalents. G-9 59 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) RESTRICTED CASH: Restricted cash at December 31, 1995 represented remaining funds for the completion of the Westland Center redevelopment. REVENUE RECOGNITION: Shopping center space is generally leased to specialty retail tenants under leases which are accounted for as operating leases. Minimum rent revenues are recognized on a straight-line basis over the respective lease term. Percentage rents are recognized on an accrual basis as earned. Recoveries from tenants are recognized as income in the period the applicable costs are accrued. INTEREST RATE SWAP CONTRACTS In the normal course of business the Company enters into interest rate swap contracts to reduce its exposure to fluctuations in interest rates. Net interest differentials to be paid or received related to these swap contracts are accrued as incurred or earned. Any gain or loss from terminating swap contract transactions will be deferred and recognized over the original swap contract term as a yield adjustment to interest expense of the underlying debt. There were no terminations of swap contracts during the year ended December 31, 1996. When the underlying debt matures or is extinguished any unamortized gain or loss is recognized at that time. ACCOUNTS AND NOTES RECEIVABLE: Accounts and notes receivable include amounts billed to tenants, deferred rent receivables arising from straight-lining of rents and accrued recoveries from tenants. Management periodically evaluates the collectibility of these receivables and adjusts the allowance for doubtful accounts to reflect the amounts estimated to be uncollectible. DEFERRED EXPENSES AND OTHER ASSETS: Deferred expenses and other assets include costs associated with notes payable, tenant leases and prepaid expenses. Costs associated with obtaining notes payable are amortized on a straight-line basis over the term of the related notes payable, which approximates the effective interest rate method. Direct costs related to leasing activities are capitalized and amortized over the initial term of the new lease. LEASE TERMINATIONS: Included in accounts payable and accrued expenses are lump sum payments received from tenants to terminate their lease. Income received from tenants for early lease termination is deferred and amortized over the term of the original lease unless the space is re-leased to a new tenant, at which time the remaining deferred income is recognized. The unamortized costs of improvements pertaining to terminated leases are expensed in the period of termination unless the improvements can be used by the replacement tenant. G-10 60 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) EARNINGS PER SHARE: Net income and dividend declared per common share is calculated by dividing net income applicable to common stock (net income less dividend requirements of preferred stock) by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents are represented by a warrant to purchase common stock at $16.01 per share (Note 9). Net income and dividends per share for the period January 1, 1994 through February 11, 1994 have not been presented as they are not meaningful given the change in capital structure that occurred in conjunction with the February 11, 1994 acquisition. INCOME TAXES: In conjunction with the February 11, 1994 acquisition, the Company elected REIT status for income tax purposes. As a REIT, the Company is required to distribute at least 95% of its taxable income to shareholders and meet certain asset and income tests as well as certain other requirements. As a REIT, the Company will generally not be liable for federal and state income taxes, provided it satisfies the necessary requirements. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS: As of December 31, 1996, the Company is a general and managing partner in five real estate partnerships, a limited partner in one real estate partnership and both a general and limited partner in one real estate partnership. As a result of the February 11, 1994 acquisition, the carrying amount of investments in unconsolidated real estate partnerships was adjusted to reflect the purchase accounting adjustments described in Note 1. This adjustment is being amortized on a straight-line basis over the useful life of the associated asset which ranges from 15 to 24 years. The Company's interest in each partnership as of December 31, 1996 is as follows:
PERCENT PROPERTY LOCATION INTEREST - -------- -------- -------- Annapolis Mall....................................................... Annapolis, MD 30.0% Meriden Square....................................................... Meriden, CT 50.0 Plaza Camino Real.................................................... Carlsbad, CA 40.0 Topanga Plaza........................................................ Canoga Park, CA 42.0 Vancouver Mall....................................................... Vancouver, WA 50.0 West Valley.......................................................... Canoga Park, CA 42.5 North County Fair.................................................... Escondido, CA 45.0
G-11 61 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------- 3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS: (CONTINUED) A summary of the condensed balance sheet and income statement information for all unconsolidated real estate partnerships on a combined basis follows:
DECEMBER 31, ------------------------ CONDENSED BALANCE SHEET INFORMATION 1996 1995 - ----------------------------------- --------- --------- Investment in real estate: Land, building and improvements, at cost ............................... $ 487,571 $ 516,710 Less accumulated depreciation and amortization ......................... (167,020) (160,220) Construction in progress ............................................... 1,115 6,984 --------- --------- Net investment in real estate ............................................. 321,666 363,474 Notes payable to affiliate ................................................ (1,156) -- Other notes payable ....................................................... (226,619) (260,241) Other assets and liabilities, net, and interest of other partners ......... (50,977) (56,811) --------- --------- Net equity investment in unconsolidated real estate partnerships .......... 42,914 46,422 Adjustments to reflect cost allocated to GWG's investment ................. 63,574 78,100 Cost in excess of basis in the Mission Valley partnership interest acquired -- 10,962 --------- --------- Investments in unconsolidated real estate partnerships .............. $ 106,488 $ 135,484 ========= =========
