e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2006
or
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o |
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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)
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Delaware
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42-1283895 |
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|
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
110 N. Wacker Dr., Chicago, IL 60606
(Address of principal executive offices, including Zip Code)
(312) 960-5000
(Registrants telephone number, including area code)
N / A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the
preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
The number of shares of Common Stock, $.01 par value, outstanding on November 3, 2006 was
241,527,741.
GENERAL GROWTH PROPERTIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
|
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|
|
|
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|
|
|
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September 30, |
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December 31, |
|
|
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2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
2,931,065 |
|
|
$ |
2,826,766 |
|
Buildings and equipment |
|
|
19,181,701 |
|
|
|
18,739,445 |
|
Less accumulated depreciation |
|
|
(2,603,130 |
) |
|
|
(2,104,956 |
) |
Developments in progress |
|
|
619,371 |
|
|
|
369,520 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
20,129,007 |
|
|
|
19,830,775 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
1,321,891 |
|
|
|
1,818,097 |
|
Investment land and land held for development and sale |
|
|
1,705,852 |
|
|
|
1,651,063 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
23,156,750 |
|
|
|
23,299,935 |
|
Cash and cash equivalents |
|
|
79,560 |
|
|
|
102,791 |
|
Accounts and notes receivable, net |
|
|
309,629 |
|
|
|
293,351 |
|
Insurance recovery receivables |
|
|
18,409 |
|
|
|
63,382 |
|
Goodwill |
|
|
361,897 |
|
|
|
420,624 |
|
Deferred expenses, net |
|
|
251,191 |
|
|
|
209,825 |
|
Prepaid expenses and other assets |
|
|
818,992 |
|
|
|
917,111 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
24,996,428 |
|
|
$ |
25,307,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Liabilities and Stockholders Equity |
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|
|
|
|
|
|
|
Mortgage notes and other property debt payable |
|
$ |
20,448,902 |
|
|
$ |
20,418,875 |
|
Deferred tax liabilities |
|
|
1,267,302 |
|
|
|
1,286,576 |
|
Accounts payable and accrued expenses |
|
|
1,032,698 |
|
|
|
1,032,414 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
22,748,902 |
|
|
|
22,737,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests: |
|
|
|
|
|
|
|
|
Preferred |
|
|
202,229 |
|
|
|
205,944 |
|
Common |
|
|
361,840 |
|
|
|
430,292 |
|
|
|
|
|
|
|
|
Total minority interests |
|
|
564,069 |
|
|
|
636,236 |
|
|
|
|
|
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Commitments and contingencies |
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Preferred stock: $100 par value; 5,000,000 shares authorized; none
issued and outstanding |
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|
|
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|
|
|
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|
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Stockholders equity: |
|
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|
|
|
|
|
|
Common stock: $.01 par value; 875,000,000 shares authorized;
241,482,806 and 239,865,045 shares issued
as of September 30,2006 and December 31,2005,
respectively |
|
|
2,415 |
|
|
|
2,399 |
|
Additional paid-in capital |
|
|
2,519,639 |
|
|
|
2,469,262 |
|
Retained earnings (accumulated deficit) |
|
|
(824,894 |
) |
|
|
(518,555 |
) |
Unearned compensation-restricted stock |
|
|
(2,569 |
) |
|
|
(280 |
) |
Accumulated other comprehensive income |
|
|
12,073 |
|
|
|
10,454 |
|
Less common stock in treasury, 507,409 shares at September 30, 2006
and 668,396 shares at December 31,2005, at cost |
|
|
(23,207 |
) |
|
|
(30,362 |
) |
|
|
|
|
|
|
|
Total
stockholders equity |
|
|
1,683,457 |
|
|
|
1,932,918 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
24,996,428 |
|
|
$ |
25,307,019 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands, except for per share amounts)
|
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|
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Three Months Ended |
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Nine Months Ended |
|
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|
September 30, |
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|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
431,852 |
|
|
$ |
421,495 |
|
|
$ |
1,294,635 |
|
|
$ |
1,231,992 |
|
Tenant recoveries |
|
|
199,494 |
|
|
|
184,958 |
|
|
|
575,670 |
|
|
|
553,060 |
|
Overage rents |
|
|
14,744 |
|
|
|
13,185 |
|
|
|
37,573 |
|
|
|
36,497 |
|
Land sales |
|
|
47,768 |
|
|
|
79,457 |
|
|
|
218,023 |
|
|
|
254,864 |
|
Management and other fees |
|
|
26,768 |
|
|
|
25,070 |
|
|
|
80,130 |
|
|
|
66,206 |
|
Other |
|
|
25,405 |
|
|
|
21,678 |
|
|
|
78,427 |
|
|
|
67,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
746,031 |
|
|
|
745,843 |
|
|
|
2,284,458 |
|
|
|
2,210,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
57,227 |
|
|
|
49,397 |
|
|
|
166,742 |
|
|
|
155,011 |
|
Repairs and maintenance |
|
|
49,122 |
|
|
|
47,234 |
|
|
|
144,939 |
|
|
|
141,483 |
|
Marketing |
|
|
10,806 |
|
|
|
14,905 |
|
|
|
34,475 |
|
|
|
43,255 |
|
Other property operating expenses |
|
|
105,231 |
|
|
|
99,502 |
|
|
|
282,092 |
|
|
|
285,744 |
|
Land sales operations |
|
|
36,360 |
|
|
|
60,558 |
|
|
|
160,059 |
|
|
|
208,549 |
|
Provision for doubtful accounts |
|
|
3,762 |
|
|
|
5,806 |
|
|
|
17,081 |
|
|
|
14,167 |
|
Property management and other costs |
|
|
44,522 |
|
|
|
30,011 |
|
|
|
136,466 |
|
|
|
107,903 |
|
General and administrative |
|
|
5,022 |
|
|
|
3,559 |
|
|
|
11,712 |
|
|
|
10,005 |
|
Depreciation and amortization |
|
|
168,624 |
|
|
|
173,472 |
|
|
|
512,342 |
|
|
|
507,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
480,676 |
|
|
|
484,444 |
|
|
|
1,465,908 |
|
|
|
1,473,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
265,355 |
|
|
|
261,399 |
|
|
|
818,550 |
|
|
|
737,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
4,027 |
|
|
|
2,844 |
|
|
|
8,717 |
|
|
|
7,288 |
|
Interest expense |
|
|
(284,273 |
) |
|
|
(271,220 |
) |
|
|
(841,677 |
) |
|
|
(761,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest
and equity in income of unconsolidated affiliates |
|
|
(14,891 |
) |
|
|
(6,977 |
) |
|
|
(14,410 |
) |
|
|
(16,421 |
) |
Provision for income taxes |
|
|
(11,225 |
) |
|
|
(14,864 |
) |
|
|
(52,120 |
) |
|
|
(28,958 |
) |
Minority interest |
|
|
(4,181 |
) |
|
|
(3,596 |
) |
|
|
(16,043 |
) |
|
|
(23,973 |
) |
Equity in income of unconsolidated affiliates |
|
|
22,136 |
|
|
|
16,916 |
|
|
|
71,613 |
|
|
|
73,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(8,161 |
) |
|
|
(8,521 |
) |
|
|
(10,960 |
) |
|
|
3,899 |
|
Income from discontinued operations, net of minority interest |
|
|
|
|
|
|
1,687 |
|
|
|
|
|
|
|
4,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,161 |
) |
|
$ |
(6,834 |
) |
|
$ |
(10,960 |
) |
|
$ |
8,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.02 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic
earnings (loss) per share |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.02 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
diluted earnings (loss) per share |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share |
|
$ |
0.41 |
|
|
$ |
0.36 |
|
|
$ |
1.23 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss), Net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,161 |
) |
|
$ |
(6,834 |
) |
|
$ |
(10,960 |
) |
|
$ |
8,883 |
|
Other comprehensive income, net of minority interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains (losses) on financial
instruments |
|
|
(3,440 |
) |
|
|
3,863 |
|
|
|
(2,104 |
) |
|
|
8,634 |
|
Minimum pension liability adjustment |
|
|
231 |
|
|
|
1 |
|
|
|
48 |
|
|
|
(181 |
) |
Foreign currency translation |
|
|
(227 |
) |
|
|
3,835 |
|
|
|
3,928 |
|
|
|
7,273 |
|
Unrealized gains (losses) on available-for-sale
securities |
|
|
(458 |
) |
|
|
(29 |
) |
|
|
(253 |
) |
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income,
net of minority interest |
|
|
(3,894 |
) |
|
|
7,670 |
|
|
|
1,619 |
|
|
|
15,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net |
|
$ |
(12,055 |
) |
|
$ |
836 |
|
|
$ |
(9,341 |
) |
|
$ |
24,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,960 |
) |
|
$ |
8,883 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Minority interest, including discontinued operations |
|
|
16,043 |
|
|
|
25,121 |
|
Equity in income of unconsolidated affiliates |
|
|
(71,613 |
) |
|
|
(73,251 |
) |
Provision for doubtful accounts, including discontinued
operations |
|
|
17,081 |
|
|
|
14,164 |
|
Distributions received from unconsolidated affiliates |
|
|
59,844 |
|
|
|
74,117 |
|
Depreciation, including discontinued operations |
|
|
492,932 |
|
|
|
497,973 |
|
Amortization, including discontinued operations |
|
|
32,014 |
|
|
|
20,533 |
|
Amortization of debt market rate adjustment |
|
|
(24,785 |
) |
|
|
(36,860 |
) |
Participation expense pursuant to Contingent Stock
Agreement |
|
|
59,197 |
|
|
|
75,555 |
|
Land development and acquisition expenditures |
|
|
(144,365 |
) |
|
|
(96,056 |
) |
Cost of land sales |
|
|
78,827 |
|
|
|
114,162 |
|
Debt assumed by purchasers of land |
|
|
(5,032 |
) |
|
|
(5,293 |
) |
Proceeds from the sale of marketable securities |
|
|
4,477 |
|
|
|
9,088 |
|
Straight-line rent amortization |
|
|
(36,763 |
) |
|
|
(41,640 |
) |
Above and below market tenant lease amortization,
including discontinued operations |
|
|
(29,221 |
) |
|
|
(25,349 |
) |
Other intangible amortization |
|
|
4,975 |
|
|
|
8,316 |
|
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(7,140 |
) |
|
|
1,671 |
|
Prepaid expenses and other assets |
|
|
(2,879 |
) |
|
|
(136,879 |
) |
Deferred expenses |
|
|
(36,690 |
) |
|
|
(11,437 |
) |
Accounts payable, accrued expenses and income taxes |
|
|
51,025 |
|
|
|
71,338 |
|
Other, net |
|
|
5,331 |
|
|
|
(1,141 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
452,298 |
|
|
|
493,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition/development of real estate and property additions/improvements |
|
|
(410,405 |
) |
|
|
(359,639 |
) |
Proceeds from sale of property |
|
|
6,234 |
|
|
|
|
|
Increase in investments in unconsolidated affiliates |
|
|
(206,830 |
) |
|
|
(102,827 |
) |
(Increase) decrease in restricted cash |
|
|
10,499 |
|
|
|
(17,634 |
) |
Insurance recoveries |
|
|
25,784 |
|
|
|
5,000 |
|
Distributions received from unconsolidated affiliates in excess of income |
|
|
618,406 |
|
|
|
140,013 |
|
Loans from unconsolidated affiliates, net |
|
|
37,517 |
|
|
|
126,500 |
|
Other, net |
|
|
4,822 |
|
|
|
16,363 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
86,027 |
|
|
|
(192,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Cash distributions paid to common stockholders |
|
|
(295,377 |
) |
|
|
(255,812 |
) |
Cash distributions paid to holders of Common Units |
|
|
(65,182 |
) |
|
|
(58,858 |
) |
Cash
distributions paid to holders of perpetual and convertible preferred units |
|
|
(13,039 |
) |
|
|
(22,897 |
) |
Proceeds from issuance of common stock, including from common stock plans |
|
|
19,822 |
|
|
|
111,721 |
|
Redemption of preferred minority interests |
|
|
|
|
|
|
(183,000 |
) |
Purchase of treasury stock |
|
|
(69,691 |
) |
|
|
(99,580 |
) |
Proceeds
from issuance of mortgage notes and other property debt payable |
|
|
8,979,900 |
|
|
|
3,625,537 |
|
Principal payments on mortgage notes and other property debt payable |
|
|
(9,077,593 |
) |
|
|
(3,408,986 |
) |
Deferred financing costs |
|
|
(37,840 |
) |
|
|
(22,162 |
) |
Other, net |
|
|
(2,556 |
) |
|
|
(5,597 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(561,556 |
) |
|
|
(319,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(23,231 |
) |
|
|
(18,843 |
) |
Cash and cash equivalents at beginning of period |
|
|
102,791 |
|
|
|
39,581 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
79,560 |
|
|
$ |
20,738 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2006 |
|
2005 |
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
864,766 |
|
|
$ |
771,891 |
|
Interest capitalized |
|
|
40,182 |
|
|
|
41,795 |
|
Taxes paid |
|
|
31,476 |
|
|
|
13,422 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Common stock issued pursuant to
Contingent Stock Agreement |
|
$ |
81,730 |
|
|
$ |
59,055 |
|
Common stock issued in exchange
for Operating Partnership Units |
|
|
3,871 |
|
|
|
20,796 |
|
Common stock issued in exchange
for convertible preferred units |
|
|
3,833 |
|
|
|
13,368 |
|
Acquisition of joint venture partner
are of GGP Ivanhoe IV, Inc.: |
|
|
|
|
|
|
|
|
Total assets |
|
|
169,415 |
|
|
|
|
|
Total liabilities |
|
|
169,415 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 ORGANIZATION
Readers of this Quarterly Report should refer to the Companys (as defined below) audited
Consolidated Financial Statements for the year ended December 31, 2005 which are included in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (Commission File
No. 1-11656), as certain footnote disclosures which would substantially duplicate those contained
in the 2005 annual audited Consolidated Financial Statements have been omitted from this report.
Capitalized terms used, but not defined, in this Quarterly Report have the same meanings as in the
Companys 2005 Annual Report on Form 10-K.
General
General Growth Properties, Inc. (General Growth), a Delaware corporation, is a self-administered
and self-managed real estate investment trust, referred to as a REIT. General Growth was
organized in 1986 and through its subsidiaries and affiliates owns, operates, manages, leases,
acquires, develops, expands and finances operating properties located primarily throughout the
United States. General Growth also develops and sells land for residential, commercial and other
uses, primarily in master planned communities. The operating properties consist of retail centers,
office and industrial buildings and mixed-use and other properties. Land development and sales
operations are predominantly related to large-scale, long-term community development projects in
and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. In these notes, the terms
we, us and our refer to General Growth and its subsidiaries (the Company).
Substantially all of our business is conducted through GGP Limited Partnership (the Operating
Partnership or GGPLP). As of September 30, 2006, ownership of the Operating Partnership was as
follows:
|
|
|
|
|
|
82 |
% |
|
General Growth, as sole general partner |
|
|
|
|
|
|
16 |
|
|
Limited partners that indirectly include family members of the original stockholders
of the Company. Represented by common units of limited partnership interest (the Common Units) |
|
|
|
|
|
|
2 |
|
|
Limited partners that include subsequent contributors of properties to the Operating Partnership
which are also represented by Common Units. |
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
|
The Operating Partnership also has preferred units of limited partnership interest (the
Preferred Units) outstanding. Under certain circumstances, the Preferred Units are convertible
into Common Units which are redeemable for shares of General Growth common stock on a one-for-one
basis.
In addition to holding ownership interests in various joint ventures, the Operating Partnership
generally conducts its operations through the following subsidiaries:
|
|
GGPLP L.L.C., a Delaware limited liability company (the LLC),
has ownership interests in the majority of our properties (other
than those acquired in The Rouse Company merger (the TRC
Merger). |
|
|
The Rouse Company LP (TRCLP), successor to The Rouse Company
(TRC), which includes both REIT and taxable REIT subsidiaries
(TRSs), has ownership interests in Consolidated Properties and
Unconsolidated Properties (each as defined below). |
7
General Growth Management, Inc. (GGMI), a TRS, manages, leases, and performs various
other services for some of our Unconsolidated Real Estate Affiliates (as defined below) and, as
of September 30, 2006, approximately 30 properties owned by unaffiliated third parties.
Effective July 1, 2006, GGMI also performs marketing and strategic partnership services for all
of our Consolidated Properties.
In this report, we refer to our ownership interests in majority-owned or controlled properties as
Consolidated Properties, to joint ventures in which we own a non-controlling interest as
Unconsolidated Real Estate Affiliates and the properties owned by such joint ventures as the
Unconsolidated Properties. Our Company Portfolio includes both our Consolidated Properties and
our Unconsolidated Properties.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of General Growth, our
subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint
ventures, the non-controlling partners share of operations (generally computed as the joint
venture partners ownership percentage) is included in Minority Interest. All significant
intercompany balances and transactions have been eliminated.
In the opinion of management, all adjustments (consisting of normal recurring adjustments, unless
otherwise noted) necessary for a fair presentation of the financial position, results of operations
and cash flows for the interim periods have been included. The results for the interim periods
ended September 30, 2006 are not necessarily indicative of the results to be obtained for the full
fiscal year.
