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 June 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
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(I.R.S. Employer |
incorporation or organization)
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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. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (Check one):
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 August 4, 2006 was
241,295,270.
GENERAL GROWTH PROPERTIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. 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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June 30, |
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December 31, |
|
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2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
2,931,252 |
|
|
$ |
2,826,766 |
|
Buildings and equipment |
|
|
19,070,259 |
|
|
|
18,739,445 |
|
Less accumulated depreciation |
|
|
(2,442,377 |
) |
|
|
(2,104,956 |
) |
Developments in progress |
|
|
518,188 |
|
|
|
366,262 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
20,077,322 |
|
|
|
19,827,517 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
1,688,312 |
|
|
|
1,818,097 |
|
Investment land and land held for development and sale |
|
|
1,683,569 |
|
|
|
1,651,063 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
23,449,203 |
|
|
|
23,296,677 |
|
Cash and cash equivalents |
|
|
75,403 |
|
|
|
102,791 |
|
Accounts and notes receivable, net |
|
|
284,835 |
|
|
|
293,351 |
|
Insurance recovery receivable |
|
|
52,082 |
|
|
|
63,382 |
|
Goodwill |
|
|
361,897 |
|
|
|
420,624 |
|
Deferred expenses, net |
|
|
252,478 |
|
|
|
209,825 |
|
Prepaid expenses and other assets |
|
|
823,430 |
|
|
|
920,369 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
25,299,328 |
|
|
$ |
25,307,019 |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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Liabilities and Stockholders Equity |
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|
|
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|
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Mortgage notes and other property debt payable |
|
$ |
20,695,136 |
|
|
$ |
20,418,875 |
|
Deferred tax liabilities |
|
|
1,249,086 |
|
|
|
1,286,576 |
|
Accounts payable and accrued expenses |
|
|
1,002,980 |
|
|
|
1,032,414 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
22,947,202 |
|
|
|
22,737,865 |
|
|
|
|
|
|
|
|
Minority interests: |
|
|
|
|
|
|
|
|
Preferred |
|
|
202,230 |
|
|
|
205,944 |
|
Common |
|
|
385,514 |
|
|
|
430,292 |
|
|
|
|
|
|
|
|
Total minority interests |
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|
587,744 |
|
|
|
636,236 |
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|
|
|
|
|
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|
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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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Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock: $.01 par value; 875,000,000 shares authorized;
241,273,413 and 239,865,045 shares issued
as of June 30, 2006 and December 31, 2005, respectively |
|
|
2,413 |
|
|
|
2,399 |
|
Additional paid-in capital |
|
|
2,520,595 |
|
|
|
2,469,262 |
|
Retained earnings (accumulated deficit) |
|
|
(718,305 |
) |
|
|
(518,555 |
) |
Unearned compensation-restricted stock |
|
|
(2,925 |
) |
|
|
(280 |
) |
Accumulated other comprehensive income |
|
|
15,967 |
|
|
|
10,454 |
|
Less common stock in treasury, 1,216,200 shares at June 30, 2006
and 668,396 shares at December 31, 2005, at cost |
|
|
(53,363 |
) |
|
|
(30,362 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,764,382 |
|
|
|
1,932,918 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