PERIOD FROM PERIOD FROM FEBRUARY 12, JANUARY 1, YEAR ENDED YEAR ENDED 1994 THROUGH 1994 THROUGH CONDENSED STATEMENTS OF DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 11, INCOME (LOSS) INFORMATION 1996 1995 1994 1994 - ------------------------- -------- -------- -------- -------- Total revenue ............................. $ 85,767 $ 95,359 $ 74,661 $ 13,734 Costs and expenses: Operating, general and administrative expenses ............................ 27,975 32,549 30,537 9,156 Interest expense, net .................. 22,342 24,844 19,885 3,570 Depreciation and amortization .......... 21,263 22,525 20,081 3,766 -------- -------- -------- -------- Net income (loss) ...................... 14,187 15,441 4,158 (2,758) Other partners' share of (income) loss .... (7,049) (7,177) (2,647) 1,627 Adjustments to reflect the amortization of cost allocated to GWG's and Prudential's investment in CMP ...................... (4,075) (4,905) (1,897) (1,020) -------- -------- -------- -------- Equity in income (losses) of unconsolidated real estate partnerships ............... $ 3,063 $ 3,359 $ (386) $ (2,151) ======== ======== ======== ========
Significant accounting policies used by unconsolidated real estate partnerships are similar to those used by the Company. G-12 62 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS: (CONTINUED) On September 1, 1995, the Company increased its ownership interest in Mission Valley Partnership from 50 percent to 75.8 percent. On January 17, 1994, an earthquake occurred near Topanga Plaza. The cost of the repairs was approximately $11,500 of which $865 remains to be spent at December 31, 1996. The majority of this cost was recovered under the Partnership's earthquake insurance policy after payment of the required deductible of approximately $2,100. The Company's share of this deductible and uninsured expenses along with the write off of certain leasehold improvements was $1,512 and is included in equity in income (losses) of unconsolidated real estate partnerships in 1994. In 1995, the Topanga Plaza Partnership received insurance proceeds for business interruption caused by the 1994 earthquake. The Company's share of these proceeds, previously unrecognized due to uncertainty, was $1,358, and is included in equity in income (losses) of unconsolidated partnerships in 1995. During 1996, the Topanga Plaza Partnership was reimbursed by two of its major department store tenants for their pro-rata share of the cost of repairs caused by the earthquake. The Company's share of these proceeds, previously unrecognized due to uncertainty, is $216, and is included in equity in income (losses) of unconsolidated partnerships in 1996. In January 1994, the Company increased its ownership interest in Plaza Camino Real from 5 percent to 40 percent and changed its management and leasing fee agreements. 4. LEASES: DIRECT FINANCING LEASES RECEIVABLE: The Company owns certain properties that are leased to May Department Stores Company ("May") under direct financing leases. The leases' initial terms expire in September 2017, and may be renewed for up to 14 additional five year terms. May has the option to purchase the property under these leases at fair market value during the last 16 months of the initial term or any of the renewal option terms. As a result of the changes in ownership described in Note 1, the direct financing leases receivable at February 11, 1994 were revalued based upon future cash flows for these leases discounted at seven percent. The direct financing leases receivable are as follows:
DECEMBER 31, -------------------------- 1996 1995 -------- -------- Minimum lease payments receivable ... $177,030 $185,460 Less unearned revenue ............... (84,679) (91,226) -------- -------- Direct financing leases receivable $ 92,351 $ 94,234 ======== ========
G-13 63 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 4. LEASES: (CONTINUED) The future minimum rentals to be received by the Company on the direct financing leases as of December 31, 1996, are as follows: 1997................................................. $ 8,430 1998................................................. 8,430 1999................................................. 8,430 2000................................................. 8,430 2001................................................. 8,430 Thereafter........................................... 134,880 -------- $177,030 ========
In connection with the redevelopment plan at Eastland Shopping Center, the Company exercised its option to purchase May's leasehold interest in its store at Eastland in 1994. PROPERTY RENTAL: Substantially all of the property owned by the Company is leased to third-party tenants under operating leases as of December 31, 1996. Lease terms vary between tenants and some leases include percentage rental payments based on sales volume. Future minimum rental revenues under noncancelable operating leases as of December 31, 1996, are as follows: 1997.................................................... $ 93,229 1998.................................................... 87,842 1999.................................................... 83,394 2000.................................................... 79,131 2001.................................................... 71,550 Thereafter.............................................. 235,405 -------- $650,551 ========
These amounts do not include percentage rentals that may be received under certain leases on the basis of tenant sales in excess of stipulated minimums. 5. ACCOUNTS AND NOTES RECEIVABLE: At December 31, 1996 and December 31, 1995, accounts and notes receivable include $367 and $429 of tenant notes receivable and $5,192 and $5,281 of other notes receivable which primarily relate to property sales and which bear interest at rates ranging from 7.0% to 8.5% and are due at various dates ranging from 1997 to 2004. G-14 64 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 6. DEFERRED EXPENSES AND OTHER ASSETS: Deferred expenses and other assets are summarized as follows:
DECEMBER 31, -------------------- 1996 1995 ------ ------ Lease costs, net of accumulated amortization of $2,100 and $560 in 1996 and 1995, respectively ................................... $4,354 $2,406 Loan costs, net of accumulated amortization of $881 and $286 in 1996 and 1995, respectively ................................... 1,668 1,520 Other assets ..................................................... 1,669 1,535 ------ ------ $7,691 $5,461 ====== ======
7. NOTES PAYABLE AND LINES OF CREDIT: A summary of notes payable is as follows:
DECEMBER 31, ------------------------ 1996 1995 -------- -------- Collateralized nonrecourse notes to an insurance company, interest only payable monthly, at 6.15% due in 1999 ................................................. $172,000 $172,000 Collateralized nonrecourse notes to an insurance company, interest only payable monthly, at 6.51% due in 2001 ................................................. 167,000 167,000 Senior collateralized nonrecourse notes, interest only payable quarterly at 6.39% until 1997, thereafter principal and interest payable quarterly, due in 2004 .. 20,576 20,576 Senior collateralized nonrecourse notes bearing interest at 7.33%, $1,620 principal and interest payable quarterly until 1997, interest only payable from 1997 until 2004, principal and interest payable thereafter, due in 2014 ....... 56,429 58,705 Unsecured line of credit/collateralized project loan from a bank with a maximum commitment of $50,000, interest only at LIBOR + 1.5% ($1,500 is at 8.25% and $3,500 is at 7.156% at December 31, 1996) payable monthly, due in 1998 .... 5,000 -- Collateralized recourse note to an insurance company, interest only payable monthly at 8.09%, due in 1999 ................................................. 15,000 -- Collateralized recourse construction loan payable to a bank, interest only at LIBOR + 1.5% ($1,000 is at 7.156% and $3,885 is at 7.094% at December 31, 1996) payable monthly, due in 1998 with an option to extend to 2001 ........... 4,885 -- Collateralized non-recourse note payable to an insurance company interest at an effective rate of 7.07%, $1,182 principal and interest payable monthly, due in 2000 .......................................................................... 144,959 Collateralized non-recourse note payable to a bank, interest only at LIBOR + 1% (6.5% at December 31, 1996) payable quarterly, due in 2001 ................. 73,350 -- Collateralized non-recourse note payable to a bank, interest only at LIBOR + 1% (6.5% at December 31, 1996) payable quarterly, due in 2001 ................. 73,450 --
G-15 65 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 7. NOTES PAYABLE AND LINES OF CREDIT: (CONTINUED)
DECEMBER 31, ------------------------ 1996 1995 -------- -------- Collateralized non-recourse construction loan payable to a bank with a maximum commitment of $48,000, interest only payable monthly at LIBOR + 1.75% ($2,050 at 7.44% and $13,853 at 7.32% December 31, 1996) with borrowings totaling $22,073 fixed at 7.5% through maturity, due in 1997 with an option to extend to 2000 ................................................................ 37,976 -- Line of credit with a total commitment of $30,000 collateralized by a shopping center property. Interest only payable monthly at prime or a LIBOR based rate. This line of credit was repaid in 1996 and replaced with a $50 million line of credit from a bank as previously disclosed ............................ -- 1,000 Collateralized non-recourse note, interest only payable monthly at the lower of prime + 1% or 12% (9.5% at December 31, 1995), repaid in 1996 ................. -- 1,500 Collateralized note, principal of $3,000 plus accrued interest at prime due quarterly, repaid in 1996 ..................................................... -- 6,000 -------- -------- $770,625 $426,781 ======== ========
Interest costs capitalized for the years ended December 31, 1996 and 1995 were $1,503 and $52, respectively. There was no capitalized interest in 1994. Senior collateralized non-recourse notes totaling $77,005 and $79,281 at December 31, 1996 and 1995, respectively, are collateralized by the related direct financing leases receivable from The May Company. The unsecured portion of the Company's line of credit, initially totaling $50,000 is for general corporate purposes. The annual maturities of notes payable as of December 31, 1996 are as follows: 1997.......................................................... $ 6,539 1998.......................................................... 12,022 1999.......................................................... 194,542 2000.......................................................... 172,633 2001.......................................................... 321,842 Thereafter.................................................... 63,047 -------- $770,625 ========
Certain note payable agreements above provide restrictive covenants relating to the maintenance of specified financial performance ratios such as minimum net worth, debt service coverage ratio, loan to value, ownership percentages and restrictions on future dividend payments. As of December 31, 1996, the Company was in compliance with these covenants. G-16 66 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 8. INTEREST RATE SWAP CONTRACTS: At December 31, 1996, the Company had two swap agreements. Interest rate swaps are contractual agreements between the Company and third parties to exchange fixed and floating interest payments periodically without the exchange of the underlying principal amounts (notional amounts). Notional amounts are used to express the volume of interest rate swap contracts. In the unlikely event that a counterparty fails to meet the terms of an interest rate swap contact, the Company's exposure is limited to the interest rate differential on the notional amount. The Company does not anticipate non-performance by any of the counterparties. Under one of the swap agreements, which has a notional amount of $125,000, the Company is credited interest at LIBOR and incurs interest at a fixed rate of 5.75%. Under the second swap agreement, which has a notional amount of $11,400, the Company incurs interest at LIBOR and is credited interest at a fixed rate of 6.23%. Both swap agreements expire in 2000. On November 27, 1996 and November 29, 1996, the Company completed structured deferred interest rates swaps totaling $90 million notional amount, where the Company will receive LIBOR and pay 6.125% for three years beginning February 11, 1999. Additionally, the counterparty received an option to extend the swaps for an additional two years exercisable on November 12, 1997. The fair value and unrealized gain of the interest rate swap contracts were approximately $1,360 at December 31, 1996. 