Earnings Per Share (EPS)
Information related to our EPS calculations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from continuing operations |
|
$ |
(8,161 |
) |
|
$ |
(8,161 |
) |
|
$ |
(8,521 |
) |
|
$ |
(8,521 |
) |
Discontinued operations, net of
minority interest |
|
|
|
|
|
|
|
|
|
|
1,687 |
|
|
|
1,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(8,161 |
) |
|
$ |
(8,161 |
) |
|
$ |
(6,834 |
) |
|
$ |
(6,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares
outstanding basic |
|
|
241,150 |
|
|
|
241,150 |
|
|
|
238,218 |
|
|
|
238,218 |
|
Effect of dilutive securities
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares
outstanding diluted |
|
|
241,150 |
|
|
|
241,150 |
|
|
|
238,218 |
|
|
|
238,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
$ |
(10,960 |
) |
|
$ |
(10,960 |
) |
|
$ |
3,899 |
|
|
$ |
3,899 |
|
Discontinued
operations, net of
minority interest |
|
|
|
|
|
|
|
|
|
|
4,984 |
|
|
|
4,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,960 |
) |
|
$ |
(10,960 |
) |
|
$ |
8,883 |
|
|
$ |
8,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common
shares
outstanding basic |
|
|
241,034 |
|
|
|
241,034 |
|
|
|
237,299 |
|
|
|
237,299 |
|
Effect of dilutive
securities options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common
shares
outstanding diluted |
|
|
241,034 |
|
|
|
241,034 |
|
|
|
237,299 |
|
|
|
238,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS excludes options where the exercise price was higher than the average market price
of our common stock and, therefore, the effect would be anti-dilutive and options for which the
conditions which must be satisfied prior to the issuance of any such shares were not achieved. For
the three and nine months ended September 30, 2006 and the three months ended September 30, 2005,
all outstanding options are anti-dilutive as we reported losses. Such excluded options totaled 4.1
million shares for the three and nine months ended September 30, 2006, 2.0 million shares for the
three months ended September 30, 2005 and 1.0 million shares for the nine months ended September
30, 2005. Outstanding Common Units have also been excluded from the diluted EPS calculation
because there would be no effect on EPS as the minority interests share of income would also be
added back to net income.
Revenue Recognition and Related Matters
Straight-line rents receivable, which represent the current net cumulative rents recognized prior
to when billed and collectible as provided by the terms of the leases, of $162.0 million as of
September 30, 2006 and $123.5 million as of December 31, 2005 are included in accounts receivable,
net in the accompanying Consolidated Balance Sheets. Minimum rent revenues also include amounts
collected from tenants to allow the termination of their leases prior to their scheduled
termination dates and accretion of above and below-market leases on acquired properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination income |
|
$ |
1,840 |
|
|
$ |
1,846 |
|
|
$ |
20,595 |
|
|
$ |
11,075 |
|
Accretion of above and below-market leases, net |
|
|
9,375 |
|
|
|
11,108 |
|
|
|
29,221 |
|
|
|
25,635 |
|
Management fees primarily represent management and leasing fees, financing fees and fees for
other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate
Affiliates and for properties owned by third parties. Fees charged to the Unconsolidated
Properties totaled approximately $26.4 million for the three months ended September 30, 2006, $17.6
million for the three months ended September 30, 2005, $75.5 million for the nine months ended
September 30, 2006 and $47.0 million for the nine months ended September 30, 2005. Such fees are
recognized as revenue when earned.
Stock-Based Compensation Expense
On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), ShareBased Payment, (SFAS 123(R)). SFAS 123(R) requires companies to estimate
the fair
9
value of sharebased payment awards on the date of grant using an optionpricing model. The value
of the portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the Consolidated Statements of Income and Comprehensive Income. SFAS
123(R) replaces SFAS No. 123, Accounting for StockBased Compensation (SFAS 123) which we
adopted in the second quarter of 2002. In March 2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123(R). We have applied the
provisions of SAB 107 in our adoption of SFAS 123(R).
We adopted SFAS 123(R) using the modified prospective transition method, which requires the
application of the accounting standard as of January 1, 2006. Our Consolidated Financial Statements
as of and for the three and nine months ended September 30, 2006 reflect the impact of SFAS 123(R).
In accordance with the modified prospective transition method, our Consolidated Financial
Statements for prior periods have not been restated to reflect, and do not include, the impact of
SFAS 123(R). Because we had previously adopted SFAS 123, the impact of the adoption of SFAS 123(R)
was not significant to our Consolidated Financial Statements. SFAS 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Under SFAS 123, we did not estimate forfeitures for
options issued pursuant to our Incentive Stock Plans. The cumulative effect of estimating
forfeitures for these plans decreased compensation expense by approximately $150 thousand and has
been reflected in our Consolidated Statements of Income and Comprehensive Income in the nine months
ended September 30, 2006.
Prior to the adoption of SFAS 123 in the second quarter of 2002, we accounted for stockbased
awards using the intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under
the intrinsic value method, compensation cost is recognized for common stock awards or stock
options only if the quoted market price of the stock as of the grant date (or other measurement
date, if later) is greater than the amount the grantee must pay to acquire the stock. Because the
exercise price of stock options and the fair value of restricted stock grants equaled the fair
market value of the underlying stock at the date of grant, no compensation expense related to
grants issued under the 1993 Stock Incentive Plan was recognized. As a result of the cash
settlement option available for thresholdvesting stock options (TSOs) issued prior to 2004,
compensation expense equal to the change in the market price of our stock at the end of each
reporting period continues to be recognized for all such unexercised TSOs.
On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
No. FAS 123(R)-3 Transition Election Related to Accounting for Tax Effects of ShareBased Payment
Awards. The transition methods include procedures to establish the beginning balance of the
additional paidin capital pool (APIC pool) related to the tax effects of employee stockbased
compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee stockbased compensation awards that are outstanding
upon adoption of SFAS 123(R). Although we must adopt a transition method
by January 1, 2007, we are still assessing the impact of such
adoption.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. For example, significant estimates
and assumptions have been made with respect to useful lives of assets, capitalization of
development and leasing costs, provision for income taxes, recoverable amounts of receivables and
deferred taxes, initial valuations and related amortization
10
periods of deferred costs and intangibles, particularly with respect to property acquisitions, and
cost ratios and completion percentages used for land sales. Actual results could differ from those
estimates.
Reclassifications and Corrections
Certain amounts in the 2005 Consolidated Financial Statements, including discontinued operations
(Note 6), have been reclassified to conform to the current year presentation. During the first
quarter of 2006, we made a correction to the purchase price allocation of TRCLP that was recorded
in our 2005 Consolidated Financial Statements. Such correction reduced deferred tax liabilities by
approximately $58.7 million with a corresponding reduction to goodwill and had no impact on
earnings or cash flows for the year ended December 31, 2005 or the three and nine months ended
September 30, 2006. Additionally, we reclassified approximately $65 million of below-market ground
leases to owned land in the second quarter of 2006. This amount had previously been included in
prepaid expenses and other assets in our Consolidated Balance Sheets. This reclassification had no
impact on the recorded goodwill in the acquisition. As a result of this change and the
corresponding revision of previously recorded amortization, there was a decrease in other property
operating costs of $1.9 million and an increase in net income of $1.5 million during the quarter
ended June 30, 2006. During the second quarter of 2006, we also corrected the amortization period
used to amortize the tenant-related intangible assets and liabilities at one of the properties
acquired in the TRC Merger. This correction increased depreciation and amortization by $2.4
million and decreased net income by $2.0 million. We believe that the effects of these changes are
not material to our Consolidated Financial Statements.
NOTE 2 INTANGIBLES
The following table summarizes our intangible assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Gross Asset |
|
(Amortization)/ |
|
Net Carrying |
|
|
(Liability) |
|
Accretion |
|
Amount |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
667,090 |
|
|
$ |
(279,210 |
) |
|
$ |
387,880 |
|
Above-market |
|
|
106,108 |
|
|
|
(47,337 |
) |
|
|
58,771 |
|
Below-market |
|
|
(294,052 |
) |
|
|
159,811 |
|
|
|
(134,241 |
) |
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(16,968 |
) |
|
|
889 |
|
|
|
(16,079 |
) |
Below-market |
|
|
293,435 |
|
|
|
(11,183 |
) |
|
|
282,252 |
|
Real estate tax stabilization
agreement |
|
|
91,879 |
|
|
|
(7,520 |
) |
|
|
84,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
664,444 |
|
|
$ |
(176,190 |
) |
|
$ |
488,254 |
|
Above-market |
|
|
106,117 |
|
|
|
(29,023 |
) |
|
|
77,094 |
|
Below-market |
|
|
(293,967 |
) |
|
|
111,697 |
|
|
|
(182,270 |
) |
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(16,968 |
) |
|
|
535 |
|
|
|
(16,433 |
) |
Below-market |
|
|
358,524 |
|
|
|
(8,736 |
) |
|
|
349,788 |
|
Real estate tax stabilization
agreement |
|
|
91,879 |
|
|
|
(4,691 |
) |
|
|
87,188 |
|
Changes in gross asset (liability) balances are the result of the GGP Ivanhoe IV, Inc.
acquisition (Note 3) and the ground lease reclassification (Note 1).
11
Amortization/accretion of these intangible assets and liabilities, and similar assets and
liabilities from our Unconsolidated Real Estate Affiliates, decreased operating income by
approximately $26.6 million for the three months ended September 30, 2006, $52.2 million for the
three months ended September 30, 2005, $87.8 million for the nine months ended September 30, 2006
and $117.7 million for the nine months ended September 30, 2005.
Future amortization/accretion, including our share of such items from Unconsolidated Real Estate
Affiliates, is estimated to decrease annual operating income by approximately $120 million in 2006
and 2007, $90 million in 2008, $60 million in 2009, and $40 million in 2010.
NOTE 3 INVESTMENTS IN AND LOANS TO/FROM UNCONSOLIDATED REAL ESTATE AFFILIATES
The Unconsolidated Real Estate Affiliates constitute our non-controlling investment in real estate
joint ventures that own and/or develop shopping centers and other retail and investment property.
Generally, we share in the profits and losses, cash flows and other matters relating to our
investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership
percentages. We manage most of the properties owned by these joint ventures. Some of the joint
ventures have elected to be taxed as REITs. Since we have joint interest and control of the
Unconsolidated Properties with our venture partners, we account for these joint ventures using the
equity method.
In certain circumstances, we are obligated (or can elect) to fund debt in excess of our pro rata
share of the debt of our Unconsolidated Real Estate Affiliates. Such Retained Debt totaled $170.7
million as of September 30, 2006 and $302.7 million as of December 31, 2005, and has been reflected
as a reduction of our Investment in Unconsolidated Real Estate Affiliates.
The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same
as ours.
On April 6, 2006, we acquired our joint venture partners 49% interest in GGP Ivanhoe IV, Inc.,
which owns Eastridge Mall, for approximately $115 million, which was paid with a 5.95% fixed-rate
note. This note was repaid, prior to its scheduled maturity of September 2006, in August 2006 in
conjunction with the refinancing of the entire property, with a $170 million, 5.79% fixed-rate
mortgage note due in 2011. As of April 6, 2006, GGP Ivanhoe IV, Inc. has been consolidated for
accounting purposes.
12
Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates
The following is condensed combined financial information for our Unconsolidated Real Estate
Affiliates as of September 30, 2006 and December 31, 2005 and for the three and nine months ended
September 30, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
Condensed Combined Balance Sheets Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
937,731 |
|
|
$ |
919,532 |
|
Buildings and equipment |
|
|
7,751,150 |
|
|
|
7,658,896 |
|
Less accumulated depreciation |
|
|
(1,532,283 |
) |
|
|
(1,304,226 |
) |
Developments in progress |
|
|
803,280 |
|
|
|
425,057 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
7,959,878 |
|
|
|
7,699,259 |
|
Investment in unconsolidated joint ventures |
|
|
36,493 |
|
|
|
89,430 |
|
Investment land and land held for
development and sale |
|
|
293,350 |
|
|
|
259,386 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
8,289,721 |
|
|
|
8,048,075 |
|
Cash and cash equivalents |
|
|
196,319 |
|
|
|
194,494 |
|
Accounts and notes receivable, net |
|
|
145,906 |
|
|
|
161,218 |
|
Deferred expenses, net |
|
|
151,194 |
|
|
|
148,561 |
|
Prepaid expenses and other assets |
|
|
404,129 |
|
|
|
259,480 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,187,269 |
|
|
$ |
8,811,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgage notes and other property debt payable |
|
$ |
7,707,241 |
|
|
$ |
6,325,118 |
|
Accounts payable and accrued expenses |
|
|
566,070 |
|
|
|
455,596 |
|
Owners equity |
|
|
913,958 |
|
|
|
2,031,114 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
9,187,269 |
|
|
$ |
8,811,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment In and Loans To/From Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
Owners equity |
|
$ |
913,958 |
|
|
$ |
2,031,114 |
|
Less joint venture partners equity |
|
|
(509,544 |
) |
|
|
(1,188,150 |
) |
Capital or basis differences and loans |
|
|
917,477 |
|
|
|
975,133 |
|
|
|
|
|
|
|
|
Investment in and loans to/from
Unconsolidated Real Estate Affiliates |
|
$ |
1,321,891 |
|
|
$ |
1,818,097 |
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Combined Statements of Income Unconsolidated
Real Estate Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
210,301 |
|
|
$ |
198,332 |
|
|
$ |
628,477 |
|
|
$ |
583,708 |
|
Tenant recoveries |
|
|
95,729 |
|
|
|
89,814 |
|
|
|
282,112 |
|
|
|
264,966 |
|
Overage rents |
|
|
4,998 |
|
|
|
4,031 |
|
|
|
12,236 |
|
|
|
9,793 |
|
Land sales |
|
|
41,053 |
|
|
|
39,860 |
|
|
|
114,779 |
|
|
|
110,761 |
|
Management and other fees |
|
|
15,299 |
|
|
|
|
|
|
|
19,021 |
|
|
|
|
|
Other |
|
|
35,035 |
|
|
|
25,107 |
|
|
|
117,077 |
|
|
|
93,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
402,415 |
|
|
|
357,144 |
|
|
|
1,173,702 |
|
|
|
1,062,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
29,755 |
|
|
|
28,024 |
|
|
|
89,595 |
|
|
|
83,374 |
|
Repairs and maintenance |
|
|
20,923 |
|
|
|
20,437 |
|
|
|
63,134 |
|
|
|
62,064 |
|
Marketing |
|
|
5,665 |
|
|
|
6,223 |
|
|
|
18,580 |
|
|
|
20,052 |
|
Other property operating costs |
|
|
75,103 |
|
|
|
54,236 |
|
|
|
228,295 |
|
|
|
178,955 |
|
Land sales operations |
|
|
26,257 |
|
|
|
29,410 |
|
|
|
76,943 |
|
|
|
65,165 |
|
Provision for doubtful accounts |
|
|
723 |
|
|
|
3,559 |
|
|
|
2,705 |
|
|
|
6,910 |
|
Property management and other costs |
|
|
30,352 |
|
|
|
14,203 |
|
|
|
60,929 |
|
|
|
35,415 |
|
General and administrative |
|
|
2,026 |
|
|
|
657 |
|
|
|
4,887 |
|
|
|
9,114 |
|
Depreciation and amortization |
|
|
65,968 |
|
|
|
64,328 |
|
|
|
195,909 |
|
|
|
190,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
256,772 |
|
|
|
221,077 |
|
|
|
740,977 |
|
|
|
651,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
145,643 |
|
|
|
136,067 |
|
|
|
432,725 |
|
|
|
410,916 |
|
Interest income |
|
|
9,710 |
|
|
|
4,368 |
|
|
|
21,546 |
|
|
|
7,773 |
|
Interest expense |
|
|
(90,315 |
) |
|
|
(80,643 |
) |
|
|
(258,695 |
) |
|
|
(221,835 |
) |
Benefit (provision) for income taxes |
|
|
(383 |