25,299,328 |
|
|
$ |
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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Three Months Ended |
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Six Months Ended |
|
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June 30, |
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|
June 30, |
|
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2006 |
|
|
2005 |
|
|
2006 |
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|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
425,052 |
|
|
$ |
404,663 |
|
|
$ |
862,784 |
|
|
$ |
810,497 |
|
Tenant recoveries |
|
|
190,733 |
|
|
|
183,045 |
|
|
|
376,176 |
|
|
|
368,102 |
|
Overage rents |
|
|
8,603 |
|
|
|
9,706 |
|
|
|
22,829 |
|
|
|
23,312 |
|
Land sales |
|
|
33,035 |
|
|
|
114,157 |
|
|
|
170,255 |
|
|
|
175,407 |
|
Management and other fees |
|
|
24,650 |
|
|
|
22,780 |
|
|
|
53,362 |
|
|
|
41,135 |
|
Other |
|
|
27,736 |
|
|
|
23,879 |
|
|
|
53,022 |
|
|
|
46,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
709,809 |
|
|
|
758,230 |
|
|
|
1,538,428 |
|
|
|
1,464,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
54,551 |
|
|
|
52,424 |
|
|
|
109,515 |
|
|
|
105,614 |
|
Repairs and maintenance |
|
|
48,762 |
|
|
|
45,813 |
|
|
|
95,817 |
|
|
|
94,249 |
|
Marketing |
|
|
11,639 |
|
|
|
14,399 |
|
|
|
23,669 |
|
|
|
28,350 |
|
Other property operating expenses |
|
|
90,412 |
|
|
|
93,319 |
|
|
|
176,860 |
|
|
|
186,242 |
|
Land sales operations |
|
|
25,102 |
|
|
|
94,181 |
|
|
|
123,699 |
|
|
|
147,991 |
|
Provision for doubtful accounts |
|
|
7,106 |
|
|
|
4,165 |
|
|
|
13,319 |
|
|
|
8,361 |
|
Property management and other costs |
|
|
45,285 |
|
|
|
42,956 |
|
|
|
91,945 |
|
|
|
77,892 |
|
General and administrative |
|
|
3,132 |
|
|
|
3,635 |
|
|
|
6,691 |
|
|
|
6,446 |
|
Depreciation and amortization |
|
|
178,372 |
|
|
|
171,902 |
|
|
|
343,718 |
|
|
|
333,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
464,361 |
|
|
|
522,794 |
|
|
|
985,233 |
|
|
|
988,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
245,448 |
|
|
|
235,436 |
|
|
|
553,195 |
|
|
|
475,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,469 |
|
|
|
3,403 |
|
|
|
4,690 |
|
|
|
4,443 |
|
Interest expense |
|
|
(278,611 |
) |
|
|
(244,529 |
) |
|
|
(557,404 |
) |
|
|
(489,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes, minority interest and equity in income of
unconsolidated affiliates |
|
|
(31,694 |
) |
|
|
(5,690 |
) |
|
|
481 |
|
|
|
(9,444 |
) |
Provision for income taxes |
|
|
(14,490 |
) |
|
|
(15,359 |
) |
|
|
(40,894 |
) |
|
|
(14,093 |
) |
Minority interest |
|
|
(638 |
) |
|
|
(7,714 |
) |
|
|
(11,862 |
) |
|
|
(20,378 |
) |
Equity in income of unconsolidated affiliates |
|
|
21,009 |
|
|
|
29,647 |
|
|
|
49,476 |
|
|
|
56,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(25,813 |
) |
|
|
884 |
|
|
|
(2,799 |
) |
|
|
12,421 |
|
Income from discontinued operations, net of minority interest |
|
|
|
|
|
|
1,768 |
|
|
|
|
|
|
|
3,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,813 |
) |
|
$ |
2,652 |
|
|
$ |
(2,799 |
) |
|
$ |
15,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
(0.01 |
) |
|
$ |
0.05 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings (loss) per share |
|
$ |
(0.11 |
) |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
(0.01 |
) |
|
$ |
0.05 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings (loss) per share |
|
$ |
(0.11 |
) |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
0.41 |
|
|
$ |
0.36 |
|
|
$ |
0.82 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss), Net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,813 |
) |
|
$ |
2,652 |
|
|
$ |
(2,799 |
) |
|
$ |
15,717 |
|
Other comprehensive income, net of minority interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on financial instruments |