9. CAPITAL STOCK: In conjunction with the acquisition of WEA at February 11, 1994, the Company authorized 269,411,949 shares of $0.01 par value common stock of which 44,901,991 shares were issued. During 1995, WEA issued an additional 212,836 shares of common stock in conjunction with the recontribution of 10% of the July 1995 and October 1995 distribution, respectively. Additionally during 1995, the Company authorized 200 shares of 7% non-cumulative, non-participating, non-voting preferred stock with a par value of $1.00 of which 105 shares were issued. During the six months ended June 30, 1996, the Company issued an additional 169,370 shares of common stock in conjunction with the recontribution of 10% and 5% of the December 1995 and March 1996 distributions, respectively. In July 1996, the Company's Articles of Incorporation were amended. The total number of shares of all classes of stock that the Company is authorized to issue is 435,012,800. In conjunction with the Recapitalization in July 1996, the Company's stock split 8,980.3983 shares to one. In addition, Westfield America Trust ("WAT"), a newly formed publicly traded Australian trust in which WHL has an ownership interest, acquired 19,631,543 shares of Class B-1 common stock and a warrant to purchase up to 6,246,096 shares of Class B-1 common stock at $16.01 per share, all of which was exercisable at December 31, 1996. The Company received $314,304, 940,000 WAT Special Options and 2,498,440 WAT Ordinary Options for the issuance of this stock and warrants issued by the Company. In connection with the sale of common and preferred stock, WEA designated the purchasers of such stock to be the recipients of WAT Ordinary and Special Options, respectively. The Company received additional proceeds totaling $26,101 from the sale of 1,623,985 shares of Class B-2 common stock, 6,300 shares of Class B-3 common stock and 2,498,440 WAT Ordinary Options. The Company also received $94,000 upon the sale of 940,000 shares of Series A Preferred Stock and sale of 940,000 WAT special options. G-17 67 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 9. CAPITAL STOCK: (CONTINUED) The Company used a portion of the proceeds raised from the issuance of common and preferred stock to repurchase 5,434,104 shares from GGP and 8,182,386 shares from Goldman for a total purchase price of $218,000. The cost associated with the Recapitalization of the Company and issuance of new capital stock was $29,000. At December 31, 1996 and 1995, the total number of shares authorized, issued and outstanding were as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------------- ------------------------------ NUMBER OF NUMBER OF NUMBER OF NUMBER OF SHARES SHARES SHARES SHARES ISSUED AUTHORIZED OUTSTANDING AUTHORIZED AND OUTSTANDING ----------- ----------- ----------- --------------- Class A common stock, $.01 par value .......................... 25,000,000 8,151,155 44,901,992 18,045,931 Class B common stock, $.01 par value .......................... -- -- 44,901,992 18,045,931 Class B-1 common stock, $.01 par value ........................ 100,000,000 31,342,970 -- -- Class B-2 common stock, $.01 par value ........................ 100,000,000 13,429,110 -- -- Class B-3 common stock, $.01 par value ........................ 6,300 6,300 -- -- Class C common stock, $.01 par value .......................... -- -- 44,901,992 9,022,965 Excess common stock, $.01 par value ........................... 200,006,300 -- 134,705,973 -- Non-voting senior preferred stock, $1.00 par value ............ 200 105 200 105 Preferred stock, $1.00 par value of which 940,000 shares shall 5,000,000 940,000 -- -- be designated Series A cumulative redeemable preferred stock Excess preferred stock, $1.00 par value ....................... 5,000,000 -- -- -- ----------- ---------- ----------- ---------- Total number of shares authorized, issued and outstanding 435,012,800 53,869,640 269,412,149 45,114,932 =========== ========== =========== ==========
Shares authorized, issued and outstanding at December 31, 1995 were adjusted to reflect the July 1996 stock split. SENIOR PREFERRED SHARES: The holders of non-voting senior preferred stock shall be entitled to receive, when declared, cash dividends at an annual rate of $35 per share, and no more, payable quarterly. No dividend shall be paid on any Preferred or Common Shares unless the full dividend has been paid on the Senior Preferred Shares. The Company has an option to redeem the Senior Preferred Shares anytime after February 20, 1999 at a redemption price of $550 per share, which is equal to the liquidation preference. SERIES A PREFERRED SHARES: The holders of Series A Preferred Shares shall be entitled to receive, when declared, cumulative cash dividends equal to the greater of $8.50 per annum or an amount currently equal to 6.2461 times the dollar amount declared on common shares. Series A Preferred Shareholders are entitled to dividends before dividends are distributed to common shareholders. The holders of Series A Preferred Shares have no G-18 68 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 9. CAPITAL STOCK: (CONTINUED) voting rights unless a dividend is not declared for four quarters, at which time the holders of Series A Preferred Shares may elect a Director to be added to the Board of Directors. The Company has an option to redeem the Series A Preferred Shares anytime after July 1, 2003 at a redemption price of $100 per share, which is equal to the liquidation preference. Simultaneously with the issuance of the Series A Preferred Shares, the Series A Preferred Shareholder also acquired 940,000 Special Options to acquire units in WAT. Each special option permits the holder to acquire 124.92 (or 117,428,609 WAT units in the aggregate) units in WAT in consideration for $100 or one Series A Preferred Share. The Special Options are exercisable at any time after July 1, 1998 and prior to July 1, 2011. COMMON SHARES: The holders of Class A, Class B-1, Class B-2 and Class B-3 Common Shares vote together as a class on all matters other than election of directors and termination of REIT status and are entitled to receive distributions declared after payment of dividends on preferred shares. Simultaneously with the Recapitalization, the Class B-2 Shareholders acquired 13,429,110 Ordinary Options to acquire units in WAT. Each Ordinary Option permits the holder to acquire 20 units in WAT in exchange for one Class B-2 Common Share. The Ordinary Options are exercisable at any time after January 1, 1997. The Ordinary Options expire upon the listing of the Company's Common Stock on the New York Stock Exchange, the American Stock Exchange or the London Stock Exchange. 10. SUPPLEMENTAL CASH FLOW INFORMATION:
PERIOD FROM PERIOD FROM FEBRUARY 12, JANUARY 1, 1994 1994 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 11, 1996 1995 1994 1994 ------------ ------------ ------------ ------------ CASH PAID DURING THE PERIOD FOR: Interest (net of amount capitalized) $42,378 $27,444 $21,731 $307 ======= ======= ======= ==== Income taxes ....................... $ 60 $ 73 $ 1,684 $ -- ======= ======= ======= ====
NON CASH INVESTING AND FINANCING INFORMATION: Mission Valley Partnership was accounted for under the equity method in 1995 and has been consolidated in 1996. The condensed assets and liabilities of the partnership were as follows:
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Net investment in real estate .... $ 34,992 $ 24,612 Cash and Cash Equivalents ........ 2,824 2,389 Accounts and notes receivable .... 1,407 891 Deferred expenses and other assets 979 1,201 Notes payable .................... (37,976) (28,988) Accounts payable ................. (2,172) (798) -------- -------- Minority/other partners' interest $ 54 $ (693) ======== ========
G-19 69 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) ------------------ 10. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED) The Mission Valley Partnerships condensed consolidated statements of income were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 1995 -------- -------- Total Revenue .................................... $ 13,198 $ 11,117 Total Expenses ................................... 8,179 7,102 -------- -------- Operating Income .............................. 5,019 4,015 Interest Expense ................................. (1,945) (2,226) Other Income ..................................... 76 185 -------- -------- Income before minority/other partners' interest 3,150 1,974 Minority/other partners' interest in earnings .... (1,063) (1,277) -------- -------- Net income .................................... $ 2,087 $ 697 ======== ========
During 1996, construction in process totaling $4,529 was placed into service. During 1995, the Company increased its ownership interest in the Mission Valley Partnership from 50% to 75.8%. In consideration, the Company paid $2,000 in cash and provided the partner selling its interest with a note for the remaining purchase price totaling $9,000. During 1995, the Company purchased a building previously owned by one of the Company's major tenants. In consideration, the Company paid $528 in cash and provided the seller with a note for the remaining purchase price totaling $1,500. Included in accounts payable and accrued liabilities at December 31, 1995 are cash overdrafts totaling $2,263. The cost of GWG's acquisition of the Company on February 11, 1994 was accounted for as a purchase. Accordingly, the cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon respective fair values as follows: Net property and equipment .............................................. $ (10,498) Investments in unconsolidated real estate partnerships .................. (6,818) Direct financing leases receivable ...................................... 13,484 Accounts and notes receivable ........................................... (2,465) Deferred expenses and other assets ...................................... (7,715) Accounts payable and accrued expenses ................................... (6,863) Deferred income taxes ................................................... 195,501 --------- Adjustment to reflect cost allocated to GWG's investment in CenterMark Properties, Inc. ................................................... $ 174,626 =========
Shortly before GWG's acquisition of the Company on February 11, 1994, the Company dividended its 50% interest in Ballston Common Mall to Prudential. The assets and liabilities that were dividended consisted of the following: Net investment in real estate ....................... $(3,037) Investment in unconsolidated real estate partnerships (3,408) Accounts payable and accrued expenses ............... 1,557 ------- Distribution of partnership interest to Prudential .. $(4,888) =======
G-20 70 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) ------------------ 11. INCOME TAXES: As discussed in Note 2, the Company elected REIT status for income tax purposes effective February 12, 1994 and, accordingly, is exempt from federal income tax subsequent to that date. For the year ended December 31, 1996 and 1995 and the period from February 12, 1994 through December 31, 1994, distributions have exceeded taxable income resulting in a partial return of capital. On a per share basis distributions represented by ordinary income and return of capital were approximately as follows:
PERIOD FROM FEBRUARY 12, YEAR ENDED 1994 DECEMBER 31, THROUGH ------------------ DECEMBER 31, 1996 1995 1994 ----- ----- ------------ (UNAUDITED) Distributions per share representing ordinary income ....... $0.88 $0.61 $0.56 Distributions per share representing a return of capital.... 0.63 0.96 0.35 ----- ----- ----- Total distributions per share based on income tax amounts... $1.51 $1.57 $0.91 ===== ===== =====
For periods prior to the REIT election, the income tax provision consisted of the following:
PERIOD FROM JANUARY 1, 1994 THROUGH FEBRUARY 11, 1994 ------------ Current income taxes: Federal .......................................... $ 6,968 State and local .................................. 1,847 ------- Total current income taxes .................... 8,815 ------- Deferred income taxes: Federal .......................................... (5,752) State and local .................................. (1,580) ------- Total deferred income taxes ................... (7,332) Tax benefit due to dividend of partnership investment (1,480) ------- $ 3 =======