) |
|
|
21 |
|
|
|
(1,191 |
) |
|
|
(190 |
) |
Equity in income of unconsolidated joint ventures |
|
|
1,321 |
|
|
|
1,262 |
|
|
|
4,473 |
|
|
|
3,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,976 |
|
|
$ |
61,075 |
|
|
$ |
198,858 |
|
|
$ |
200,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity In Income of Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Unconsolidated Real Estate Affiliates |
|
$ |
65,976 |
|
|
$ |
61,075 |
|
|
$ |
198,858 |
|
|
$ |
200,229 |
|
Joint venture partners share of income of
Unconsolidated Real Estate Affiliates |
|
|
(35,412 |
) |
|
|
(31,810 |
) |
|
|
(106,918 |
) |
|
|
(103,627 |
) |
Amortization of capital or basis differences |
|
|
(8,428 |
) |
|
|
(12,349 |
) |
|
|
(20,327 |
) |
|
|
(23,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of
unconsolidated affiliates |
|
$ |
22,136 |
|
|
$ |
16,916 |
|
|
$ |
71,613 |
|
|
$ |
73,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
In addition, the following is summarized financial information for certain individually
significant Unconsolidated Real Estate Affiliates for the three and nine months ended September 30,
2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
58,174 |
|
|
$ |
56,049 |
|
|
$ |
173,757 |
|
|
$ |
168,726 |
|
Tenant recoveries |
|
|
26,013 |
|
|
|
23,330 |
|
|
|
74,245 |
|
|
|
70,312 |
|
Overage rents |
|
|
809 |
|
|
|
973 |
|
|
|
2,825 |
|
|
|
2,642 |
|
Other |
|
|
2,456 |
|
|
|
2,154 |
|
|
|
7,063 |
|
|
|
6,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
87,452 |
|
|
|
82,506 |
|
|
|
257,890 |
|
|
|
247,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,545 |
|
|
|
7,673 |
|
|
|
23,200 |
|
|
|
22,469 |
|
Repairs and maintenance |
|
|
6,073 |
|
|
|
6,167 |
|
|
|
18,679 |
|
|
|
19,376 |
|
Marketing |
|
|
1,783 |
|
|
|
2,171 |
|
|
|
5,783 |
|
|
|
7,095 |
|
Other property operating costs |
|
|
11,782 |
|
|
|
8,880 |
|
|
|
32,844 |
|
|
|
26,188 |
|
Provision for doubtful accounts |
|
|
819 |
|
|
|
391 |
|
|
|
1,006 |
|
|
|
1,016 |
|
Property management and other costs |
|
|
5,360 |
|
|
|
5,051 |
|
|
|
16,354 |
|
|
|
15,125 |
|
General and administrative |
|
|
153 |
|
|
|
133 |
|
|
|
328 |
|
|
|
329 |
|
Depreciation and amortization |
|
|
17,149 |
|
|
|
17,265 |
|
|
|
53,034 |
|
|
|
51,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
50,664 |
|
|
|
47,731 |
|
|
|
151,228 |
|
|
|
142,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
36,788 |
|
|
|
34,775 |
|
|
|
106,662 |
|
|
|
105,090 |
|
Interest income |
|
|
4,868 |
|
|
|
1,332 |
|
|
|
9,726 |
|
|
|
2,499 |
|
Interest expense |
|
|
(26,875 |
) |
|
|
(21,633 |
) |
|
|
(71,455 |
) |
|
|
(62,795 |
) |
Benefit (provision) for income taxes |
|
|
(93 |
) |
|
|
61 |
|
|
|
(226 |
) |
|
|
(20 |
) |
Equity in income of unconsolidated
joint ventures |
|
|
1,321 |
|
|
|
1,262 |
|
|
|
4,473 |
|
|
|
3,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
16,009 |
|
|
$ |
15,797 |
|
|
$ |
49,180 |
|
|
$ |
48,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart II |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
48,610 |
|
|
$ |
49,857 |
|
|
$ |
149,281 |
|
|
$ |
143,115 |
|
Tenant recoveries |
|
|
23,126 |
|
|
|
23,904 |
|
|
|
69,359 |
|
|
|
69,329 |
|
Overage rents |
|
|
892 |
|
|
|
971 |
|
|
|
2,484 |
|
|
|
2,566 |
|
Other |
|
|
1,981 |
|
|
|
1,639 |
|
|
|
5,630 |
|
|
|
5,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
74,609 |
|
|
|
76,371 |
|
|
|
226,754 |
|
|
|
220,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,256 |
|
|
|
6,793 |
|
|
|
22,175 |
|
|
|
20,530 |
|
Repairs and maintenance |
|
|
4,418 |
|
|
|
4,533 |
|
|
|
13,386 |
|
|
|
13,824 |
|
Marketing |
|
|
1,483 |
|
|
|
2,016 |
|
|
|
5,279 |
|
|
|
6,883 |
|
Other property operating costs |
|
|
9,662 |
|
|
|
6,005 |
|
|
|
27,082 |
|
|
|
20,019 |
|
Provision for doubtful accounts |
|
|
(273 |
) |
|
|
2,297 |
|
|
|
65 |
|
|
|
3,374 |
|
Property management and other costs |
|
|
4,663 |
|
|
|
4,310 |
|
|
|
14,047 |
|
|
|
12,680 |
|
General and administrative |
|
|
1,788 |
|
|
|
433 |
|
|
|
4,376 |
|
|
|
1,435 |
|
Depreciation and amortization |
|
|
16,307 |
|
|
|
15,823 |
|
|
|
47,945 |
|
|
|
45,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
45,304 |
|
|
|
42,210 |
|
|
|
134,355 |
|
|
|
124,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
29,305 |
|
|
|
34,161 |
|
|
|
92,399 |
|
|
|
95,832 |
|
Interest income |
|
|
1,996 |
|
|
|
2,417 |
|
|
|
6,840 |
|
|
|
3,569 |
|
Interest expense |
|
|
(23,045 |
) |
|
|
(22,671 |
) |
|
|
(63,878 |
) |
|
|
(56,541 |
) |
Benefit (provision) for income taxes |
|
|
46 |
|
|
|
216 |
|
|
|
(81 |
) |
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,302 |
|
|
$ |
14,123 |
|
|
$ |
35,280 |
|
|
$ |
43,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Teachers |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
26,507 |
|
|
$ |
21,009 |
|
|
$ |
78,811 |
|
|
$ |
61,917 |
|
Tenant recoveries |
|
|
11,394 |
|
|
|
9,895 |
|
|
|
34,099 |
|
|
|
29,031 |
|
Overage rents |
|
|
1,173 |
|
|
|
240 |
|
|
|
2,300 |
|
|
|
313 |
|
Other |
|
|
438 |
|
|
|
391 |
|
|
|
1,516 |
|
|
|
1,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
39,512 |
|
|
|
31,535 |
|
|
|
116,726 |
|
|
|
92,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
2,915 |
|
|
|
2,862 |
|
|
|
8,773 |
|
|
|
8,399 |
|
Repairs and maintenance |
|
|
1,948 |
|
|
|
1,698 |
|
|
|
5,765 |
|
|
|
5,013 |
|
Marketing |
|
|
1,051 |
|
|
|
783 |
|
|
|
2,932 |
|
|
|
2,564 |
|
Other property operating costs |
|
|
4,713 |
|
|
|
1,449 |
|
|
|
13,694 |
|
|
|
8,974 |
|
Provision for doubtful accounts |
|
|
13 |
|
|
|
27 |
|
|
|
241 |
|
|
|
205 |
|
Property management and other costs |
|
|
2,212 |
|
|
|
1,731 |
|
|
|
6,554 |
|
|
|
5,055 |
|
General and administrative |
|
|
68 |
|
|
|
83 |
|
|
|
151 |
|
|
|
156 |
|
Depreciation and amortization |
|
|
6,341 |
|
|
|
5,250 |
|
|
|
20,099 |
|
|
|
15,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
19,261 |
|
|
|
13,883 |
|
|
|
58,209 |
|
|
|
45,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
20,251 |
|
|
|
17,652 |
|
|
|
58,517 |
|
|
|
46,727 |
|
Interest income |
|
|
195 |
|
|
|
178 |
|
|
|
623 |
|
|
|
482 |
|
Interest expense |
|
|
(11,093 |
) |
|
|
(6,809 |
) |
|
|
(32,072 |
) |
|
|
(16,934 |
) |
Provision for income taxes |
|
|
(213 |
) |
|
|
(236 |
) |
|
|
(618 |
) |
|
|
(521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,140 |
|
|
$ |
10,785 |
|
|
$ |
26,450 |
|
|
$ |
29,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 MORTGAGE NOTES AND OTHER PROPERTY DEBT PAYABLE
Mortgage notes and other property debt payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
$ |
868,765 |
|
|
$ |
1,181,895 |
|
Other collateralized mortgage notes and other debt payable |
|
|
13,576,856 |
|
|
|
11,092,544 |
|
Corporate and other unsecured term loans |
|
|
2,390,381 |
|
|
|
1,631,257 |
|
|
|
|
|
|
|
|
Total fixed-rate debt |
|
|
16,836,002 |
|
|
|
13,905,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
306,270 |
|
Other collateralized mortgage notes and other debt payable |
|
|
386,300 |
|
|
|
888,842 |
|
Credit facilities |
|
|
170,400 |
|
|
|
180,500 |
|
Corporate and other unsecured term loans |
|
|
3,056,200 |
|
|
|
5,137,567 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
3,612,900 |
|
|
|
6,513,179 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,448,902 |
|
|
$ |
20,418,875 |
|
|
|
|
|
|
|
|
17
The weighted-average annual interest rate (including the effects of swaps and excluding the
effects of deferred finance costs) on our mortgage notes and other property debt payable was 5.71%
at September 30, 2006, 5.64% at December 31, 2005 and 5.49% at September 30, 2005.
Commercial Mortgage-Backed Securities
In November 1997 (refinanced in November 2004), the Operating Partnership and GGP Ivanhoe I
completed the placement of fixed-rate non-recourse commercial mortgage backed securities (the CMBS
13). The commercial mortgage-backed securities have cross-default provisions and are
cross-collateralized. Under certain cross-default provisions, a default under any mortgage note
included in a cross-defaulted package may constitute a default under all such mortgage notes in the
package and may lead to acceleration of the indebtedness due on each property within the collateral
package. In general, the cross-defaulted properties are under common ownership, however, $138.6
million of unconsolidated debt at two Unconsolidated Properties is cross-defaulted and
cross-collateralized by $868.8 million of consolidated debt at eleven Consolidated Properties. As
of September 30, 2006, the weighted-average interest rate on the CMBS 13 was 5.40% (range of 4.20%
to 6.71%).
In December 2001, the Operating Partnership and certain Unconsolidated Real Estate Affiliates
completed the placement of non-recourse commercial mortgage pass-through certificates (the GGP
MPTC). The principal amount of the GGP MPTC was attributed to the Operating Partnership,
GGP/Homart, GGP/Homart II, GGP Ivanhoe III and GGP Ivanhoe IV. As discussed below, the GGP MPTC
was repaid in the third quarter of 2006.
Other Collateralized Mortgage Notes and Other Property Debt Payable
Collateralized mortgage notes and other property debt payable consist primarily of non-recourse
notes collateralized by individual properties and equipment. Substantially all of the mortgage
notes are non-recourse to us. Certain mortgage notes payable may be prepaid but are generally
subject to a prepayment penalty equal to a yield-maintenance premium or a percentage of the loan
balance.
The fixed-rate collateralized mortgage notes and other property debt payable bear interest ranging
from 3.17% to 11.55%. The variable-rate collateralized mortgage notes and other property debt
payable bear interest at LIBOR (5.33% at September 30, 2006) plus 125 to 190 basis points.
Corporate and Other Unsecured Term Loans
In February 2006, we entered into several debt agreements. The proceeds of these transactions were
used to reduce the approximately $5.3 billion outstanding under the 2004 Credit Facility, which was
entered into to fund the cash portion of the TRC Merger consideration and, with other cash and
financing sources, fund other costs of the merger transaction.
On February 24, 2006, we amended the 2004 Credit Facility and entered into a Second Amended and
Restated Credit Agreement (the 2006 Credit Facility). The 2006 Credit Facility provides for a
$2.85 billion term loan (the Term Loan) and a $650 million revolving credit facility. As of
September 30, 2006, $479.6 million is available to be drawn on the revolving credit facility.
The 2006 Credit Facility has a four year term, with a one year extension option. The interest rate
ranges from LIBOR plus 1.15% to LIBOR plus 1.5%, depending on our leverage ratio and assuming we
maintain our election to have these loans designated as Eurodollar loans. The interest rate, as of
September 30, 2006, was LIBOR plus 1.25%. Quarterly principal payments on the Term Loan of $12.5
million begin March 31, 2007, with the balance due at maturity.
18
Under the terms of the 2006 Credit Facility, we are subject to customary affirmative and negative
covenants as we were under the 2004 Credit Facility. If a default occurs, the lenders will have
the option of declaring all outstanding amounts immediately due and payable. Events of default
include a failure to maintain our REIT status under the Internal Revenue Code, a failure to remain
listed on the New York Stock Exchange and such customary events as nonpayment of principal,
interest, fees or other amounts, breach of representations and warranties, breach of covenant,
cross-default to other indebtedness and certain bankruptcy events.
Concurrently with the 2006 Credit Facility transaction and as described below, we also entered into
a $1.4 billion term loan (the Short Term Loan), we issued $200 million of trust preferred
securities (the TRUPS) through GGP Capital Trust I and TRCLP entered into a $500 million term
loan (the Bridge Loan). All of these arrangements are subject to customary affirmative and
negative covenants and events of default.
On May 5, 2006 we fully repaid the Bridge Loan with a portion of the proceeds obtained from the
sale of bonds issued by TRCLP. The Bridge Loan bore interest at LIBOR plus 1.3% until May 24, 2006
and at LIBOR plus 1.55% thereafter and was scheduled to be due August 24, 2006. A total of $800
million of senior unsecured notes were issued by TRCLP, providing for semi-annual payments
(commencing November 1, 2006) of interest only at a rate of 6.75% and payment of the principal in
full on May 1, 2013.
During the quarter ended September 30, 2006, we closed various refinancing transactions on our
Consolidated and Unconsolidated Properties. The proceeds of these transactions were used to fully
repay the GGP MPTC (which includes Ala Moana) and the $1.4 billion Short Term Loan. The financing
(including our share of the Unconsolidated Properties), substantially all of which is individual
non-recourse secured property level mortgage debt, has a weighted average interest rate of
approximately 5.7%, which is approximately 50 basis points lower than the weighted average rate on
the previously outstanding debt that was repaid as a result of these transactions. The refinancing
also converted approximately $2 billion of Consolidated and $360 million of Unconsolidated (at
our ownership share) variable rate debt to fixed rate debt.
As
mentioned above, GGP Capital Trust I, a Delaware statutory trust (the
Trust) and a wholly-owned subsidiary of GGPLP,
completed a private placement of $200 million of TRUPS. The Trust also issued $6.2 million of
Common Securities to GGPLP. The Trust used the proceeds from the sale of the TRUPS and Common
Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036.
The TRUPS require distributions equal to LIBOR plus 1.45%. Distributions are cumulative and
accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed
beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of the Junior
Subordinated Notes. The Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the
Trust is a wholly-owned subsidiary of GGPLP, we are not the primary beneficiary of the Trust and,
accordingly, it is not consolidated for accounting purposes under FASB Interpretation No. 46 (as
revised), Consolidation of Variable Interest Entities An Interpretation of ARB No. 51 (FIN
46R). As a result, we have recorded the Junior Subordinated Notes as Mortgage Notes and Other
Property Debt Payable and our common equity interest in the Trust as Prepaid Expenses and Other
Assets in our Consolidated Balance Sheet as of September 30, 2006.
Unsecured Term Loans
In conjunction with the TRC Merger, we assumed certain publicly-traded unsecured debt which
included 8.78% and 8.44% Notes due 2007, 3.625% Notes and 8% Notes due 2009, 7.2% Notes due 2012
and 5.375% Notes due 2013. Such debt totaled $1.5 billion at both September 30, 2006 and December
31,
19
2005. Under the terms of the Indenture dated as of February 24, 1995, as long as these notes are
outstanding, TRCLP is required to file with the SEC the annual and quarterly reports and other
documents which TRCLP would be required to file if it was subject to Section 13(a) or 15(d) of the
Exchange Act, regardless of whether TRCLP was subject to such requirements. TRCLP is no longer
required to file reports or other documents with the SEC under Section 13(a) or 15(d). Accordingly,
in lieu of such filing, certain financial and other information related to TRCLP has been included
in Item 5 of this Quarterly Report on Form 10-Q. We believe that such TRCLP information is
responsive to the terms of the Indenture and that any additional information needed or actions
required can be supplied or addressed.
In conjunction with our acquisition of JP Realty in 2002, we assumed $100 million of ten-year
senior unsecured notes which bear interest at a fixed rate of 7.29% and were issued in March 1998.
The notes require semi-annual interest payments. Annual principal payments of $25 million began in
March 2005 and continue until the loan is fully repaid in March 2008.
Interest Rate Swaps
To achieve a more desirable balance between fixed and variable-rate debt, we have also entered into
certain swap agreements as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 Credit |
|
Property |
|
|
Agreement |
|
Specific |
Total notional amount (in millions) |
|
$ |
425.0 |
|
|
$ |
195.0 |
|
Average fixed pay rate |
|
|
3.64 |
% |
|
|
4.78 |
% |
Average variable receive rate |
|
LIBOR |
|
LIBOR |
Such swap agreements have been designated as cash flow hedges and are intended to hedge our
exposure to future interest charges on the related variable-rate debt.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of approximately $220 million as of September
30, 2006 and approximately $210 million as of December 31, 2005. These letters of credit and bonds
were issued primarily in connection with insurance requirements, special real estate assessments
and construction obligations.