|
|
50 |
|
|
|
(1,355 |
) |
|
|
1,336 |
|
|
|
4,772 |
|
Minimum pension liability adjustment |
|
|
(124 |
) |
|
|
(75 |
) |
|
|
(183 |
) |
|
|
(182 |
) |
Foreign currency translation |
|
|
1,102 |
|
|
|
3,481 |
|
|
|
4,155 |
|
|
|
3,437 |
|
Unrealized gains (losses) on available-for-sale
securities |
|
|
113 |
|
|
|
(50 |
) |
|
|
205 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income,
net of minority interest |
|
|
1,141 |
|
|
|
2,001 |
|
|
|
5,513 |
|
|
|
8,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net |
|
$ |
(24,672 |
) |
|
$ |
4,653 |
|
|
$ |
2,714 |
|
|
$ |
23,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,799 |
) |
|
$ |
15,717 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Minority interest, including discontinued operations |
|
|
11,862 |
|
|
|
21,642 |
|
Equity in income of unconsolidated affiliates |
|
|
(49,476 |
) |
|
|
(56,336 |
) |
Provision for doubtful accounts, including discontinued operations |
|
|
13,319 |
|
|
|
8,413 |
|
Distributions received from unconsolidated affiliates |
|
|
40,689 |
|
|
|
56,512 |
|
Depreciation, including discontinued operations |
|
|
331,053 |
|
|
|
326,715 |
|
Amortization, including discontinued operations |
|
|
20,246 |
|
|
|
14,125 |
|
Amortization of debt market rate adjustment |
|
|
(16,458 |
) |
|
|
(26,399 |
) |
Participation expense pursuant to Contingent Stock Agreement |
|
|
48,331 |
|
|
|
51,687 |
|
Land development and acquisition expenditures |
|
|
(95,281 |
) |
|
|
(59,610 |
) |
Cost of land sales |
|
|
61,630 |
|
|
|
84,287 |
|
Debt assumed by purchasers of land |
|
|
(4,698 |
) |
|
|
(4,133 |
) |
Proceeds from the sale of marketable securities |
|
|
4,307 |
|
|
|
5,699 |
|
Straight-line rent amortization |
|
|
(24,267 |
) |
|
|
(22,975 |
) |
Above and below market tenant lease amortization |
|
|
(19,846 |
) |
|
|
(14,527 |
) |
Other intangible amortization |
|
|
2,919 |
|
|
|
5,819 |
|
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
18,773 |
|
|
|
9,254 |
|
Prepaid expenses and other assets |
|
|
26,749 |
|
|
|
(22,146 |
) |
Deferred expenses |
|
|
(22,493 |
) |
|
|
(2,215 |
) |
Accounts payable, accrued expenses and income taxes |
|
|
(12,667 |
) |
|
|
(39,796 |
) |
Other, net |
|
|
6,431 |
|
|
|
5,051 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
338,324 |
|
|
|
356,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition/development of real estate and property additions/improvements |
|
|
(269,335 |
) |
|
|
(202,632 |
) |
Proceeds from sale of property |
|
|
6,208 |
|
|
|
|
|
Increase in investments in unconsolidated affiliates |
|
|
(69,181 |
) |
|
|
(40,950 |
) |
Decrease in restricted cash |
|
|
(14,081 |
) |
|
|
(18,196 |
) |
Insurance recoveries |
|
|
13,400 |
|
|
|
|
|
Distributions received from unconsolidated affiliates in excess of income |
|
|
117,548 |
|
|
|
72,882 |
|
Loans from unconsolidated affiliates, net |
|
|
29,976 |
|
|
|
89,000 |
|
Other, net |
|
|
4,847 |
|
|
|
4,505 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(180,618 |
) |
|
|
(95,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Cash distributions paid to common stockholders |
|
|
(196,949 |
) |
|
|
(170,109 |
) |
Cash distributions paid to holders of Common Units |
|
|
(43,490 |
) |
|
|
(39,467 |
) |
Cash distributions paid to holders of perpetual and convertible preferred units |
|
|
(8,724 |
) |
|
|
(18,579 |
) |
Proceeds from issuance of common stock, including from common stock plans |
|
|
17,901 |
|
|
|
36,650 |
|
Redemption of preferred minority interests |
|
|
|
|
|
|
(183,000 |
) |
Purchase of treasury stock |
|
|
(53,363 |
) |
|
|
|
|
Proceeds from issuance of mortgage notes and other property debt payable |
|
|
6,629,000 |
|
|
|
2,917,537 |
|
Principal payments on mortgage notes and other property debt payable |