In 1994, total current income taxes includes $6,965 in federal and $1,551 in state income taxes relating to the Ballston Common Mall partnership interest dividended to Prudential as discussed in Note 10. Included in accounts payable and accrued liabilities is a deferred income tax liability of $1,479 and $1,457 at December 31, 1996 and 1995, respectively, relating to installment notes receivable for property sales prior to February 12, 1994. G-21 71 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) ------------------ 12. RELATED PARTIES: As discussed in Note 1, the Company acquired the Acquired Properties in conjunction with the Company's Recapitalization. Accordingly, the cost of this acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values as follows: Net property and equipment................................... $ 459,707 Cash and cash equivalents.................................... 9,616 Accounts and notes receivable................................ 3,761 Deferred expenses and other assets........................... 1,915 Notes payable................................................ (388,609) Accounts payable and accrued expenses........................ (13,980) --------- Total purchase price......................................... $ 72,410 =========
The operations of the Company include the Acquired Properties from the date of purchase, July 1, 1996. If the Acquired Properties were acquired on January 1, 1995, the Condensed Consolidated Statements of Income would have been as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 1995 (UNAUDITED) (UNAUDITED) ----------- ----------- Total revenues ................... $ 183,352 $ 164,511 Total operating expenses ......... 67,096 58,812 Depreciation expense ............. 43,131 39,060 --------- --------- Operating income .............. 73,125 66,639 Interest expense, net ............ (52,479) (52,306) Other income ..................... 3,839 4,148 --------- --------- Income before minority interest 24,485 18,481 Minority interest ................ (1,063) -- --------- --------- Net income ....................... $ 23,422 $ 18,481 ========= ========= Earnings per share ............... $ 0.39 $ 0.41 ========= ========= Estimated taxable income ......... $ 39,372 ========= Estimated cash flow .............. $ 79,536 =========
If all of the above estimated cash flows were assumed to have been distributed, the unaudited distributions per share, based on the pro forma common shares and Common Stock equivalents outstanding would have been $1.53 per share which would have included an unaudited estimated return of capital of $0.70 per share. CenterMark Management Company, an entity wholly owned by WHL, entered into an agreement with WEA to manage the properties in WEA's portfolio beginning January 1, 1995. Property management fees totaling $3,495 and $1,828, net of capitalized leasing fees of $1,667 and $1,219 were expensed by WEA G-22 72 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) ------------------ 12. RELATED PARTIES: (CONTINUED) for the years ended December 31, 1996 and 1995 respectively. Included in accounts payable and accrued expenses at December 31, 1996 and 1995, are management fees payable to CMC totaling $711 and $0, respectively. In addition to the management fees, CMC is reimbursed for corporate overhead and mall related payroll costs. Reimbursements to CMC of recoverable property operating costs for the years ended December 31, 1996 and 1995 totaled $8,409 and $6,598, respectively. The Company entered into a Master Development Framework Agreement with WCI, a wholly owned subsidiary of WHL, whereby the Company granted WCI the exclusive right to carry out expansion, redevelopment and related works on WEA wholly owned shopping centers and to endeavor to have WCI be appointed by the relevant partner to carry out similar activities for jointly owned real estate partnerships. During 1996 and 1995, the Company reimbursed WCI $21,535 and $4,373, respectively, for expansion, redevelopment and related work. In conjunction with the Recapitalization on July 1, 1996, the Company engaged Westfield U.S. Advisory L.P. ("Advisor"), a wholly owned subsidiary of WHL, to provide information, advise and assist the Company and undertake certain duties and responsibilities on behalf of, and subject to, supervision of the Company. The advisor is entitled to an annual fee of .55% of the net fair market value of the Company. No fee is payable for the period through December 31, 1997. The service fee that would have been paid for the six months ended December 31, 1996, if applicable, was approximately $2.6 million. In conjunction with the Recapitalization on July 1, 1996, the Company obtained an option to acquire all of the outstanding common stock of Westland Realty, Inc. ("WRI"). WRI, a wholly owned subsidiary of WHL, holds a 50% indirect general partnership interest in Westland Garden State Plaza L.P., an owner and operator of a super-regional shopping center located in Paramus, New Jersey. The terms of the option allow WEA to purchase the WRI stock at a price equal to 50% of the market value of Garden State Plaza net of any mortgage debt provided that the Company exercises its option within 120 days of the valuation date. The valuation will be performed upon completion of the expansion of Garden State Plaza and stabilization of its rents. 13. FINANCIAL INSTRUMENTS: The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statements of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for G-23 73 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) ------------------ 13. FINANCIAL INSTRUMENTS: (CONTINUED) purpose of these consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein.
DECEMBER 31, 1996 --------------------------- CARRYING ESTIMATED FAIR AMOUNT VALUE -------- -------------- Assets: Direct financing leases receivable .. $ 92,351 $ 80,689 Accounts and notes receivable ....... 19,716 18,180 Liabilities: Notes payable ....................... 770,625 718,914 Accounts payable and accrued expenses 33,380 33,380 Off-balance sheet financial instruments- Letters of credit ................... 3,337 3,337