NOTE 5 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal actions relating to
the ownership and operations of our properties. In managements opinion, the liabilities, if any,
that may ultimately result from such legal actions are not expected to have a material adverse
effect on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. Consolidated rental expense,
including participation rent and excluding amortization of above and below market ground leases and
straight-line rents, related to these leases was $2.6 million for the three months ended September
30, 2006, $2.0 million for the three months ended September 30, 2005, $7.4 million for the nine
months ended September 30, 2006 and $6.0 million for the nine months ended September 30, 2005. The
leases generally provide for a right of first refusal in our favor in the event of a proposed sale
of the property by the landlord.
20
We periodically enter into contingent agreements for the acquisition of properties. Each
acquisition is subject to satisfactory completion of due diligence and, in the case of property
acquired under development, completion of the project.
TRC acquired various assets, including Summerlin, a master planned community in suburban Las Vegas,
Nevada, in the acquisition of The Hughes Corporation (Hughes) in 1996. In connection with the
acquisition of Hughes, TRC entered into a Contingent Stock Agreement (CSA) for the benefit of the
former Hughes owners or their successors (beneficiaries). Under the terms of the CSA, shares of
TRC common stock were issuable to the beneficiaries based on the appraised values of defined asset
groups, including Summerlin, at specified termination dates through 2009 and/or cash flows from the
development and/or sale of those assets prior to the termination dates.
We assumed TRCs obligation under the CSA to issue shares of common stock twice a year to
beneficiaries under the CSA. The amount of shares is based upon a formula set forth under the CSA
and upon our stock price. Such issuances could be dilutive to our existing stockholders if the
delivery option is satisfied by the issuance of new shares rather than from treasury stock or
shares purchased on the open market. In addition, under the assumption agreement, we agreed that
following the effective time of the TRC Merger there would not be a prejudicial effect on the
beneficiaries under the CSA with respect to their receipt of securities pursuant to the CSA as a
result of the TRC Merger. We further agreed to indemnify and hold harmless the beneficiaries
against losses arising out of any breach by us of the foregoing covenants.
We account for the beneficiaries share of earnings from the assets as an operating expense. We
will account for any distributions to the beneficiaries in 2009, which are likely to be
significant, in connection with a valuation related to assets that we own as of such date as
additional investments in the related assets (that is, contingent consideration). Pursuant to the
CSA, we delivered shares of our common stock to the beneficiaries totaling 1,059,191 shares (all
from treasury shares) in August 2006 and 755,828 shares in February 2006 (including 668,333
treasury shares).
Two of our operating retail properties (Oakwood Center in Gretna, Louisiana and Riverwalk
Marketplace, located near the convention center in downtown New Orleans) continue to have
unrepaired damage and tenant vacancies which arose concurrently with hurricane damage in the New
Orleans area in September 2005. Riverwalk Marketplace partially reopened in November 2005 and
Oakwood Center is not scheduled to substantially reopen until October 2007. We have comprehensive
insurance coverage for both property damage and business interruption and, therefore, have recorded
insurance recovery receivables for both of these coverages. The net book value of the property
damage at these properties is currently estimated to be approximately $37 million; however, we are
still assessing the damage estimates, including discussions with representatives of our insurance
carriers regarding the scope of repair, cleaning, and replacement required, and the actual net book
value write-off could vary from this estimate. Changes to these estimates have been and will be
recorded in the periods in which they are determined. During 2005, we recorded a net fixed asset
write-off and a corresponding insurance claim recovery receivable for the initial internal estimate
of the damage amount, both of which have subsequently been revised (primarily due to reductions in
the degree of replacements versus clean and repair work anticipated) to the approximately $37
million in property damage currently estimated as of September 30, 2006. While we believe it is
probable that the insurance proceeds will be sufficient to cover the cost of restoring the property
damage at the properties and certain business interruption amounts, certain deductibles,
limitations and exclusions are expected to apply with respect to both current and future matters.
No determination has been made as to the total amount or timing of those insurance payments.
However, as of the date of this report, an aggregate of $32.2 million in insurance proceeds related
to property damage and business interruption at these properties have been received, which has been
applied against insurance recovery receivables. In addition, as certain disputes currently exist or
may occur in the future with our insurance carriers, we have initiated litigation to preserve our
rights
21
concerning our claims. Finally, as of September 30, 2006, the majority of the remaining amounts
receivable related to these properties represents the recovery of the net book value of fixed
assets written off.
NOTE 6 DISCONTINUED OPERATIONS AND GAINS ON DISPOSITIONS OF INTERESTS IN OPERATING PROPERTIES
On December 21, 2005, as approved in December 2005 by our Board of Directors, we sold seven
buildings totaling approximately 705,000 square feet located in the Hunt Valley Business Community
in Hunt Valley, Maryland and 14 office buildings totaling approximately 402,000 square feet in the
Rutherford Business Center, Woodlawn, Maryland. These 21 properties in Baltimore County were sold
at an aggregate sale price of approximately $124.5 million, which was paid in cash at closing. We
recognized approximately $4.9 million in gain, before minority interest, on the disposition of
these office properties.
On December 23, 2005, as approved in December 2005 by our Board of Directors, we sold a sixteen
building, 952,000 square foot portfolio of industrial buildings for approximately $57 million,
which was paid in cash at closing. The portfolio is comprised of 10 buildings totaling 582,000
square feet in the Hunt Valley Business Community and six buildings totaling 370,000 square feet in
the Rutherford Business Center in suburban Baltimore. The portfolio also included three land
parcels totaling more than 18 acres. We recognized gain of approximately $1.4 million, before
minority interest, on the disposition of these industrial properties.
Pursuant to SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, the
operations of these properties (net of minority interests) have been reported as discontinued
operations in the accompanying Consolidated Financial Statements. For the three and nine months
ended September 30, 2005, revenues and income before minority interest of such properties were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
(In thousands) |
|
2005 |
|
2005 |
Revenues |
|
$ |
6,025 |
|
|
$ |
17,710 |
|
Income before minority interest |
|
|
2,072 |
|
|
|
6,131 |
|
22
NOTE 7 OTHER ASSETS & LIABILITIES
The following table summarizes the significant components of Prepaid Expenses and Other Assets.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Below-market ground leases |
|
$ |
282,252 |
|
|
$ |
349,788 |
|
Receivables-finance leases and bonds |
|
|
122,915 |
|
|
|
136,409 |
|
Security and escrow deposits |
|
|
79,252 |
|
|
|
87,126 |
|
Real estate tax stabilization agreement |
|
|
84,359 |
|
|
|
87,188 |
|
Special Improvement District receivable |
|
|
70,409 |
|
|
|
66,206 |
|
Above-market tenant leases |
|
|
58,771 |
|
|
|
77,094 |
|
Prepaid expenses |
|
|
53,835 |
|
|
|
26,627 |
|
Funded defined contribution plan assets |
|
|
16,639 |
|
|
|
20,062 |
|
Other |
|
|
50,560 |
|
|
|
66,611 |
|
|
|
|
|
|
|
|
|
|
$ |
818,992 |
|
|
$ |
917,111 |
|
|
|
|
|
|
|
|
The following table summarizes the significant components of Accounts Payable and Accrued
Expenses.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Accounts payable and accrued expenses |
|
$ |
663,601 |
|
|
$ |
594,876 |
|
Below-market tenant leases |
|
|
134,241 |
|
|
|
182,270 |
|
Hughes participation payable |
|
|
39,251 |
|
|
|
61,783 |
|
Deferred gains/income |
|
|
59,449 |
|
|
|
38,736 |
|
Capital lease obligations |
|
|
17,481 |
|
|
|
19,206 |
|
Insurance reserves |
|
|
16,505 |
|
|
|
24,287 |
|
Other |
|
|
102,170 |
|
|
|
111,256 |
|
|
|
|
|
|
|
|
|
|
$ |
1,032,698 |
|
|
$ |
1,032,414 |
|
|
|
|
|
|
|
|
NOTE 8 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the SEC staff issued SEC Staff Accounting Bulletin (SAB) Topic 1N, Financial
Statements Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in
Current Year Financial Statements (SAB 108). SAB 108 addresses how a registrant should quantify
the effect of an error on the financial statements. The SEC staff concludes in SAB 108 that a dual
approach should be used to compute the amount of a misstatement. Specifically, the amount should be
computed using both the rollover (current year income statement perspective) and iron curtain
(year-end balance sheet perspective) methods. We have considered SAB 108 in evaluating errors in
our financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R) (SFAS
158) which requires employers to fully recognize the obligations associated with single-employer
defined benefit pension, retiree healthcare and other postretirement plans in their financial
statements. Specifically, SFAS 158 requires an employer to:
23
|
(a) |
|
Recognize in its statement of financial position an asset for a plans overfunded
status or a liability for a plans underfunded status |
|
|
(b) |
|
Measure a plans assets and its obligations that determine its funded status as of
the end of the employers fiscal year (with limited exceptions) |
|
|
(c) |
|
Recognize changes in the funded status of a defined benefit postretirement plan in
the year in which the changes occur. Those changes will be reported in comprehensive
income of a business entity. |
The requirement to recognize the funded status of a benefit plan and the disclosure requirements
are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to
measure plan assets and benefit obligations as of the date of the employers fiscal year-end
statement of financial position is effective for fiscal years ending after December 15, 2008. We
do not expect the adoption of SFAS 158 to have a material impact on our Consolidated Financial
Statements as our defined benefit pension and other postretirement plans are not material.
In September 2006, the FASB also issued SFAS No. 157, Fair Value Measurements (SFAS 157) which
provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also
requires expanded information about the extent to which companies measure assets and liabilities at
fair value, the information used to measure fair value, and the effect of fair value measurements
on earnings. The standard applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. The standard does not expand the use of fair value in any
new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe
that the adoption of SFAS No. 157 will have a material effect on our Consolidated Financial
Statements.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. This Interpretation requires that we recognize in our Consolidated
Financial Statements the impact of a tax position if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are
effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings. We are currently
evaluating the impact on our Consolidated Financial Statements of adopting FIN 48.
In October 2005, the FASB Issued Staff Position No. FAS 13-1, Accounting for Rental Costs Incurred
during a Construction Period (FSP 13-1). This FSP requires that rental costs associated with
ground or building operating leases incurred during a construction period be recognized as rental
expense. However, FSP 13-1 does not address lessees that account for the sale or rental of real
estate projects under FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects. As we generally own, rather than lease, property upon which we construct
new real estate ventures and our policy would be to capitalize rental costs associated with ground
leases incurred during construction periods under Statement No. 67, FSP 13-1 did not have a
material effect on our results of operations when we adopted this standard in the first quarter of
2006.
In June 2005, the Emerging Issues Task Force (EITF) reached a consensus on EITF 04-05,
Investors Accounting for an Investment in a Limited Partnership When the Investor Is the Sole
General Partner and the Limited Partners Have Certain Rights (EITF 04-05) which provides
guidance on when a sole general partner should consolidate a limited partnership. A sole general
partner in a limited partnership is presumed to control that limited partnership and therefore
should include the limited partnership in its consolidated financial statements, regardless of the
sole general partners ownership interest in the limited
24
partnership. The control presumption may be overcome if the limited partners have the ability to
remove the sole general partner or otherwise dissolve the limited partnership. Other substantive
participating rights by the limited partners may also overcome the control presumption. This
consensus is effective for general partners of all newly formed limited partnerships and existing
limited partnerships for which the partnership agreements are modified. For general partners in all
other limited partnerships, this consensus was effective in the first quarter of 2006. On adoption,
EITF 04-05 did not have a significant impact on our Consolidated Financial Statements.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections A
Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). This new standard
replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements. Among other changes, SFAS 154 requires that a voluntary
change in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so. SFAS
154 also provides that a change in method of depreciating or amortizing a long-lived nonfinancial
asset be accounted for as a change in estimate (prospectively) that was effected by a change in
accounting principle, and that correction of errors in previously issued financial statements
should be termed a restatement. SFAS 154 is effective for accounting changes and correction of
errors made subsequent to December 31, 2005.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, (SFAS 150) which establishes standards for how
an issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is within
its scope as a liability. The effective date of SFAS 150 relating to measurement and
classification provisions has been indefinitely postponed by the FASB. We did not enter into new
financial instruments subsequent to May 2003 which would fall within the scope of this statement.
Certain ventures, acquired in the TRC Merger, have been identified that appear to meet the criteria
for liability recognition in accordance with paragraphs 9 and 10 under SFAS 150 due to the
indefinite life of the joint venture arrangements. Therefore, if the effectiveness of the
measurement and classification provisions is no longer postponed, we would reclassify to
liabilities approximately $15 million of minority interest with respect to such TRC Merger acquired
ventures, but no amount for any of our other ventures.
NOTE 9 STOCKBASED COMPENSATION PLANS
Incentive Stock Plans
We grant qualified and non-qualified stock options and make restricted stock grants to attract and
retain officers and key employees through the 2003 Incentive Stock Plan and, prior to April 2003,
the 1993 Stock Incentive Plan. Stock 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 our
common stock on the date of the grant. The terms of the options are fixed by the Compensation
Committee. Stock options granted to officers and key employees under the 2003 Incentive Stock Plan
are for 5-year terms and under the 1993 Incentive Stock Plan are for 10-year terms. Stock options
generally vest 20% at the time of the grant and in 20% annual increments thereafter. Prior to May
2006, we granted options to non-employee directors that were exercisable in full commencing on the
date of grant and scheduled to expire on the fifth anniversary of the date of the grant. Beginning
in May 2006, non-employee directors receive restricted stock grants, as further described below.
The 2003 Incentive Stock Plan provides for the issuance of up to 9.0 million shares of our common
stock, subject to certain customary adjustments to prevent dilution.
25
The
following tables summarize stock option activity as of and for the
nine months ended
September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Stock options outstanding at December 31, 2005 |
|
|
2,546,174 |
|
|
$ |
29.57 |
|
Granted |
|
|
1,270,000 |
|
|
|
49.98 |
|
Exercised |
|
|
(562,226 |
) |
|
|
24.92 |
|
Exchanged for restricted stock |
|
|
(30,000 |
) |
|
|
47.26 |
|
Forfeited |
|
|
(145,000 |
) |
|
|
43.10 |
|
Expired |
|
|
(600 |
) |
|
|
9.90 |
|
|
|
|
|
|
|
|
Stock options outstanding at September 30, 2006 |
|
|
3,078,348 |
|
|
$ |
38.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
|
Contractual |
|
|
Average |
|
|
|
|
|
|
Contractual |
|
|
Average |
|
|
|
|
|
|
|
Term (in |
|
|
Exercise |
|
|
|
|
|
|
Term (in |
|
|
Exercise |
|
Range of Exercise Prices |
|
Shares |
|
|
years) |
|
|
Price |
|
|
Shares |
|
|
years) |
|
|
Price |
|
In-the-money stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 5.05 - $10.09 |
|
|
6,000 |
|
|
|
3.6 |
|
|
$ |
9.99 |
|
|
|
6,000 |
|
|
|
3.6 |
|
|
$ |
9.99 |
|
$10.09 - $15.14 |
|
|
65,700 |
|
|
|
5.4 |
|
|
|
13.58 |
|
|
|
65,700 |
|
|
|
5.4 |
|
|
|
13.58 |
|
$15.14 - $20.19 |
|
|
247,148 |
|
|
|
6.4 |
|
|
|
16.77 |
|
|
|
103,148 |
|
|
|
6.4 |
|
|
|
16.77 |
|
$30.28 - $35.33 |
|
|
612,500 |
|
|
|
3.0 |
|
|
|
30.98 |
|
|
|
298,500 |
|
|
|
3.0 |
|
|
|
31.03 |
|
$35.33 - $40.38 |
|
|
972,000 |
|
|
|
3.4 |
|
|
|
35.61 |
|
|
|
292,000 |
|
|
|
3.4 |
|
|
|
35.55 |
|
$40.38 - $47.65 |
|
|
240,000 |
|
|
|
4.2 |
|
|
|
46.63 |
|
|
|
50,000 |
|
|
|
4.3 |
|
|
|
47.19 |
|
Anti-dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$47.65 - $50.47 |
|
|
935,000 |
|
|
|
4.3 |
|
|
|
50.47 |
|
|
|
155,000 |
|
|
|
4.3 |
|
|
|
50.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,078,348 |
|
|
|
4.0 |
|
|
$ |
38.03 |
|
|
|
970,348 |
|
|
|
4.0 |
|
|
$ |
33.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
$ |
29,614 |
|
|
|
|
|
|
|
|
|
|
$ |
13,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of outstanding and exercisable stock options as of September 30, 2006
represents the excess of our closing stock price ($47.65) over the exercise price multiplied by the
applicable number of stock options. The intrinsic value of exercised stock options represents the
excess of our stock price at the time the option was exercised over the exercise price and was
$13.5 million for options exercised during the nine months ended September 30, 2006 and $10.3
million for options exercised during the nine months ended September 30, 2005.
The weighted-average fair value of stock options as of the grant date was $7.62 for stock options
granted during the nine months ended September 30, 2006 and $4.69 for stock options granted during
the nine months ended September 30, 2005.
Restricted Stock
We also make restricted stock grants to certain officers and, beginning in May 2006, to
non-employee directors, pursuant to the 2003 Stock Incentive Plan. The vesting terms of these
grants are specific to the individual grant and, generally, vest either immediately, one-third
immediately with the remainder vesting equally on the first and second anniversaries or equally on
the first, second and third anniversaries.