|
|
(6,489,164 |
) |
|
|
(2,782,417 |
) |
Deferred financing costs |
|
|
(39,923 |
) |
|
|
(4,493 |
) |
Other, net |
|
|
(382 |
) |
|
|
(6,547 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(185,094 |
) |
|
|
(250,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(27,388 |
) |
|
|
10,968 |
|
Cash and cash equivalents at beginning of period |
|
|
102,791 |
|
|
|
39,581 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
75,403 |
|
|
$ |
50,549 |
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
579,044 |
|
|
$ |
501,973 |
|
Interest capitalized |
|
|
25,521 |
|
|
|
28,941 |
|
Taxes paid |
|
|
12,572 |
|
|
|
6,577 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Common stock issued pursuant to Contingent Stock Agreement |
|
$ |
35,349 |
|
|
$ |
18,098 |
|
Common stock issued in exchange for Operating Partnership Units |
|
|
3,088 |
|
|
|
|
|
Common stock issued in exchange for convertible preferred units |
|
|
3,833 |
|
|
|
18,661 |
|
Debt assumed in conjunction with acquisition of property |
|
|
|
|
|
|
5,210 |
|
Acquisition of joint venture partner share 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 June 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
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 June 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 June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(25,813 |
) |
|
$ |
(25,813 |
) |
|
$ |
884 |
|
|
$ |
884 |
|
Discontinued operations, net of
minority interests |
|
|
|
|
|
|
|
|
|
|
1,768 |
|
|
|
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,813 |
) |
|
$ |
(25,813 |
) |
|
$ |
2,652 |
|
|
$ |
2,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding basic |
|
|
241,330 |
|
|
|
241,330 |
|
|
|
237,854 |
|
|
|
237,854 |
|
Effect of dilutive securities options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding diluted |
|
|
241,330 |
|
|
|
241,330 |
|
|
|
237,854 |
|
|
|
238,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(2,799 |
) |
|
$ |
(2,799 |
) |
|
$ |
12,421 |
|
|
$ |
12,421 |
|
Discontinued operations, net of
minority interests |
|
|
|
|
|
|
|
|
|
|
3,296 |
|
|
|
3,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,799 |
) |
|
$ |
(2,799 |
) |
|
$ |
15,717 |
|
|
$ |
15,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding basic |
|
|
240,978 |
|
|
|
240,978 |
|
|
|
236,838 |
|
|
|
236,838 |
|
Effect of dilutive securities options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding diluted |
|
|
240,978 |
|
|
|
240,978 |
|
|
|
236,838 |
|
|
|
237,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In 2006, all outstanding options are
anti-dilutive as we reported losses in both the quarter and
year-to-date periods. Such excluded options totaled 4.2 million shares for the three months ended June 30, 2006, 4.1
million shares for the six months ended June 30, 2006 and 1.9 million shares for both the three and
six months ended June 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 $149.6 million as of June
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 |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
(In thousands) |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Termination income |
|
$ |
1,515 |
|
|
$ |
6,702 |
|
|
$ |
18,755 |
|
|
$ |
9,229 |
|
Accretion of above and below-market leases, net |
|
|
10,742 |
|
|
|
6,801 |
|
|
|
19,846 |
|
|
|
14,527 |
|
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 $27.5 million for the three months ended June 30, 2006, $12.4
million for the three months ended June 30, 2005, $49.0 million for the six months ended June 30,
2006 and $29.4 million for the six months ended June 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 value of sharebased payment awards on the date of grant using an optionpricing model.