RESTRICTED CASH, ACCOUNTS AND NOTES RECEIVABLE, AND ACCOUNTS PAYABLE AND ACCRUED EXPENSES: The carrying amounts of these items are a reasonable estimate of their fair value, except for certain notes receivable which are discounted at current rates for similar terms. DIRECT FINANCING LEASES RECEIVABLE: The fair value of these lease receivables are based upon the discounted future cash flows at current market rates for leases with similar terms. NOTES PAYABLE: The fair value of notes payable are based upon current market rates for loans with similar terms. LETTERS OF CREDIT: The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparts at the reporting date. 14. COMMITMENTS AND CONTINGENCIES: COMMITMENTS: The Company is currently involved in several development projects and had outstanding commitments with contractors totaling approximately $35,829 at December 31, 1996. The Redevelopment Agency of the City of West Covina (the "Agency") issued $45,000 of special tax assessment municipal bonds ("Original Bonds") on March 1, 1990, to finance land acquisition for expansion of the shopping center and additional site improvements. During 1996, the agency refinanced the Original Bonds by issuing certain serial and term bonds with a total face amount of $51,220 ("New Bonds"), proceeds of which were used to redeem the Original Bonds. Special taxes levied against the G-24 74 WESTFIELD AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) ------------------ 14. COMMITMENTS AND CONTINGENCIES: (CONTINUED) property, together with incremental property tax, incremental sales tax, and park and ride revenues will be used to pay the principal and interest on the bonds and the administrative expense of the Agency. Principal and interest payments began in 1996 and continue to 2022 in graduating amounts ranging from $2,030 to $5,289. WEA has the contingent obligation to satisfy any shortfall in annual debt service requirements after tenant recoveries. The Company is subject to the risks inherent in the ownership and operation of commercial real estate. These include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, including creditworthiness of tenants, competition for tenants, changes in tax laws, interest rate levels, the availability of financing, and potential liability under environmental and other laws. Substantially all of the properties have been subjected to Phase I environmental reviews. Such reviews have not revealed, nor is management aware of, any probable or reasonably possible environmental costs that management believes would be material to the consolidated financial statements. LITIGATION: During early 1994, the Company reached an agreement to settle certain litigation for $950. WEA currently is neither subject to any other material litigation nor, to management's knowledge, is any material litigation currently threatened against WEA other than routine litigation and administrative proceedings arising in the ordinary course of business. Based on consultation with counsel, management believes that these items will not have a material adverse impact on the Company's consolidated financial position or results of operations. 15. SUBSEQUENT EVENTS: The Company paid a distribution of $22,440 to its shareholders on January 30, 1997. On January 2, 1997, the Company sold 8,151 common shares to WAT. The Company used proceeds totaling $130,500 to purchase the remaining common stock held by GGP Limited Partnership. G-25 75 SCHEDULE III WESTFIELD AMERICA, INC. REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (IN THOUSANDS)
BUILDINGS & ACCUMULATED DEPRECIABLE PROPERTY LAND IMPROVEMENTS TOTAL DEPRECIATION ENCUMBRANCES DATE OF COMPLETION LIFE - -------- -------- ------------ ---------- ------------ ------------ ------------------ ------------ Eagle Rock ..... $ 3,624 $ 12,646 $ 16,270 $ 2,446 -- 1973 3-31.5 yrs Eastland ....... 16,609 3,375 19,984 627 $ 4,885 under constr./1957 3-30 yrs. Enfield ........ 8,468 21,050 29,518 3,767 -- 1987/1971 3-31.5 yrs. La Jolla ....... 2,558 2,458 5,016 218 -- 1981 15-31.5 yrs. Mid Rivers ..... 10,816 47,732 58,548 7,947 53,205 1996/1987 3-22 yrs. Mission Valley . 1,007 63,237 64,244 23,283 37,976 1997/1961 3-50 yrs. Montgomery ..... 32,420 163,740 196,160 24,572 121,515 1991/1962 3-20 yrs. Plaza Bonita ... 22,994 79,732 102,726 13,951 59,030 1981 3-39 yrs. South County ... 13,259 34,832 48,091 6,514 28,735 1979/1963 3-39 yrs. West County .... 6,506 22,632 29,138 4,215 16,750 1985/1969 3-22 yrs. West Covina .... 18,922 82,326 101,248 10,910 60,615 1993/1975 3-22 yrs. West Park ...... 2,633 23,583 26,216 4,482 14,150 1984/1981 3-50 yrs. Westland ....... 5,162 13,101 18,263 2,053 -- 1994/1960 3-50 yrs. Trumbull ....... 16,405 161,814 178,219 2,235 144,959 1992/1964 3-40 yrs. South Shore .... 29,071 112,111 141,182 1,402 73,350 under constr./1963 3-40 yrs. Connecticut Post 6,356 130,855 137,211 1,638 73,450 1991/1960 3-40 yrs. -------- -------- ---------- -------- -------- $196,810 $975,224 $1,172,034 $110,260 $688,620 ======== ======== ========== ======== ========
G-26 76 EXHIBIT INDEX 2(a) Amended and Restated Stock Purchase Agreement, dated as of October 16, 1995, by and among Sears, Roebuck and Co., Homart Development Co., Homart Newco One, Inc. and GGP/Homart, Inc.(1) 2(b) Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co., Homart Newco One, Inc. and GGP/Homart, Inc.(1) 2(c) Real Estate Purchase Agreement, dated as of July 31, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc.(1) 2(d) Amendment No. 1 to Real Estate Purchase Agreement, dated as of October 16, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc.(1) 2(e) Amendment No. 2 to Real Estate Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and GGP/Homart, Inc. (1) 2(f) Mall Purchase Agreement, dated as of December 22, 1995, by and among Sears, Roebuck and Co., Homart Development Co. and General Growth Properties-Natick Limited Partnership.(1) 2(g) Contribution Agreement dated December 6, 1996, between Forbes/Cohen Properties, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 2(h) Contribution Agreement dated December 6, 1996, between Lakeview Square Associates, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 2(i) Contribution Agreement dated December 6, 1996, between Jackson Properties, a Michigan general partnership, and GGP Limited Partnership, a Delaware limited partnership.(2) 3(a) Amended and Restated Certificate of Incorporation of the Company.(3) 3(b) Amendment to Amended and Restated Certificate of Incorporation of the Company.(5) 3(c) Certificate to Amended and Restated Certificate of Incorporation of the Company filed on December 21, 1995. 3(d) Bylaws of the Company.(5) 3(e) Amendment to Bylaws of the Company.(5) 4(a) Redemption Rights Agreement, dated July 13, 1995, by and among GGP Limited Partnership, General Growth Properties, Inc. and the persons listed on the signature pages thereof.(8) 4(b) Redemption Rights Agreement dated December 6, 1996, among GGP Limited Partnership, a Delaware corporation, Forbes/Cohen Properties, a Michigan general partnership, Lakeview Square Associates, a Michigan general partnership, and Jackson Properties, a Michigan general partnership.