26
The following table summarizes restricted stock activity as of and during the nine month period
ended September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Nonvested restricted stock grants outstanding as of December 31, 2005 |
|
|
15,000 |
|
|
$ |
16.77 |
|
Granted |
|
|
99,000 |
|
|
|
47.91 |
|
Vested |
|
|
(41,334 |
) |
|
|
37.13 |
|
|
|
|
|
|
|
|
Nonvested restricted stock grants outstanding as of September 30, 2006 |
|
|
72,666 |
|
|
$ |
47.62 |
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
$ |
3,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock grants which vested during the nine months ended
September 30, 2006 was $2.0 million and during the nine months ended September 30, 2005 was $5.1
million.
27
Threshold-Vesting Stock Options
Under the 1998 Incentive Stock Plan (the 1998 Incentive Plan), we may also grant stock incentive
awards to employees in the form of threshold-vesting stock options (TSOs). The exercise price of
the TSO is the Fair Market Value (FMV) of our common stock on the date the TSO is granted. In
order for the TSOs to vest, our common stock must achieve and sustain the Threshold Price for at
least 20 consecutive trading days at any time over the five years following the date of grant. The
Threshold Price is determined by multiplying the FMV on the date of grant by the Estimated Annual
Growth Rate (currently 7%) and compounding the product over a five-year period. TSOs granted in
2004 and thereafter must be exercised within 30 days of the vesting date. TSOs granted prior to
2004, all of which have vested, have a term of up to 10 years. The 1998 Incentive Plan provides
for the issuance of 11.0 million shares, subject to certain customary adjustments to prevent
dilution.
The following table summarizes TSO activity, by grant year, as of and for the nine months ended
September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
TSO Grant Year |
|
|
|
2006 |
|
|
2005 |
|
TSOs outstanding at December 31, 2005 |
|
|
|
|
|
|
1,000,000 |
|
Granted |
|
|
1,400,000 |
|
|
|
- |
|
Forfeited |
|
|
(74,317 |
) |
|
|
(111,931 |
) |
|
|
|
|
|
|
|
TSOs outstanding at September 30, 2006 |
|
|
1,325,683 |
|
|
|
888,069 |
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
|
|
|
|
$ |
10,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
50.47 |
|
|
$ |
35.41 |
|
Threshold Price |
|
|
70.79 |
|
|
|
49.66 |
|
Fair value of options on grant date |
|
|
6.51 |
|
|
|
3.81 |
|
Remaining contractual term (in years) |
|
|
4.4 |
|
|
|
3.4 |
|
In addition to the TSOs above, which are accounted for pursuant to SFAS 123(R), 162,516
vested, but unexercised, TSOs granted prior to 2004 are accounted for using the intrinsic value
method.
Other Required Disclosures
The fair values of TSOs granted in 2006 and 2005 were estimated using the binomial method. The
value of restricted stock grants is calculated as the average of the high and low stock prices on
the date of the initial grant. The fair values of all other stock options were estimated on the
date of grant using the Black-Scholes-Merton option pricing model. These fair values are affected
by our stock price as well as assumptions regarding a number of highly complex and subjective
variables. Expected volatilities are based on historical volatility of our stock price as well as
that of our peer group, implied volatilities and various other factors. Historical data was used
to estimate expected life and represents the period of time that options are expected to be
outstanding. The weighted average estimated value of stock options and TSOs granted during the
nine months ended September 30, 2006 were based on the following assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
4.43 |
% |
Dividend yield |
|
|
4.00 |
|
Expected volatility |
|
|
22.94 |
|
Expected life (in years) |
|
|
2.5 - 3.5 |
|
Compensation expense related to the Incentive Stock Plans, TSOs and restricted stock was $2.6
million for the three months ended September 30, 2006, $3.2 million for the three months ended
September 30,
28
2005, $9.9 million for the nine months ended September 30, 2006, and $8.8 million for the nine
months ended September 30, 2005.
As of September 30, 2006, total compensation expense related to nonvested options, TSOs and
restricted stock grants which had not yet been recognized was $19.8 million. Of this total, $2.2
million is expected to be recognized in the three months ended December 31, 2006, $8.6 million in
2007, $6.4 million in 2008, $2.4 million in 2009 and $0.2 million in 2010. These amounts may be
impacted by future grants, changes in forfeiture estimates, actual forfeiture rates which differ
from estimated forfeitures and/or timing of TSO vesting.
We have a $200 million per fiscal year common stock repurchase program which gives us the ability
to acquire some or all of the shares of common stock to be issued upon the exercise of the TSOs.
Employee Stock Purchase Plan
The General Growth Properties, Inc. Employee Stock Purchase Plan (the ESPP) was established to
assist eligible employees in acquiring stock ownership interest in General Growth. Under the ESPP,
eligible employees make payroll deductions over a six-month purchase period. At the end of each
six-month purchase period, the amounts withheld are used to purchase shares of our common stock at
a purchase price equal to 85% of the lesser of the closing price of a share of a common stock on
the first or last trading day of the purchase period. The ESPP is considered a compensatory plan
pursuant to SFAS 123(R). A maximum of 1.5 million shares of our common stock are reserved for
issuance under the ESPP. Since inception, an aggregate of approximately 1.3 million shares of our
common stock have been sold under the ESPP, including 100,402 shares for the purchase period ending
June 30, 2006 which were purchased at a price of $38.30 per share. Compensation expense related to
the ESPP was $0.3 million for the three months ended September 30, 2006, $1.3 million for the nine
months ended September 30, 2006, and, $1.2 million for the nine months ended September 30, 2005.
Prior to the adoption of SFAS 123(R), there was no expense recorded for the three months ended
September 30, 2005
NOTE 10 SEGMENTS
We have two business segments which offer different products and services. Our segments are
managed separately because each requires different operating strategies or management expertise.
We do not distinguish or group our consolidated operations on a geographic basis. Further, all
material operations are within the United States and no customer or tenant comprises more than 10%
of consolidated revenues. Our reportable segments are as follows:
|
|
|
Retail and Other includes the operation and management of regional shopping centers,
office and industrial properties, downtown specialty marketplaces, the retail and
non-retail rental components of mixed-use projects and community retail centers |
|
|
|
|
Master Planned Communities includes the development and sale of land, primarily in
large-scale, long-term community development projects in and around Columbia, Maryland;
Summerlin, Nevada; and Houston, Texas |
The operating measure used to assess operating results for the business segments is Real Estate
Property Net Operating Income (NOI) which represents the operating revenues of the properties
less property operating expenses, exclusive of depreciation and amortization. Management believes
that NOI provides useful information about a propertys operating performance.
The accounting policies of the segments are the same as those of the Company, except that we
account for unconsolidated joint ventures using the proportionate share method rather than the
equity method. Under the proportionate share method, our share of the revenues and expenses of the
Unconsolidated Properties
29
are combined with the revenues and expenses of the Consolidated Properties. Under the equity
method, our share of the net revenues and expenses of the Unconsolidated Properties are reported as
a single line item, Equity in income of unconsolidated affiliates, in our Consolidated Statements
of Income and Comprehensive Income. This difference affects only the reported revenues and
operating expenses of the segments and has no effect on our reported net earnings. In addition,
other revenues include the revenues and operating expenses exclusive of depreciation and
amortization of properties classified as discontinued operations and minority interests in
consolidated joint ventures.
Operating results for the segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2006 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
(In thousands) |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
431,852 |
|
|
$ |
103,028 |
|
|
$ |
534,880 |
|
Tenant recoveries |
|
|
199,494 |
|
|
|
47,574 |
|
|
|
247,068 |
|
Overage rents |
|
|
14,744 |
|
|
|
2,438 |
|
|
|
17,182 |
|
Other, including minority interest |
|
|
21,727 |
|
|
|
18,242 |
|
|
|
39,969 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
667,817 |
|
|
|
171,282 |
|
|
|
839,099 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
57,227 |
|
|
|
14,626 |
|
|
|
71,853 |
|
Repairs and maintenance |
|
|
49,122 |
|
|
|
10,383 |
|
|
|
59,505 |
|
Marketing |
|
|
10,806 |
|
|
|
2,788 |
|
|
|
13,594 |
|
Other property operating costs |
|
|
105,231 |
|
|
|
38,077 |
|
|
|
143,308 |
|
Provision for doubtful accounts |
|
|
3,762 |
|
|
|
349 |
|
|
|
4,111 |
|
|
|
|
|
|
|
|
|
|
|
Total property
operating expenses |
|
|
226,148 |
|
|
|
66,223 |
|
|
|
292,371 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net
operating income |
|
|
441,669 |
|
|
|
105,059 |
|
|
|
546,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
47,768 |
|
|
|
21,553 |
|
|
|
69,321 |
|
Land sales operations |
|
|
(36,360 |
) |
|
|
(16,493 |
) |
|
|
(52,853 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating
income |
|
|
11,408 |
|
|
|
5,060 |
|
|
|
16,468 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property
net operating income |
|
$ |
453,077 |
|
|
$ |
110,119 |
|
|
$ |
563,196 |
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2005 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
(In thousands) |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
421,495 |
|
|
$ |
99,739 |
|
|
$ |
521,234 |
|
Tenant recoveries |
|
|
184,958 |
|
|
|
44,768 |
|
|
|
229,726 |
|
Overage rents |
|
|
13,185 |
|
|
|
1,953 |
|
|
|
15,138 |
|
Other, including discontinued operations
and minority interest |
|
|
23,225 |
|
|
|
13,690 |
|
|
|
36,915 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
642,863 |
|
|
|
160,150 |
|
|
|
803,013 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
49,397 |
|
|
|
13,827 |
|
|
|
63,224 |
|
Repairs and maintenance |
|
|
47,234 |
|
|
|
10,162 |
|
|
|
57,396 |
|
Marketing |
|
|
14,905 |
|
|
|
3,146 |
|
|
|
18,051 |
|
Other property operating costs |
|
|
99,502 |
|
|
|
26,751 |
|
|
|
126,253 |
|
Provision for doubtful accounts |
|
|
5,806 |
|
|
|
1,815 |
|
|
|
7,621 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
216,844 |
|
|
|
55,701 |
|
|
|
272,545 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
426,019 |
|
|
|
104,449 |
|
|
|
530,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
79,457 |
|
|
|
21,330 |
|
|
|
100,787 |
|
Land sales operations |
|
|
(60,558 |
) |
|
|
(18,114 |
) |
|
|
(78,672 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
18,899 |
|
|
|
3,216 |
|
|
|
22,115 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
444,918 |
|
|
$ |
107,665 |
|
|
$ |
552,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
(In thousands) |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,294,635 |
|
|
$ |
311,758 |
|
|
$ |
1,606,393 |
|
Tenant recoveries |
|
|
575,670 |
|
|
|
140,027 |
|
|
|
715,697 |
|
Overage rents |
|
|
37,573 |
|
|
|
6,173 |
|
|
|
43,746 |
|
Other, including minority interest |
|
|
66,373 |
|
|
|
59,340 |
|
|
|
125,713 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,974,251 |
|
|
|
517,298 |
|
|
|
2,491,549 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
166,742 |
|
|
|
44,136 |
|
|
|
210,878 |
|
Repairs and maintenance |
|
|
144,939 |
|
|
|
31,381 |
|
|
|
176,320 |
|
Marketing |
|
|
34,475 |
|
|
|
9,253 |
|
|
|
43,728 |
|
Other property operating costs |
|
|
282,092 |
|
|
|
110,894 |
|
|
|
392,986 |
|
Provision for doubtful accounts |
|
|
17,081 |
|
|
|
1,302 |
|
|
|
18,383 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
645,329 |
|
|
|
196,966 |
|
|
|
842,295 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
1,328,922 |
|
|
|
320,332 |
|
|
|
1,649,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
218,023 |
|
|
|
60,352 |
|
|
|
278,375 |
|
Land sales operations |
|
|
(160,059 |
) |
|
|
(44,443 |
) |
|
|
(204,502 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
57,964 |
|
|
|
15,909 |
|
|
|
73,873 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,386,886 |
|
|
$ |
336,241 |
|
|
$ |
1,723,127 |
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
(In thousands) |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,231,992 |
|
|
$ |
289,079 |
|
|
$ |
1,521,071 |
|
Tenant recoveries |
|
|
553,060 |
|
|
|
131,693 |
|
|
|
684,753 |
|
Overage rents |
|
|
36,497 |
|
|
|
4,801 |
|
|
|
41,298 |
|
Other, including discontinued operations
and minority interest |
|
|
73,256 |
|
|
|
48,888 |
|
|
|
122,144 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,894,805 |
|
|
|
474,461 |
|
|
|
2,369,266 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
155,011 |
|
|
|
41,022 |
|
|
|
196,033 |
|
Repairs and maintenance |
|
|
141,483 |
|
|
|
30,731 |
|
|
|
172,214 |
|
Marketing |
|
|
43,255 |
|
|
|
10,141 |
|
|
|
53,396 |
|
Other property operating costs |
|
|
285,744 |
|
|
|
89,686 |
|
|
|
375,430 |
|
Provision for doubtful accounts |
|
|
14,167 |
|
|
|
3,532 |
|
|
|
17,699 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
639,660 |
|
|
|
175,112 |
|
|
|
814,772 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
1,255,145 |
|
|
|
299,349 |
|
|
|
1,554,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
254,864 |
|
|
|
58,553 |
|
|
|
313,417 |
|
Land sales operations |
|
|
(208,549 |
) |
|
|
(43,212 |
) |
|
|
(251,761 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
46,315 |
|
|
|
15,341 |
|
|
|
61,656 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,301,460 |
|
|
$ |
314,690 |
|
|
$ |
1,616,150 |
|
|
|
|
|
|
|
|
|
|
|
32
The following reconciles NOI to GAAP-basis operating income and income (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Real estate property net operating income |
|
$ |
563,196 |
|
|
$ |
552,583 |
|
|
$ |
1,723,127 |
|
|
$ |
1,616,150 |
|
Unconsolidated Properties NOI |
|
|
(110,119 |
) |
|
|
(107,665 |
) |
|
|
(336,241 |
) |
|
|
(314,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties NOI |
|
|
453,077 |
|
|
|
444,918 |
|
|
|
1,386,886 |
|
|
|
1,301,460 |
|
Management and other fees |
|
|
26,768 |
|
|
|
25,070 |
|
|
|
80,130 |
|
|
|
66,206 |
|
Property management and other costs |
|
|
(44,522 |
) |
|
|
(30,011 |
) |
|
|
(136,466 |
) |
|
|
(107,903 |
) |
General and administrative |
|
|
(5,022 |
) |
|
|
(3,559 |
) |
|
|
(11,712 |
) |
|
|
(10,005 |
) |
Depreciation and amortization |
|
|
(168,624 |
) |
|
|
(173,472 |
) |
|
|
(512,342 |
) |
|
|
(507,098 |
) |
Discontinued operations and minority
interest in consolidated NOI |
|
|
3,678 |
|
|
|
(1,547 |
) |
|
|
12,054 |
|
|
|
(5,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
265,355 |
|
|
|
261,399 |
|
|
|
818,550 |
|
|
|
737,313 |
|
Interest income |
|
|
4,027 |
|
|
|
2,844 |
|
|
|
8,717 |
|
|
|
7,288 |
|
Interest expense |
|
|
(284,273 |
) |
|
|
(271,220 |
) |
|
|
(841,677 |
) |
|
|
(761,022 |
) |
Provision for income taxes |
|
|
(11,225 |
) |
|
|
(14,864 |
) |
|
|
(52,120 |
) |
|
|
(28,958 |
) |
Minority interest |
|
|
(4,181 |
) |
|
|
(3,596 |
) |
|
|
(16,043 |
) |
|
|
(23,973 |
) |
Equity in income of unconsolidated affiliates |
|
|
22,136 |
|
|
|
16,916 |
|
|
|
71,613 |
|
|
|
73,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(8,161 |
) |
|
$ |
(8,521 |
) |
|
$ |
(10,960 |
) |
|
$ |
3,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reconciles segment revenues to GAAP-basis consolidated revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Segment basis total property revenues |
|
$ |
839,099 |
|
|
$ |
803,013 |
|
|
$ |
2,491,549 |
|
|
$ |
2,369,266 |
|
Unconsolidated segment revenues |
|
|
(171,282 |
) |
|
|
(160,150 |
) |
|
|
(517,298 |
) |
|
|
(474,461 |
) |
Land sales |
|
|
47,768 |
|
|
|
79,457 |
|
|
|
218,023 |
|
|
|
254,864 |
|
Management and other fees, net of discontinued operations |
|
|
26,768 |
|
|
|
25,070 |
|
|
|
80,130 |
|
|
|
66,206 |
|
Real estate net operating income attributable to
minority interests, net of discontinued operations |
|
|
3,678 |
|
|
|
(1,547 |
) |
|
|
12,054 |
|
|
|
(5,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP-basis consolidated total revenues |
|
$ |
746,031 |
|
|
$ |
745,843 |
|
|
$ |
2,284,458 |
|
|
$ |
2,210,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to numbered Notes are to specific notes to our Consolidated Financial Statements
included in this Quarterly Report and which Notes are incorporated into the applicable response by
reference. The following discussion should be read in conjunction with such Consolidated Financial
Statements and related Notes. Capitalized terms used, but not defined, in this Managements
Discussion and Analysis of Financial Condition and Results of Operations (MD&A) have the same
meanings as in such Notes or in our 2005 Annual Report on Form 10-K.