The value of
9
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 six months ended June 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 current
period.
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 place 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). We must adopt a transition method by January 1, 2007. We
currently do not expect to adopt the simplified alternative transition method for calculating the
tax effects of stockbased compensation pursuant to SFAS 123(R).
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 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.
10
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 six months ended June
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 three and six months
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 |
(In thousands) |
|
(Liability) |
|
Accretion |
|
Amount |
As of June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
667,090 |
|
|
$ |
(248,559 |
) |
|
$ |
418,531 |
|
Above-market |
|
|
106,108 |
|
|
|
(41,052 |
) |
|
|
65,056 |
|
Below-market |
|
|
(294,052 |
) |
|
|
144,170 |
|
|
|
(149,882 |
) |
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(16,968 |
) |
|
|
771 |
|
|
|
(16,197 |
) |
Below-market |
|
|
293,435 |
|
|
|
(9,699 |
) |
|
|
283,736 |
|
Real estate tax
stabilization
agreement |
|
|
91,879 |
|
|
|
(6,831 |
) |
|
|
85,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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).
Amortization/accretion of these intangible assets and liabilities, and similar assets and
liabilities from our Unconsolidated Real Estate Affiliates, decreased
operating income by approximately
$31.0 million for the three months ended June 30, 2006, $40.0 million for the three months ended
June 30, 2005, $60.3 million for the six months ended June 30, 2006 and $65.5 million for the six
months ended June 30, 2005.
11
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, $100
million in 2007, $70 million in 2008, $40 million in 2009, and $30 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 $263.0
million as of June 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 due in September 2006. As of April 6, 2006, Eastridge Mall is 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 June 30, 2006 and December 31, 2005 and for the three and six months ended June
30, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Condensed Combined Balance Sheets Unconsolidated Real Estate Affiliates |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
921,240 |
|
|
$ |
919,532 |
|
Buildings and equipment |
|
|
7,668,195 |
|
|
|
7,658,896 |
|
Less accumulated depreciation |
|
|
(1,472,747 |
) |
|
|
(1,304,226 |
) |
Developments in progress |
|
|
620,050 |
|
|
|
425,057 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
7,736,738 |
|
|
|
7,699,259 |
|
Investment in unconsolidated joint ventures |
|
|
72,820 |
|
|
|
89,430 |
|
Investment land and land held for sale and development |
|
|
284,553 |
|
|
|
259,386 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
8,094,111 |
|
|
|
8,048,075 |
|
Cash and cash equivalents |
|
|
221,621 |
|
|
|
194,494 |
|
Accounts and notes receivable, net |
|
|
130,415 |
|
|
|
161,218 |
|
Deferred expenses, net |
|
|
144,657 |
|
|
|
148,561 |
|
Prepaid expenses and other assets |
|
|
261,464 |
|
|
|
259,480 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,852,268 |
|
|
$ |
8,811,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgage notes and other property debt payable |
|
$ |
6,639,479 |
|
|
$ |
6,325,118 |