(2) 10(a) Amended and Restated Agreement of Limited Partnership of the Operating Partnership.(6) 10(b) First Amendment to Amended and Restated Agreement of Limited Partnership.(5) 10(c) Second Amendment to Amended and Restated Agreement of Limited Partnership.(5) 10(d) Third Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(e) Fourth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(f) Fifth Amendment to Amended and Restated Agreement of Limited Partnership.(9) S-1 77 10(g) Sixth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(h) Seventh Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(i) Eighth Amendment to Amended and Restated Agreement of Limited Partnership.(9) 10(j) Rights Agreement between the Company and the Limited Partners of the Operating Partnership.(6) 10(k) Agreement Concerning Indemnification between the Company, the Operating Partnership and the Limited Partners of the Operating Partnership.(6) 10(l) Agreement of Limited Partnership of GG Development.(3) 10(m) Letter Agreement dated December 30, 1992, among the partners of GG Development with respect to assignment of interests to the Operating Partnership.(3) 10(n) Form of Management Agreement between the Property Manager and a Property Partnership.(3) 10(o) Form of Management Agreement between the Property Manager and the Operating Partnership.(3) 10(p) Real Estate Management Agreement dated July 1, 1996, between General Growth Management, Inc. and GGP Limited Partnership. 10(q)* General Growth Properties, Inc. 1993 Stock Incentive Plan, as amended.(5) 10(r) Forms of Cash Flow Support Agreements between the Operating Partnership and the partners of GG Development.(3) 10(s) Form of Amended and Restated Agreement of Partnership for each of the Property Partnerships.(3) 10(t) Sale-Purchase Agreement dated as of December 30, 1992, by and between Equitable and the Company.(3) 10(u) Sale-Purchase Agreement dated as of December 30, 1992, by and between GG Development and the Company.(3) 10(v) Form of Indemnification Agreement between the Company and its directors and officers.(3) 10(w) Form of Indemnification Agreement between the Operating Partnership, Martin Bucksbaum, Matthew Bucksbaum, Mall Investment L.P. and M. Bucksbaum Company.(3) 10(x) Form of Registration Rights Agreement between the Company and the Bucksbaums.(3) 10(y) Form of Registration Rights Agreement between the Company and certain trustees for the IBM Retirement Plan.(3) 10(z) Form of Incidental Registration Rights Agreement between the Company, Equitable, Frank Russell and Wells Fargo.(3) 10(aa) Form of Letter Agreements restricting sale of certain shares of Common Stock.(3) S-2 78 10(bb) Stock Purchase Agreement, as amended, by and among The Prudential Insurance Company of America, GGP Limited Partnership, Westfield U.S. Investment, Pty. Limited and Whitehall Street Real Estate Limited Partnership III dated as of December 13, 1993.(7) 10(cc)* Letter Agreement dated October 14, 1993, between the Company and Bernard Freibaum.(6) 10(dd) Form of Stock Purchase Agreement by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and Westfield Corporation, Inc.(2) 10(ee) Form of GGP Option Agreement by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and CenterMark Properties, Inc.(2) 10(ff) GGP Agreement, dated May 13, 1996, by and among GGP Limited Partnership, Westfield U.S. Investments Pty. Limited and CenterMark Properties, Inc.(4) 10(gg)* Form of Option Agreement between the Company and certain executive officers. 21 List of Subsidiaries. 23(a) Consent of Coopers & Lybrand L.L.P. - Independent Accountants. 23(b) Consent of Ernst & Young L.L.P. - Independent Accountants. 24 Powers of Attorney 27 Financial Data Schedule *A compensatory plan or arrangement required to be filed. (1) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated January 5, 1996. (2) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated January 3, 1996. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 33-56640), incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated July 16, 1996. (5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (7) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated February 25, 1994. (8) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated July 17, 1996. (9) Previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 33-23035), incorporated herein by reference. S-3 EX-23.(A) 2 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of General Growth Properties, Inc. on Forms S-3 (File Nos. 333-11067, 333-15907, 333-17021, 333-23035, 333-37247, 333-37383 and 333-41603) and the Registration Statement of Forms S-8 (File Nos. 33-79372, 333-07241, 333-11237 and 333-28449) of our reports dated February 11, 1997, on our audits of the consolidated financial statements and financial statement schedule of General Growth Properties, Inc. as of December 31, 1996 and 1995, and for the three years in the period ended December 31, 1996, and of our report dated February 13, 1996, except for information as to earnings per share, dividends per share and average shares outstanding, for which the date is March 3, 1997 on our audits of the consolidated financial statements of Westfield America, Inc. formerly CenterMark Properties, Inc. as of December 31, 1995 and 1994 and for the year ended December 31, 1995 and the period from February 12, 1994 through December 31, 1994 and from January 1, 1994 through February 11, 1994, which reports are included in this Annual Report on Form 10-K/A. Coopers & Lybrand L.L.P. Chicago, Illinois January 12, 1998 EX-23.(B) 3 CONSENT OF ERNST & YOUNG L.L.P. 1 EXHIBIT 23(b) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement of General Growth Properties, Inc. on Forms S-3 (File Nos. 333-11067, 333-15907, 333-17021, 333-23035, 333-37247,333-37383 and 333-41603) and the Registration Statement on Forms S-8 (File Nos. 33-79372, 333-07241, 333-11237 and 333-28449) of our report dated February 28, 1997, on our audit of the consolidated financial statements and financial statement schedule of Westfield America, Inc. and Subsidiaries formerly CenterMark Properties Inc. as of December 31, 1996 and for the year then ended, which report is included in this Annual Report on Form 10-K/A. Ernst & Young L.L.P. Los Angeles, California January 12, 1998 -----END PRIVACY-ENHANCED MESSAGE-----