FORWARD-LOOKING INFORMATION
We may make forward-looking statements in this Quarterly Report, in other reports that we file with
the SEC and in other information that we release publicly or provide to investors. In addition,
our senior management might make forward-looking statements orally to analysts, investors, the
media and others.
Forward-looking statements include:
|
|
Projections of our revenues, income, earnings per share, Funds From Operations, capital expenditures,
dividends, leverage, capital structure or other financial items |
|
|
Descriptions of plans or objectives of our management for future operations, including pending acquisitions,
debt repayment or restructuring, and development/redevelopment activities |
|
|
Forecasts of our future economic performance |
|
|
Descriptions of assumptions underlying or relating to any of the foregoing |
In this Quarterly Report, for example, we make forward-looking statements discussing our
expectations about:
|
|
Future federal income taxes |
|
|
Expected sales in our Master Planned Communities segment |
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as anticipate,
believe, estimate, expect, intend, plan, project, target, can, could, may,
should, will, would or similar expressions. Forward-looking statements should not be unduly
relied upon. They give our expectations about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made and we disclaim any obligation to update them
except as required by law.
There are several factors, many beyond our control, which could cause results to differ materially
from our expectations. Some of these factors are described in our 2005 Annual Report on Form 10-K,
which factors are incorporated herein by reference. Other factors, such as credit, market,
operational, liquidity, interest rate and other risks, are described elsewhere in this Quarterly
Report. Any factor could by itself, or together with one or more other factors, adversely affect
our business, results of operations or financial condition. There are also other factors that we
have not described in this Quarterly Report or in our 2005 Annual Report on Form 10-K that could
cause results to differ from our expectations.
34
MANAGEMENTS OVERVIEW & SUMMARY
Overview
Retail and Other Segment
Our primary business is acquiring, owning, managing, leasing and developing retail rental property.
We also conduct similar activities for certain office and industrial rental properties. As of
September 30, 2006, we had ownership interest in or management responsibility for a portfolio of
over 200 regional shopping malls in 44 states. We own non-controlling interests in four operating
retail centers, a third-party management company, and a retail center under development in Brazil.
We also own non-controlling interests in a third party management company and one retail center
under development in Turkey. We provide on-site management and other services to substantially all
of our properties, including properties which we own through joint venture arrangements and which
are unconsolidated for GAAP purposes. Our management operating philosophies and strategies are
generally the same whether the properties are consolidated or unconsolidated. As a result, we
believe that financial information and operating statistics with respect to all properties, both
consolidated and unconsolidated, provide important insights into our operating results.
Collectively, we refer to our Consolidated and Unconsolidated Properties as our Company Portfolio
and the retail portion of the Company Portfolio as the Retail Company Portfolio. As
substantially all of our retail property operations are in the United States, the following
discussion, unless otherwise noted, excludes any information
relating to
international properties.
We seek to increase cash flow and real estate net operating income of our retail and office rental
properties through proactive property management and leasing (including tenant remerchandising),
operating cost reductions, physical expansions, redevelopments and capital reinvestment. Some of
the actions that we take to increase productivity include changing the tenant mix, adding vendor
carts or kiosks and expansions or renovations of centers.
We believe that the most significant operating factor affecting incremental cash flow and real
estate net operating income is increased rents (either base rental revenue or overage rents) earned
from tenants at our properties. These rental revenue increases are primarily achieved by:
|
|
Renewing expiring leases and re-leasing existing space at rates higher than expiring or
existing rates. |
|
|
Increasing occupancy at the properties so that more space is generating rent. The
occupancy percentage at properties which are not under redevelopment in our Retail Company
Portfolio was 92.4 percent at September 30, 2006, compared to 92.2 percent at September 30,
2005. |
|
|
Increased tenant sales in which we participate through overage rents. In the first nine
months of 2006, tenant sales per square foot in our Retail Company
Portfolio increased 5.7
percent over 2005 to $450 per square foot. |
35
The following table summarizes selected operating statistics as of September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
Unconsolidated |
|
Retail Company |
|
|
Retail Properties |
|
Retail Properties |
|
Portfolio |
Operating Statistics (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy |
|
|
92.1 |
% |
|
|
93.0 |
% |
|
|
92.4 |
% |
Trailing 12 month total tenant sales per sq. ft. (b) |
|
$ |
441 |
|
|
$ |
469 |
|
|
$ |
450 |
|
% change in total sales |
|
|
6.3 |
% |
|
|
4.6 |
% |
|
|
5.7 |
% |
% change in comparable sales (b) |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
2.5 |
|
Mall and freestanding GLA
excluding space under redevelopment (in sq. ft.) |
|
|
41,795,170 |
|
|
|
18,718,792 |
|
|
|
60,513,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain Financial Information |
|
|
|
|
|
|
|
|
|
|
|
|
Average annualized in place rent per sq.ft. |
|
$ |
33.64 |
|
|
$ |
36.43 |
|
|
|
|
|
Average rent per sq.ft. for new/renewal leases |
|
|
34.19 |
|
|
|
39.12 |
|
|
|
|
|
Average rent per sq.ft. for leases expiring in 2006 |
|
|
30.16 |
|
|
|
33.59 |
|
|
|
|
|
|
|
|
(a) |
|
Data is for 100% of the Mall GLA in each portfolio, including those centers that
are owned in part by unconsolidated affiliates. Data excludes properties currently being
redeveloped and/or
remerchandised and miscellaneous (non-mall) properties. |
|
(b) |
|
Data presented in the column Company Portfolio are weighted average amounts. |
|
(c) |
|
Due to tenant sales reporting timelines, data presented is one month behind reporting date. |
The expansion and/or renovation of a property may also result in increased cash flows and
operating income as a result of increased customer traffic, trade area penetration and improved
competitive position of the property. As of September 30, 2006, we had 22 major approved
redevelopment projects underway (each with budgeted projected expenditures, at our ownership share,
in excess of $10 million).
We also develop retail centers from the ground-up. On October 4, 2006, we opened Pinnacle Hills
Promenade in Rogers, Arkansas. This 980,000 square foot open-air center is anchored by Dillards,
JCPenney and a 12-screen theatre and includes retail, dining, entertainment, recreation and office
space. Additionally, we opened Otay Ranch Town Center in Chula Vista (San Diego), California on
October 27, 2006. This open-air center includes approximately 850,000 square feet of retail,
dining and entertainment space. Anchors include AMC Theatres, Barnes & Noble, Macys and REI.
Portions of Lincolnshire Commons in Lincolnshire (Chicago), Illinois have opened throughout 2006
with completed development expected in the fourth quarter of 2006. In September 2005, we opened the
Shops at La Cantera in San Antonio, Texas. Six additional domestic retail center development projects are
currently under construction, and are scheduled to open in 2007 and 2008:
|
|
Gateway Overlook in Columbia, Maryland |
|
|
Natick West in Natick, Massachusetts |
|
|
The Shops at Fallen Timbers, Maumee (Toledo), Ohio |
|
|
Vista Commons in Las Vegas, Nevada |
|
|
Parke West in Peoria, Arizona |
|
|
RiverCrossing in Macon, Georgia |
Total projected expenditures (including our share of the Unconsolidated Real Estate Affiliates) for
these redevelopment and development projects were approximately $1.6 billion as of September 30,
2006.
We also have seven other potential new retail or mixed-use developments that are currently
projected to open in 2008 through 2010.
36
Annual expenditures for the redevelopment and development projects, as well as the potential
developments, are expected to be approximately $450 to $800 million per year through 2009.
In addition, we have agreed to acquire the new retail development at The Palazzo in Las Vegas,
Nevada, upon opening. This is currently expected in late 2007, at an estimated acquisition cost of
approximately $600 million.
Overview
Master Planned Communities Segment
Our Master Planned Communities segment includes the development and sale of residential and
commercial land, primarily in large-scale projects in and around Columbia, Maryland; Houston, Texas
and Summerlin, Nevada. We develop and sell land in these communities to builders and other
developers for residential, commercial and other uses. Land sale activity at our newest project,
Bridgeland in Houston, Texas, began in the first quarter of 2006.
SEASONALITY
Although we have a year-long temporary leasing program, occupancies for short-term tenants and,
therefore, rental income recognized, are higher during the second half of the year. In addition,
the majority of our tenants have December or January lease years for purposes of calculating annual
overage rent amounts. Accordingly, overage rent thresholds are most commonly achieved in the
fourth quarter. As a result, revenue production is generally highest in the fourth quarter of each
year.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both significant to the overall presentation of our
financial condition and results of operations and require management to make difficult, complex or
subjective judgments. For example, significant estimates and assumptions have been made with
respect to useful lives of assets, revenue recognition estimates in the Master Planned Communities
segment, capitalization of development and leasing costs, provision for income taxes, cost ratios,
recoverable amounts of receivables, deferred taxes, and initial valuations and related amortization
periods of deferred costs and intangibles, particularly with respect to property acquisitions. Our
critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended
December 31, 2005 have not changed during 2006 and such policies are incorporated herein by
reference.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
General
Our revenues are primarily received from tenants in the form of fixed minimum rents, overage rents
and recoveries of operating expenses. We have presented the following discussion of our results of
operations on a segment basis under the proportionate share method. Under the proportionate share
method, our share of the revenues and expenses of the Unconsolidated Properties are combined with
the revenues and expenses of the Consolidated Properties. In addition, other revenues are increased
by the real estate net operating income of discontinued operations and are reduced by our
consolidated minority interest venturers share of real estate net operating income. See Note 10
for additional information including reconciliations of our segment basis results to GAAP basis
results.
37
Retail and Other Segment
The following table compares major revenue and expense items for the three months ended September
30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
534,880 |
|
|
$ |
521,234 |
|
|
$ |
13,646 |
|
|
|
2.6 |
% |
Tenant recoveries |
|
|
247,068 |
|
|
|
229,726 |
|
|
|
17,342 |
|
|
|
7.5 |
|
Overage rents |
|
|
17,182 |
|
|
|
15,138 |
|
|
|
2,044 |
|
|
|
13.5 |
|
Other |
|
|
39,969 |
|
|
|
36,915 |
|
|
|
3,054 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
839,099 |
|
|
|
803,013 |
|
|
|
36,086 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
71,853 |
|
|
|
63,224 |
|
|
|
8,629 |
|
|
|
13.6 |
|
Repairs and maintenance |
|
|
59,505 |
|
|
|
57,396 |
|
|
|
2,109 |
|
|
|
3.7 |
|
Marketing |
|
|
13,594 |
|
|
|
18,051 |
|
|
|
(4,457 |
) |
|
|
(24.7 |
) |
Other property operating costs |
|
|
143,308 |
|
|
|
126,253 |
|
|
|
17,055 |
|
|
|
13.5 |
|
Provision for doubtful accounts |
|
|
4,111 |
|
|
|
7,621 |
|
|
|
(3,510 |
) |
|
|
(46.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
292,371 |
|
|
|
272,545 |
|
|
|
19,826 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
546,728 |
|
|
$ |
530,468 |
|
|
$ |
16,260 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in minimum rents is primarily attributable to the following:
|
|
|
Higher specialty leasing and kiosk rents, especially at properties acquired in the
2004 TRC Merger |
|
|
|
|
Higher minimum rents, especially at The Shops at La Cantera, which opened in September
2005, and Ala Moana Center which was recently redeveloped |
|
|
|
|
Greater use of vacant space for temporary tenant rentals |
|
|
|
|
The acquisition of Whalers Village by one of our joint ventures and the acquisition of
our partners share of GGP Ivanhoe IV, Inc. (Note 3) |
These increases were partially offset by lower straight-line rent income which decreased from $21.5
million in 2005 to $15.8 million in 2006 primarily due to non-recurring adjustments recorded in
2005.
Tenant recoveries increased primarily as a result of higher operating costs, as discussed below,
that are substantially recoverable from our tenants.
Historically, our leases have
included both a base rent component and a component which requires
tenants to pay amounts related to all, or substantially all, of their
share of real estate taxes and certain
property
operating expenses, including common area maintenance and insurance.
The
portion of these leases attributable to the base rent is recorded in our financial statements as
Minimum rents and the portions attributable to real
estate tax and operating expense recoveries are
recorded as Tenant
recoveries. Recently, however, we have structured our new
tenant leases such that a higher proportion of our total rents
represent operating expense recoveries. This change has resulted in a
shift between minimum rents and tenant recoveries and, as a result, a
higher percentage change in tenant recoveries.
The increase in overage rents is
primarily attributable to The Grand Canal Shoppes.
Other revenues include all
other property revenues including vending, parking and sponsorship
revenues and real estate property net operating income (NOI) of discontinued
operations less NOI
of minority interests in consolidated joint ventures.
Increases in vending, parking and sponsorship revenues contributed to
the increase in 2006.
In September 2005, other
revenues included a
non-recurring reduction to income by a non-consolidated property, which was
acquired during the
TRC Merger, and
38
NOI of discontinued operations (Note 6). Higher minority interest allocations, especially at The
Shops at La Cantera which opened in September 2005, also offset the increases in other revenues.
Higher real estate taxes were primarily attributed to The Grand Canal Shoppes with substantially
all of the remaining properties in the portfolio reporting individual minor increases.
The increase in repairs and maintenance is primarily attributed to Ala Moana Center and the
acquisition of Whalers Village and our venture partners interest in GGP Ivanhoe IV, Inc. (Note 3).
Marketing expenses decreased
at substantially all of our properties due to significant cost control
initiatives.
Property operating expenses increased due to higher electric expense and insurance costs across the
portfolio. In September 2005, property operating expenses include a non-recurring reduction to
expenses by a non-consolidated property, which was acquired during the TRC Merger.
Such increases were substantially offset by decreases at Oakwood Center (Note 5).
The decrease in the provision for doubtful accounts is primarily due to an individual tenant
bankruptcy and to an additional anchor store opening at one of our Unconsolidated Properties in
2005. These decreases were offset by the increase in the provision for doubtful accounts at
Oakwood Center, which was damaged as discussed in Note 5. Although we may not collect all of these
amounts from our tenants, we do believe that the remaining amounts will be recovered under our
business interruption insurance coverage. Under GAAP, however, amounts which we expect to collect
for business interruption coverage under our insurance policies should not be recognized until
received.
Master Planned Communities Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
69,321 |
|
|
$ |
100,787 |
|
|
$ |
(31,466 |
) |
|
|
(31.2 |
)% |
Land sales operations |
|
|
(52,853 |
) |
|
|
(78,672 |
) |
|
|
25,819 |
|
|
|
(32.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
16,468 |
|
|
$ |
22,115 |
|
|
$ |
(5,647 |
) |
|
|
(25.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in land sales
in the third quarter of 2006 is
primarily due to reduced demand at our Summerlin,
Columbia and Fairwood developments. We currently expect this trend to
continue through 2007. Unlike other markets in which builders have a
significantly higher supply of unsold homes, demand at Woodlands and
Bridgeland, which began sales in the first quarter of 2006, have not
declined.
Although
quarter-to-date land sales are lower in 2006 than in 2005, we expect full year land sale revenues
to exceed that of 2005 based upon anticipated sales and executed, but not yet closed, contracts.
Real estate property net operating income as a percent of land sales increased during the quarter
as a result of an increase in the margin between the cost and the sale prices for developed lots.
Lots developed and sold since the TRC Merger have a higher profit margin than lots which were
finished at the time of the TRC Merger because all lots were marked to market at the time of the
TRC Merger.
39
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant rents |
|
$ |
646,090 |
|
|
$ |
619,638 |
|
|
$ |
26,452 |
|
|
|
4.3 |
% |
Land sales |
|
|
47,768 |
|
|
|
79,457 |
|
|
|
(31,689 |
) |
|
|
(39.9 |
) |
Management and other fees |
|
|
26,768 |
|
|
|
25,070 |
|
|
|
1,698 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
226,148 |
|
|
|
216,844 |
|
|
|
9,304 |
|
|
|
4.3 |
|
Land sales operations |
|
|
36,360 |
|
|
|
60,558 |
|
|
|
(24,198 |
) |
|
|
(40.0 |
) |
Property management and other costs |
|
|
44,522 |
|
|
|
30,011 |
|
|
|
14,511 |
|
|
|
48.4 |
|
Depreciation and amortization |
|
|
168,624 |
|
|
|
173,472 |
|
|
|
(4,848 |
) |
|
|
(2.8 |
) |
Interest expense |
|
|
284,273 |
|
|
|
271,220 |
|
|
|
13,053 |
|
|
|
4.8 |
|
Provision for income taxes |
|
|
11,225 |
|
|
|
14,864 |
|
|
|
(3,639 |
) |
|
|
(24.5 |
) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and
overage rents), land sales, property operating expenses and land sales operations were attributable
to the same items discussed above in our segment basis results. The exception is the Whalers
Village acquisition and The Woodlands, which did not impact our consolidated portfolio.