|
Accounts payable and accrued expenses |
|
|
463,632 |
|
|
|
455,596 |
|
Owners equity |
|
|
1,749,157 |
|
|
|
2,031,114 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
8,852,268 |
|
|
$ |
8,811,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment In and Loans To/From Unconsolidated Real Estate Affiliates |
|
|
|
|
Owners equity |
|
$ |
1,749,157 |
|
|
$ |
2,031,114 |
|
Less joint venture partners equity |
|
|
(996,398 |
) |
|
|
(1,188,150 |
) |
Capital or basis differences and loans |
|
|
935,553 |
|
|
|
975,133 |
|
|
|
|
|
|
|
|
Investment in and loans to/from
Unconsolidated Real Estate Affiliates |
|
$ |
1,688,312 |
|
|
$ |
1,818,097 |
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condensed Combined Statements of Income Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
208,138 |
|
|
$ |
192,927 |
|
|
$ |
419,116 |
|
|
$ |
385,372 |
|
Tenant recoveries |
|
|
92,606 |
|
|
|
88,298 |
|
|
|
186,382 |
|
|
|
175,157 |
|
Overage rents |
|
|
2,538 |
|
|
|
2,257 |
|
|
|
7,236 |
|
|
|
5,761 |
|
Land sales |
|
|
38,395 |
|
|
|
54,581 |
|
|
|
73,726 |
|
|
|
70,900 |
|
Other |
|
|
42,280 |
|
|
|
38,317 |
|
|
|
84,821 |
|
|
|
68,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
383,957 |
|
|
|
376,380 |
|
|
|
771,281 |
|
|
|
705,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
29,760 |
|
|
|
27,816 |
|
|
|
59,847 |
|
|
|
55,347 |
|
Repairs and maintenance |
|
|
23,259 |
|
|
|
20,197 |
|
|
|
44,499 |
|
|
|
41,628 |
|
Marketing |
|
|
5,795 |
|
|
|
7,004 |
|
|
|
12,917 |
|
|
|
13,830 |
|
Other property operating costs |
|
|
77,062 |
|
|
|
66,964 |
|
|
|
150,890 |
|
|
|
124,992 |
|
Land sales operations |
|
|
31,769 |
|
|
|
28,551 |
|
|
|
50,686 |
|
|
|
35,755 |
|
Provision for doubtful accounts |
|
|
1,697 |
|
|
|
1,142 |
|
|
|
1,982 |
|
|
|
3,351 |
|
Property management and other costs |
|
|
15,490 |
|
|
|
14,360 |
|
|
|
31,613 |
|
|
|
28,387 |
|
General and administrative |
|
|
892 |
|
|
|
904 |
|
|
|
2,655 |
|
|
|
1,221 |
|
Depreciation and amortization |
|
|
63,713 |
|
|
|
67,871 |
|
|
|
129,939 |
|
|
|
126,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
249,437 |
|
|
|
234,809 |
|
|
|
485,028 |
|
|
|
431,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
134,520 |
|
|
|
141,571 |
|
|
|
286,253 |
|
|
|
274,156 |
|
Interest income |
|
|
5,832 |
|
|
|
1,871 |
|
|
|
11,834 |
|
|
|
3,403 |
|
Interest expense |
|
|
(87,563 |
) |
|
|
(72,388 |
) |
|
|
(168,384 |
) |
|
|
(141,197 |
) |
Equity in income of unconsolidated joint ventures |
|
|
1,724 |
|
|
|
1,184 |
|
|
|
3,152 |
|
|
|
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
54,513 |
|
|
$ |
72,238 |
|
|
$ |
132,855 |
|
|
$ |
138,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity In Income of Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Unconsolidated Real Estate Affiliates |
|
$ |
54,513 |
|
|
$ |
72,238 |
|
|
$ |
132,855 |
|
|
$ |
138,665 |
|
Joint venture partners share of income of
Unconsolidated Real Estate Affiliates |
|
|
(29,410 |
) |
|
|
(38,320 |
) |
|
|
(63,310 |
) |
|
|
(71,537 |
) |
Amortization of capital or basis differences |
|
|
(4,094 |
) |
|
|
(4,271 |
) |
|
|
(20,069 |
) |
|
|
(10,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of Unconsolidated Real Estate Affiliates |
|
$ |
21,009 |
|
|
$ |
29,647 |
|
|
$ |
49,476 |
|
|
$ |
56,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the following is summarized financial information for certain individually
significant Unconsolidated Real Estate Affiliates for the three and six months ended June 30, 2006
and 2005.