Management and other fees increased as a result of higher development fees earned as a result of
the increased level of expansion and redevelopment activity in 2006.
Property management and other costs increased primarily as a result of higher personnel and
personnel related costs in 2006. These increases were primarily attributable to revised allocations
between our operating properties and management cost centers.
The decrease in depreciation
and amortization is primarily attributable to non-recurring
adjustments in 2005 related to changes in the estimated fair values of properties acquired in the
TRC Merger. This decrease was partially offset by an increase in depreciation and amortization as
a result of redevelopments and the opening of The Shops at La Cantera in September 2005.
The net increase in interest expense is primarily attributable to the following:
|
|
Increase in interest rates both on new fixed-rate financings and variable-rate debt as a
result of increases in the LIBOR rate |
|
|
Increased amortization of deferred finance costs as a result of finance costs incurred in
conjunction with the 2006 Credit Facility |
|
|
Lower amortization of purchase accounting mark-to-market adjustments (which reduce
interest expense). This amortization is reduced as debt is repaid and refinanced. |
These increases were partially offset by lower interest expense on our corporate and other
unsecured term loans as a result of refinancing activity in February and August 2006. See Liquidity
and Capital Resources for additional discussion of debt activity.
The decrease in the provision for income taxes is primarily attributable to operational decreases
in our Master Planned Communities Segment and a non-recurring benefit recorded in 2005 related to our
Master Planned Communities Segment.
40
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
Retail and Other Segment
The following table compares major revenue and expense items for the nine months ended September
30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,606,393 |
|
|
$ |
1,521,071 |
|
|
$ |
85,322 |
|
|
|
5.6 |
% |
Tenant recoveries |
|
|
715,697 |
|
|
|
684,753 |
|
|
|
30,944 |
|
|
|
4.5 |
|
Overage rents |
|
|
43,746 |
|
|
|
41,298 |
|
|
|
2,448 |
|
|
|
5.9 |
|
Other |
|
|
125,713 |
|
|
|
122,144 |
|
|
|
3,569 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
2,491,549 |
|
|
|
2,369,266 |
|
|
|
122,283 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
210,878 |
|
|
|
196,033 |
|
|
|
14,845 |
|
|
|
7.6 |
|
Repairs and maintenance |
|
|
176,320 |
|
|
|
172,214 |
|
|
|
4,106 |
|
|
|
2.4 |
|
Marketing |
|
|
43,728 |
|
|
|
53,396 |
|
|
|
(9,668 |
) |
|
|
(18.1 |
) |
Other property operating costs |
|
|
392,986 |
|
|
|
375,430 |
|
|
|
17,556 |
|
|
|
4.7 |
|
Provision for doubtful accounts |
|
|
18,383 |
|
|
|
17,699 |
|
|
|
684 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
842,295 |
|
|
|
814,772 |
|
|
|
27,523 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,649,254 |
|
|
$ |
1,554,494 |
|
|
$ |
94,760 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases and decreases in our Retail and Other Segment for the nine months ended September
30, 2006 and 2005 are consistent with the changes noted above in the discussion of Results of
Operations for the Three Months Ended September 30, 2006 and 2005 except as noted below.
In addition to the items noted above, the increase in minimum rents is also attributed to higher
lease termination income. Lease termination income increased $14.0 million compared to 2005
primarily due to a large termination recorded in the first quarter of 2006.
The increase in the provision for doubtful accounts is primarily due
to Oakwood Center which was only partially offset by the individual
tenant bankruptcy and anchor store opening in 2005 as discussed above.
Master Planned Communities Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
278,375 |
|
|
$ |
313,417 |
|
|
$ |
(35,042 |
) |
|
|
(11.2 |
)% |
Land sales operations |
|
|
(204,502 |
) |
|
|
(251,761 |
) |
|
|
47,259 |
|
|
|
(18.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
73,873 |
|
|
$ |
61,656 |
|
|
$ |
12,217 |
|
|
|
19.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales at Bridgeland, which began in the first quarter of 2006, were more than offset by
decreased sales at our other developments. The increase in real estate property net operating
income and in real estate property net operating income as a percent of land sales is primarily due
to an increase in the builder participation at our Summerlin development. In addition, the increase
is due to an increase in the margin between the cost and the sales prices for developed lots. Lots
developed and sold since the TRC
Merger have a higher profit margin than lots which were finished at the time of the TRC Merger
because all lots were marked-to-market at the time of the TRC Merger.
41
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant rents |
|
$ |
1,907,878 |
|
|
$ |
1,821,549 |
|
|
$ |
86,329 |
|
|
|
4.7 |
% |
Land sales |
|
|
218,023 |
|
|
|
254,864 |
|
|
|
(36,841 |
) |
|
|
(14.5 |
) |
Management and other fees |
|
|
80,130 |
|
|
|
66,206 |
|
|
|
13,924 |
|
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
645,329 |
|
|
|
639,660 |
|
|
|
5,669 |
|
|
|
0.9 |
|
Land sales operations |
|
|
160,059 |
|
|
|
208,549 |
|
|
|
(48,490 |
) |
|
|
(23.3 |
) |
Property management and other costs |
|
|
136,466 |
|
|
|
107,903 |
|
|
|
28,563 |
|
|
|
26.5 |
|
Depreciation and amortization |
|
|
512,342 |
|
|
|
507,098 |
|
|
|
5,244 |
|
|
|
1.0 |
|
Interest expense |
|
|
841,677 |
|
|
|
761,022 |
|
|
|
80,655 |
|
|
|
10.6 |
|
Provision for income taxes |
|
|
52,120 |
|
|
|
28,958 |
|
|
|
23,162 |
|
|
|
80.0 |
|
Increases and decreases in certain significant consolidated revenues and expenses for the nine
months ended September 30, 2006 and 2005 are consistent with the changes noted in the discussion of
Results of Operations for the Three Months Ended September 30, 2006 and 2005 except as noted below.
The year-to-date increase in depreciation and amortization is primarily due to an increase in
depreciation and amortization as a result of redevelopments, the opening of The Shops at La Cantera
in September 2005, change in depreciable life at one of our properties (Note 1) and the acquisition
of the remaining interest in GGP Ivanhoe IV, Inc. (Note 3). The increase is partially offset by
the TRC Merger adjustments noted above.
The increase in the provision for income taxes is primarily attributed to the operational increases
in our Master Planned Communities segment, increases in management and other fees as discussed
above and non-recurring benefits recorded in 2005. Cash requirements to meet federal income tax
requirements will increase in future years as we exhaust certain net loss carry forwards and as
certain master planned community developments are completed for tax purposes and, as a result,
previously deferred taxes must be paid. Such cash requirements could be significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
Net cash provided by operating activities was $452.3 million for the nine months ended September
30, 2006 compared to $493.0 million for the nine months ended September 30, 2005. The decrease is
primarily attributable to the decrease in earnings (primarily due to a significant increase in net
interest expense) and an increase in land development expenditures. These decreases were partially
offset by increases in working capital, including receipt of
approximately $41 million in deposits
on future transactions, primarily involving the master planned communities.
Cash Flows from Investing Activities
Net cash provided by investing activities was $86.0 million for the nine months ended September 30,
2006 compared to net cash used in investing activities of $192.2 million for the nine months ended
September 30, 2005. The change is primarily attributable to distributions from our Unconsolidated
Real Estate Affiliates
resulting from financing activities. This inflow was partially offset
by increased development expenditures, reduced loans from affiliates and additional investments in Unconsolidated Real
Estate Affiliates.
42
As of September 30, 2006, we had 22 major approved redevelopment projects underway (each with
budgeted projected expenditures, at our ownership share, in excess of $10 million), nine new retail
center development projects under construction (including two which opened in October 2006
and one with completed development expected in the fourth quarter of
2006) and
seven potential new retail or mixed-use developments. Total projected expenditures (including our
share of the Unconsolidated Real Estate Affiliates) for such development activities are currently
expected to be approximately $450 to $800 million per year through 2009.
Cash Flows from Financing Activities
Net cash used in financing activities was $561.6 million for the nine months ended September 30,
2006 compared to $319.6 million for the nine months ended September 30, 2005. The increase was
primarily due to net financing activity. In 2006, paydowns exceeded proceeds from new debt by
$97.7 million. In 2005, proceeds from new debt exceeded paydowns by $216.6 million. This increase
was partially offset by cash used for preferred stock redemptions in 2005 and lower common stock
repurchases in 2006.
Our consolidated debt and our pro rata share of the debt of our Unconsolidated Real Estate
Affiliates, after giving effect to interest rate swap agreements, were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
(In millions) |
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
$ |
17,456 |
|
|
$ |
14,789 |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Corporate and other unsecured |
|
|
2,802 |
|
|
|
4,875 |
|
Other variable-rate debt |
|
|
191 |
|
|
|
755 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
2,993 |
|
|
|
5,630 |
|
|
|
|
|
|
|
|
Total consolidated |
|
$ |
20,449 |
|
|
$ |
20,419 |
|
|
|
|
|
|
|
|
Weighted-average
interest rate (excluding deferred finance costs) |
|
|
5.71 |
% |
|
|
5.64 |
% |
|
|
|
|
|
|
|
|
|
Unconsolidated: |
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
$ |
3,622 |
|
|
$ |
2,788 |
|
Variable-rate debt |
|
|
237 |
|
|
|
455 |
|
|
|
|
|
|
|
|
Total Unconsolidated Real Estate Affiliates |
|
$ |
3,859 |
|
|
$ |
3,243 |
|
|
|
|
|
|
|
|
Weighted-average interest rate (excluding deferred finance costs) |
|
|
5.63 |
% |
|
|
5.56 |
% |
In February 2006, we entered into several debt agreements. The proceeds of these transactions
were used to reduce the approximately $5.3 billion outstanding under the 2004 Credit Facility,
which was entered into to fund the cash portion of the TRC Merger consideration and, with other
cash and financing sources, fund other costs of the merger transaction.
On February 24, 2006, we amended the 2004 Credit Facility and entered into a Second Amended and
Restated Credit Agreement (the 2006 Credit Facility). The 2006 Credit Facility provides for a
$2.85 billion term loan (the Term Loan) and a $650 million revolving credit facility. As of
September 30, 2006, $479.6 million is available to be drawn on the revolving credit facility.
The 2006 Credit Facility has a four year term, with a one year extension option. The interest rate
ranges from LIBOR plus 1.15% to LIBOR plus 1.5%, depending on our leverage ratio and assuming we
maintain our election to have these loans designated as Eurodollar loans. The current interest
rate is LIBOR plus 1.25%. Quarterly principal payments on the Term Loan of $12.5 million begin
March 31, 2007, with the balance due at maturity.
43
Under the terms of the 2006 Credit Facility, we are subject to customary affirmative and negative
covenants as we were under the 2004 Credit Facility. If a default occurs, the lenders will have
the option of declaring all outstanding amounts immediately due and payable. Events of default
include a failure to maintain our REIT status under the Internal Revenue Code, a failure to remain
listed on the New York Stock Exchange and such customary events as nonpayment of principal,
interest, fees or other amounts, breach of representations and warranties, breach of covenant,
cross-default to other indebtedness and certain bankruptcy events.
Concurrently with the 2006 Credit Facility transaction and as described below, we also entered into
a $1.4 billion term loan (the Short Term Loan), we issued $200 million of trust preferred
securities (the TRUPS) through GGP Capital Trust I and TRCLP entered into a $500 million term
loan (the Bridge Loan). All of these arrangements are subject to customary affirmative and
negative covenants and events of default.
On May 5, 2006 we fully repaid the Bridge Loan with a portion of the proceeds obtained from the
sale of bonds issued by TRCLP. The Bridge Loan bore interest at LIBOR plus 1.3% until May 24, 2006
and at LIBOR plus 1.55% thereafter and was scheduled to be due August 24, 2006. A total of $800
million of senior unsecured notes were issued by TRCLP, providing for semi-annual payments
(commencing November 1, 2006) of interest only at a rate of 6.75% and payment of the principal in
full on May 1, 2013.
During the quarter ended September 30, 2006, we closed various refinancing transactions on our
Consolidated and Unconsolidated Properties. The proceeds of these transactions were used to fully
repay the GGP MPTC (which includes Ala Moana) and the $1.4 billion Short Term Loan. The financing
(including our share of the Unconsolidated Properties), substantially all of which is individual
non-recourse secured property level mortgage debt, has a weighted average interest rate of
approximately 5.7%, which is approximately 50 basis points lower than the weighted average rate on
the previously outstanding debt that was repaid as a result of these transactions. The refinancing
also converted approximately $2 billion of Consolidated and $360 million of Unconsolidated (at
our share) variable rate debt to fixed rate debt.
As mentioned above, GGP Capital Trust I, a Delaware statutory trust (the Trust) and a
whollyowned subsidiary of GGPLP, completed a private placement of $200 million of TRUPS. The
Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the
sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior
Subordinated Notes of GGPLP due 2036. The TRUPS require distributions equal to LIBOR plus 1.45%.
Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on
April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to
redeem a like amount of the Junior Subordinated Notes. The Junior Subordinated Notes bear interest
at LIBOR plus 1.45%.
44
Contractual Cash Obligations and Commitments
The following table aggregates the future maturities of our long-term debt (excluding
mark-to-market adjustments) as of September 30, 2006.
|
|
|
|
|
(In thousands) |
|
|
|
|
2006 |
|
$ |
227,354 |
|
2007 |
|
|
1,375,840 |
|
2008 |
|
|
2,213,994 |
|
2009 |
|
|
2,707,017 |
|
2010 |
|
|
6,226,666 |
|
Subsequent |
|
|
7,578,141 |
|
Total |
|
$ |
20,329,012 |
|
|
|
|
|
During 2006, we completed a number of financing
transactions which converted variable-rate
debt to fixed rate debt and/or reduced interest rates. As discussed above, we entered into several
debt agreements in February 2006. This new debt reduced the interest rates and extended the
maturity of approximately $5 billion of unsecured, variable-rate debt. In the third quarter of
2006, we refinanced $3 billion in debt (including our share of
the Unconsolidated Properties). These transactions converted $2 billion of consolidated
variable-rate debt to fixed-rate debt and reduced the weighted-average interest on such debt by
approximately 50 basis points. Based on the contractual maturities included in the table above and
a weighted-average interest rate of 5.71% at September 30, 2006, and assuming that no new financing
or refinancing transactions occur prior to December 31, 2010, future cash requirements for the
payment of interest would be estimated to be approximately $0.3 billion for the three months ended
December 31, 2006, $1.1 billion for the years ended December 31, 2007 and 2008, $0.9 billion for
the year ended December 31, 2009, $0.8 billion for the year ended December 31, 2010, and $0.4
billion for the periods thereafter.
There have been no significant changes in the other cash obligations as disclosed in our 2005
Annual Report on Form 10-K.
TRC acquired various assets, including Summerlin, a master planned community in suburban Las Vegas,
Nevada, in the acquisition of The Hughes Corporation (Hughes) in 1996. In connection with the
acquisition of Hughes, TRC entered into a Contingent Stock Agreement (CSA) for the benefit of the
former Hughes owners or their successors (beneficiaries). Under the terms of the CSA, shares of
TRC common stock were issuable to the beneficiaries based on the appraised values of defined asset
groups, including Summerlin, at specified termination dates through 2009 and/or cash flows from the
development and/or sale of those assets prior to the termination dates.
We assumed TRCs obligation under the CSA to deliver shares of our common stock twice a year to
beneficiaries under the CSA. The amount of shares is based upon a formula set forth in the CSA and
upon our stock price. Such issuances could be dilutive to our existing stockholders if the
delivery obligation is satisfied by the issuance of new shares rather than from treasury stock or
shares purchased on the open market.
We account for the beneficiaries share of earnings from the assets as an operating expense. We
will account for any distributions to the beneficiaries in 2009, which could be significant, in
connection with a valuation related to assets that we own as of such date as additional investments
in the related assets (that is, contingent consideration). Pursuant to the CSA, we delivered shares
of our common stock to the beneficiaries totaling 1,059,191 shares (all issued from treasury shares)
in August 2006 and 755,828 shares in February 2006 (including 668,333 shares issued from treasury
shares).
45
We anticipate that our operating cash flow and potential new debt or equity from additional
borrowings on the Revolver, future offerings, new financings or refinancings will provide adequate
liquidity to conduct our operations; fund development expenditures and other commitments, general
and administrative expenses, operating costs, and principal and interest payments; and allow
distributions to our stockholders in accordance with the REIT requirements of the Internal Revenue
Code.
REIT Status
In order to remain qualified as a REIT for federal income tax purposes, General Growth must
distribute or pay tax on 100% of capital gains and at least 90% of its ordinary taxable income to
stockholders. The following factors, among others, will affect operating cash flow and,
accordingly, influence the decisions of the Board of Directors regarding distributions:
|
|
|
Scheduled increases in base rents of existing leases |
|
|
|
|
Changes in minimum base rents and/or overage rents attributable to replacement of
existing leases with new or renewal leases |
|
|
|
|
Changes in occupancy rates at existing properties and procurement of leases for newly
developed properties |
|
|
|
|
Necessary capital improvement expenditures or debt repayments at existing properties |
|
|
|
|
Our share of distributions of operating cash flow generated by the Unconsolidated Real
Estate Affiliates, less oversight costs and debt service on additional loans that have been
or will be incurred |
|
|
|
|
Anticipated proceeds from sales in our Master Planned Communities segment |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As described in Note 8, new accounting pronouncements have been issued which are effective for the
current year. There has not been a material impact on our reported operations or financial
position due to the application of such new statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our outstanding debt and our share of the debt of our Unconsolidated Real Estate Affiliates as of
September 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
Consolidated |
|
|
Unconsolidated |
|
Variable rate: |
|
|
|
|
|
|
|
|
Subject to interest rate swaps |
|
$ |
620 |
|
|
$ |
100 |
|
Not subject to interest rate swaps |
|
|
2,993 |
|
|
|
237 |
|
|
|
|
|
|
|
|
Total |
|
|
3,613 |
|
|
|
337 |
|
Fixed rate |
|
|
16,836 |
|
|
|
3,522 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,449 |
|
|
$ |
3,859 |
|
|
|
|
|
|
|
|
A 25 basis point increase or decrease in the interest rate on the variable-rate debt not
subject to interest rate swaps would increase or decrease annual interest expense and operating
cash flows on our consolidated debt by approximately $7 million and on our unconsolidated debt (at
our share) by approximately $1 million.
46
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures (including the additional review
necessary to confirm the fair presentation in the financial statements, in light of the material
weaknesses discussed below) as of the end of the period covered by this report have been designed
and are functioning effectively. Such disclosure controls and procedures are designed to provide
reasonable assurance that the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time
periods specified in the SECs rules and forms. We believe that a controls system, no matter how
well designed and operated, cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. Management is required
to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Material Weaknesses Previously Disclosed
As discussed in our Annual Report on Form 10-K for December 31, 2005, we conducted an assessment of
the effectiveness of our internal control over financial reporting and concluded that we did not
maintain effective internal controls over financial reporting because of the effect of two material
weaknesses in our system of internal controls. During the closing process for the year ended
December 31, 2005, management determined that (i) we did not maintain effective controls at our
subsidiary, The Rouse Company L.P., over the process of identifying, recording and tracking various
items that create deferred income tax assets and liabilities and (ii) we had insufficient personnel
resources with the technical accounting expertise to enable us to conduct a timely and accurate
financial close process.
Subsequent to the filing of our Annual Report, our management has taken a number of remediation
actions to address these material weaknesses in our system of internal controls including hiring
additional professional staff, incremental employee technical training and further formalizing and
evaluating our controls and processes. We are continuing to implement changes and will assess the
operating effectiveness of these changes prior to concluding that our remediation efforts are
complete. Although our remediation efforts are not yet finished, management is committed to
remediate the material weaknesses as expeditiously as possible and
currently believes that they will be remediated by year-end.
There have been no changes in our internal controls over financial reporting during our most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting, except to the extent that the changes being instituted
in connection with the remediation plan affect such controls.
47
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of the Unconsolidated Real Estate Affiliates is currently involved in
any material pending legal proceedings nor, to our knowledge, is any material legal proceeding
currently threatened against the Company or any of the Unconsolidated Real Estate Affiliates.
ITEM 1A. RISK FACTORS
There have been no significant changes in the Risk Factors described in our 2005 Annual Report on
Form 10-K.
48
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Dollar Value |
|
|
|
|
|
|
|
|
|
|
|
Purchased |
|
|
of Shares that |
|
|
|
|
|
|
|
|
|
|
|
as Part of |
|
|
May Yet be |
|
|
|
Total |
|
|
Average |
|
|
Publicly |
|
|
Purchased |
|
|
|
Number of |
|
|
Price |
|
|
Announced |
|
|
Under the |
|
|
|
Shares |
|
|
Paid |
|
|
Plans or |
|
|
Plans or |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Programs |
|
August 8 - 29, 2006 |
|
|
12,400 |
|
|
$ |
44.65 |
|
|
|
12,400 |
|
|
$ |
146,083,073 |
|
September 1 - 28, 2006 |
|
|
338,200 |
|
|
|
46.64 |
|
|
|
338,200 |
|
|
|
130,308,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
350,600 |
|
|
$ |
46.57 |
|
|
|
350,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 3, 2005, we announced that our Board of Directors had authorized,
effective immediately, a $200 million per fiscal year common stock repurchase program. Stock
repurchases under this program are made through open market or privately negotiated transactions
through 2009, unless the program is earlier terminated. The repurchase program gives us the
ability to acquire some or all of the shares of common stock to be issued upon the exercise of
certain employee stock options and pursuant to the CSA. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
49
ITEM 5. OTHER INFORMATION
The following is Unaudited consolidated financial information for our subsidiary, TRCLP, as of
September 30, 2006 and December 31, 2005 and for the nine months ended September 30, 2006 and 2005,
as discussed in Note 4 to the accompanying Consolidated Financial Statements.
THE ROUSE COMPANY, L.P.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
1,345,607 |
|
|
$ |
1,263,288 |
|
Buildings and equipment |
|
|
8,454,439 |
|
|
|
8,370,635 |
|
Less accumulated depreciation |
|
|
(599,047 |
) |
|
|
(357,859 |
) |
Developments in progress |
|
|
229,078 |
|
|
|
203,027 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
9,430,077 |
|
|
|
9,479,091 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
1,190,322 |
|
|
|
1,192,976 |
|
Investment land and land held for development and sale |
|
|
1,705,852 |
|
|
|
1,651,063 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
12,326,251 |
|
|
|
12,323,130 |
|
Cash and cash equivalents |
|
|
47,806 |
|
|
|
73,374 |
|
Accounts and notes receivable, net |
|
|
106,981 |
|
|
|
88,142 |
|
Insurance recovery receivable |
|
|
18,409 |
|
|
|
63,382 |
|
Goodwill |
|
|
361,897 |
|
|
|
420,624 |
|
Deferred expenses, net |
|
|
66,343 |
|
|
|
51,607 |
|
Prepaid expenses and other assets |
|
|
697,913 |
|
|
|
814,872 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,625,600 |
|
|
$ |
13,835,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital |
|
|
|
|
|
|
|
|
Mortgage notes and other property debt payable |
|
$ |
7,374,719 |
|
|
$ |
6,503,073 |
|
Deferred tax liabilities |
|
|
1,267,302 |
|
|
|
1,286,576 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
553,946 |
|
|
|
591,679 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
9,195,967 |
|
|
|
8,381,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital: |
|
|
|
|
|
|
|
|
Partners capital |
|
|
7,159,433 |
|
|
|
7,191,001 |
|
Accumulated other comprehensive income |
|
|
(44 |
) |
|
|
877 |
|
|
|
|
|
|
|
|
Total partners capital, before
receivable from General Growth Properties, Inc. |
|
|
7,159,389 |
|
|
|
7,191,878 |
|
Receivable from General Growth Properties, Inc. |
|
|
(2,729,756 |
) |
|
|
(1,738,075 |
) |
|
|
|
|
|
|
|
Total partners capital |
|
|
4,429,633 |
|
|
|
5,453,803 |
|
|
|
|
|
|
|
|
Total liabilities and partners capital |
|
$ |
13,625,600 |
|
|
$ |
13,835,131 |
|
|
|
|
|
|
|
|
50
THE ROUSE COMPANY, L. P.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
484,651 |
|
|
$ |
456,893 |
|
Tenant recoveries |
|
|
212,392 |
|
|
|
205,514 |
|
Overage rents |
|
|
9,914 |
|
|
|
10,064 |
|
Land sales |
|
|
218,023 |
|
|
|
254,864 |
|
Management and other fees |
|
|
13,044 |
|
|
|
10,802 |
|
Other |
|
|
35,315 |
|
|
|
31,239 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
973,339 |
|
|
|
969,376 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
63,197 |
|
|
|
58,571 |
|
Repairs and maintenance |
|
|
59,288 |
|
|
|
58,302 |
|
Marketing |
|
|
7,132 |
|
|
|
10,052 |
|
Other property operating costs |
|
|
122,051 |
|
|
|
141,256 |
|
Land sales operations |
|
|
160,059 |
|
|
|
208,549 |
|
Provision for doubtful accounts |
|
|
10,912 |
|
|
|
5,757 |
|
Property management and other costs |
|
|
63,861 |
|
|
|
25,787 |
|
Depreciation and amortization |
|
|
241,712 |
|
|
|
246,140 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
728,212 |
|
|
|
754,414 |
|
|
|
|
|
|
|
|
Operating income |
|
|
245,127 |
|
|
|
214,962 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,975 |
|
|
|
5,040 |
|
Interest expense |
|
|
(251,639 |
) |
|
|
(185,715 |
) |
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and
equity in income of unconsolidated real estate affiliates |
|
|
(2,537 |
) |
|
|
34,287 |
|
Provision for income taxes |
|
|
(42,567 |
) |
|
|
(33,762 |
) |
Minority interest |
|
|
(4,764 |
) |
|
|
(2,947 |
) |
Equity in income of unconsolidated real estate affiliates |
|
|
18,310 |
|
|
|
4,773 |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(31,558 |
) |
|
|
2,351 |
|
Income from discontinued operations |
|
|
|
|
|
|
6,131 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(31,558 |
) |
|
$ |
8,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(31,558 |
) |
|
$ |
8,482 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on financial instruments |
|
|
(870 |
) |
|
|
904 |
|
Unrealized gains (losses) on available-for-sale securities |
|
|
(51 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
Comprehensive income (loss), net |
|
$ |
(32,479 |
) |
|
$ |
9,395 |
|
|
|
|
|
|
|
|
51
THE ROUSE COMPANY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(31,558 |
) |
|
$ |
8,482 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization, including discontinued operations |
|
|
244,418 |
|
|
|
251,691 |
|
Equity in income of unconsolidated real estate affiliates |
|
|
(18,310 |
) |
|
|
(4,773 |
) |
Operating distributions received from unconsolidated real
estate affiliates |
|
|
10,547 |
|
|
|
4,773 |
|
Losses (gains) on extinguishment of debt |
|
|
(3,487 |
) |
|
|
(267 |
) |
Participation expense pursuant to Contingent Stock Agreement |
|
|
59,197 |
|
|
|
75,555 |
|
Land development and acquisition expenditures |
|
|
(144,365 |
) |
|
|
(96,056 |
) |
Cost of land sales |
|
|
78,827 |
|
|
|
114,162 |
|
Provision
for doubtful accounts, including discontinued operations |
|
|
10,912 |
|
|
|
5,754 |
|
Debt assumed by purchasers of land |
|
|
(5,032 |
) |
|
|
(5,293 |
) |
Proceeds from the sale of marketable securities |
|
|
|
|
|
|
9,088 |
|
Straight-line rent amortization |
|
|
(19,745 |
) |
|
|
(19,574 |
) |
Above and below market tenant lease amortization |
|
|
(6,677 |
) |
|
|
(4,488 |
) |
Other intangible amortization |
|
|
4,975 |
|
|
|
8,316 |
|
Amortization of debt market rate adjustment |
|
|
(24,014 |
) |
|
|
(36,175 |
) |
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(15,513 |
) |
|
|
(11,301 |
) |
Other assets |
|
|
(19,038 |
) |
|
|
(22,080 |
) |
Accounts payable, accrued expenses, and
income taxes |
|
|
72,729 |
|
|
|
46,301 |
|
Other, net |
|
|
1,511 |
|
|
|
(2,699 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
195,377 |
|
|
|
321,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition/development of real estate and property
additions/improvements |
|
|
(86,290 |
) |
|
|
(136,061 |
) |
Proceeds from sale of property |
|
|
6,234 |
|
|
|
|
|
Increase in investments in unconsolidated real estate affiliates |
|
|
(20,588 |
) |
|
|
(9,672 |
) |
Distributions received from unconsolidated real estate affiliates
in excess of income |
|
|
21,806 |
|
|
|
38,278 |
|
Change in restricted cash |
|
|
11,207 |
|
|
|
(2,480 |
) |
Insurance recoveries |
|
|
25,784 |
|
|
|
5,000 |
|
Other, net |
|
|
4,822 |
|
|
|
11,196 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(37,025 |
) |
|
|
(93,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of mortgage notes and other property debt payable |
|
|
1,743,000 |
|
|
|
1,857,037 |
|
Principal payments on mortgages notes
and other property debt payable |
|
|
(841,580 |
) |
|
|
(1,055,357 |
) |
Deferred financing costs |
|
|
(9,444 |
) |
|
|
(16,458 |
) |
Advances to General Growth Properties, Inc. |
|
|
(1,073,411 |
) |
|
|
(997,241 |
) |
Other, net |
|
|
(2,485 |
) |
|
|
(26,199 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(183,920 |
) |
|
|
(238,218 |
) |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(25,568 |
) |
|
|
(10,541 |
) |
Cash and cash equivalents at beginning of period |
|
|
73,374 |
|
|
|
30,196 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
47,806 |
|
|
$ |
19,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
287,578 |
|
|
$ |
193,641 |
|
Interest capitalized |
|
|
32,762 |
|
|
|
36,140 |
|
Income taxes paid |
|
|
29,180 |
|
|
|
13,218 |
|
Transfer of deferred compensation and retirement accounts from
TRCLP to GGMI |
|
|
20,062 |
|
|
|
|
|
52
MANAGEMENTS DISCUSSION OF TRCLP OPERATIONS AND LIQUIDITY
Revenues
Tenant rents (which includes minimum rents, tenant recoveries, and overage rents) increased in 2006
primarily due to increased rents of approximately $12.2 million from The Shops at La Cantera which
opened in September 2005. In addition, tenant rents increased at various properties due to
increased occupancy and rental rates as compared to 2005. Lease termination income increased
approximately $3.2 million from 2005. Such amounts are normally negotiated based on amounts
remaining to be collected on the terminated leases. As a result, lease termination income
represents an acceleration, rather than an increase, in revenues collected on such leases.
Recoverable expenses at various properties also increased in 2006 due to higher occupancy and
property operating expenses. Management and other fees increased in 2006 primarily due to higher
development fees. These increases in revenue were partially offset by a $36.8 million decrease in
land sales due to decreased sales at our Summerlin and Columbia developments during 2006.
Operating expenses
Real estate taxes increased approximately $4.6 million in 2006 due to increased property taxes at
certain properties, including The Shops at La Cantera. Property operating costs decreased and
property management and other costs increased primarily as a result of lower allocations of costs
to our operating properties in 2006. Real estate taxes, repairs and maintenance and other property
operating expenses are generally recoverable from tenants and the increases in these expenses are
generally consistent with the increases in tenant recovery revenues. The provision for doubtful
accounts increased $5.2 million in 2006 which is primarily due to Oakwood Center, which was damaged
in the third quarter of 2005 (Note 5). With respect to the Master Planned Communities, although
land sale revenues and sales pace declined in 2006 as compared to 2005, we expect the full year
land sale revenues to exceed 2005 based upon anticipated sales and executed, but not yet closed,
contracts. The decrease in depreciation and amortization is primarily attributed to non-recurring
adjustments in 2005 related to changes in the estimated fair values of assets related to the
acquisition by General Growth. This decrease was partially offset by an increase in depreciation
and amortization as a result of redevelopments and the opening of The Shops at La Cantera.
Net income (loss)
Interest expense increased as a result of higher interest rates and higher outstanding debt
balances. The increase in the provision for income taxes is primarily attributable to the
increases in operating results at the master planned communities.
Cash position at September 30, 2006
TRCLPs cash and cash equivalents decreased $25.6 million to $47.8 million as of September 30, 2006
as compared to December 31, 2005. The cash position of TRCLP is largely determined at any point in
time by the relative short-term demands for cash by TRCLP and General Growth, TRCLPs parent.
Advances to General Growth by TRCLP increased in 2006, which is primarily due to $800.0 million
from the sale of bonds by TRCLP. TRCLP expects to remain current with respect to its debt
obligations and be able to access additional funds as required from General Growth.
53
ITEM 6. EXHIBITS
10.1 |
|
Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth Properties,
In. 1998 Incentive Stock Plan. |
|
10.2 |
|
Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth Properties,
Inc. 2003 Incentive Stock Plan. |
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
32.1 |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
32.2 |
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments
relating to long-term debt that is not registered and for which the total amount of securities
authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on
a consolidated basis as of September 30, 2006. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
54
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
GENERAL GROWTH PROPERTIES, INC. |
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
Date: November 8, 2006
|
|
by:
|
|
/s/: Bernard Freibaum
Bernard Freibaum
|
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
(On behalf of the Registrant and as Principal Accounting Officer) |
|
|
55
EXHIBIT INDEX
|
10.1 |
|
Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth
Properties, In. 1998 Incentive Stock Plan. |
|
|
10.2 |
|
Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth
Properties, Inc. 2003 Incentive Stock Plan. |
|
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments
relating to long-term debt that is not registered and for which the total amount of securities
authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on
a consolidated basis as of September 30, 2006. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
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