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart |
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
57,012 |
|
|
$ |
53,067 |
|
|
$ |
115,583 |
|
|
$ |
112,677 |
|
Tenant recoveries |
|
|
23,666 |
|
|
|
24,039 |
|
|
|
48,232 |
|
|
|
46,982 |
|
Overage rents |
|
|
280 |
|
|
|
572 |
|
|
|
2,016 |
|
|
|
1,669 |
|
Other |
|
|
2,369 |
|
|
|
2,106 |
|
|
|
4,608 |
|
|
|
4,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
83,327 |
|
|
|
79,784 |
|
|
|
170,439 |
|
|
|
165,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,758 |
|
|
|
7,416 |
|
|
|
15,656 |
|
|
|
14,796 |
|
Repairs and maintenance |
|
|
6,108 |
|
|
|
6,073 |
|
|
|
12,607 |
|
|
|
13,209 |
|
Marketing |
|
|
1,728 |
|
|
|
2,474 |
|
|
|
4,000 |
|
|
|
4,924 |
|
Other property operating costs |
|
|
10,724 |
|
|
|
9,543 |
|
|
|
21,180 |
|
|
|
17,418 |
|
Provision for doubtful accounts |
|
|
381 |
|
|
|
295 |
|
|
|
187 |
|
|
|
625 |
|
Property management and other costs |
|
|
5,453 |
|
|
|
5,010 |
|
|
|
10,994 |
|
|
|
10,074 |
|
General and administrative |
|
|
93 |
|
|
|
71 |
|
|
|
191 |
|
|
|
167 |
|
Depreciation and amortization |
|
|
17,967 |
|
|
|
16,963 |
|
|
|
35,885 |
|
|
|
33,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
50,212 |
|
|
|
47,845 |
|
|
|
100,700 |
|
|
|
95,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
33,115 |
|
|
|
31,939 |
|
|
|
69,739 |
|
|
|
70,234 |
|
Interest income |
|
|
2,772 |
|
|
|
670 |
|
|
|
4,858 |
|
|
|
1,168 |
|
Interest expense |
|
|
(22,931 |
) |
|
|
(20,833 |
) |
|
|
(44,580 |
) |
|
|
(41,162 |
) |
Equity in income of unconsolidated
joint ventures |
|
|
1,724 |
|
|
|
1,184 |
|
|
|
3,152 |
|
|
|
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,680 |
|
|
$ |
12,960 |
|
|
$ |
33,169 |
|
|
$ |
32,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart II |
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
48,136 |
|
|
$ |
47,302 |
|
|
$ |
100,670 |
|
|
$ |
93,259 |
|
Tenant recoveries |
|
|
22,642 |
|
|
|
22,335 |
|
|
|
46,233 |
|
|
|
45,425 |
|
Overage rents |
|
|
523 |
|
|
|
559 |
|
|
|
1,592 |
|
|
|
1,594 |
|
Other |
|
|
1,646 |
|
|
|
2,584 |
|
|
|
3,648 |
|
|
|
3,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
72,947 |
|
|
|
72,780 |
|
|
|
152,143 |
|
|
|
144,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,471 |
|
|
|
6,436 |
|
|
|
14,919 |
|
|
|
13,737 |
|
Repairs and maintenance |
|
|
4,485 |
|
|
|
4,565 |
|
|
|
8,968 |
|
|
|
9,292 |
|
Marketing |
|
|
1,757 |
|
|
|
2,490 |
|
|
|
3,796 |
|
|
|
4,867 |
|
Other property operating costs |
|
|
9,090 |
|
|
|
6,059 |
|
|
|
17,702 |
|
|
|
14,087 |
|
Provision for doubtful accounts |
|
|
258 |
|
|
|
466 |
|
|
|
338 |
|
|
|
1,077 |
|
Property management and other costs |
|
|
4,591 |
|
|
|
4,282 |
|
|
|
9,385 |
|
|
|
8,370 |
|
General and administrative |
|
|
769 |
|
|
|
773 |
|
|
|
2,433 |
|
|
|
967 |
|
Depreciation and amortization |
|
|
16,128 |
|
|
|
15,151 |
|
|
|
31,638 |
|
|
|
30,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
44,549 |
|
|
|
40,222 |
|
|
|
89,179 |
|
|
|
82,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
28,398 |
|
|
|
32,558 |
|
|
|
62,964 |
|
|
|
61,630 |
|
Interest income |
|
|
1,971 |
|
|
|
674 |
|
|
|
4,843 |
|
|
|
1,152 |
|
Interest expense |
|
|
(20,721 |
) |
|
|
(17,558 |
) |
|
|
(40,833 |
) |
|
|
(33,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,648 |
|
|
$ |
15,674 |
|
|
$ |
26,974 |
|
|
$ |
28,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Teachers |
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
26,652 |
|
|
$ |
20,048 |
|
|
$ |
52,303 |
|
|
$ |
40,908 |
|
Tenant recoveries |
|
|
11,857 |
|
|
|
9,558 |
|
|
|
22,705 |
|
|
|
19,137 |
|
Overage rents |
|
|
533 |
|
|
|
8 |
|
|
|
1,127 |
|
|
|
74 |
|
Other |
|
|
559 |
|
|
|
547 |
|
|
|
1,077 |
|
|
|
1,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
39,601 |
|
|
|
30,161 |
|
|
|
77,212 |
|
|
|
61,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
2,945 |
|
|
|
2,787 |
|
|
|
5,859 |
|
|
|
5,536 |
|
Repairs and maintenance |
|
|
1,924 |
|
|
|
1,498 |
|
|
|
3,817 |
|
|
|
3,314 |
|
Marketing |
|
|
843 |
|
|
|
925 |
|
|
|
1,881 |
|
|
|
1,781 |
|
Other property operating costs |
|
|
4,750 |
|
|
|
3,959 |
|
|
|
9,454 |
|
|
|
7,808 |
|
Provision for doubtful accounts |
|
|
336 |
|
|
|
117 |
|
|
|
228 |
|
|
|
179 |
|
Property management and other costs |
|
|
2,178 |
|
|
|
1,674 |
|
|
|
4,342 |
|
|
|
3,324 |
|
General and administrative |
|
|
17 |
|
|
|
39 |
|
|
|
16 |
|
|
|
74 |
|
Depreciation and amortization |
|
|
6,298 |
|
|
|
5,177 |
|
|
|
13,758 |
|
|
|
10,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
19,291 |
|
|
|
16,176 |
|
|
|
39,355 |
|
|
|
32,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
20,310 |
|
|
|
13,985 |
|
|
|
37,857 |
|
|
|
28,795 |
|
Interest income |
|
|
243 |
|
|
|
168 |
|
|
|
428 |
|
|
|
304 |
|
Interest expense |
|
|
(10,592 |
) |
|
|
(5,332 |
) |
|
|
(20,979 |
) |
|
|
(10,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,961 |
|
|
$ |
8,821 |
|
|
$ |
17,306 |
|
|
$ |
18,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 MORTGAGE NOTES AND OTHER PROPERTY DEBT PAYABLE
Mortgage notes and other property debt payable reflected in the accompanying Consolidated
Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
$ |
1,216,360 |
|
|
$ |
1,181,895 |
|
Other collateralized mortgage notes and other debt payable |
|
|
11,597,528 |
|
|
|
11,092,544 |
|
Corporate and other unsecured term loans |
|
|
2,392,707 |
|
|
|
1,631,257 |
|
|
|
|
|
|
|
|
Total fixed-rate debt |
|
|
15,206,595 |
|
|
|
13,905,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
304,322 |
|
|
|
306,270 |
|
Other collateralized mortgage notes and other debt payable |
|
|
635,019 |
|
|
|
888,842 |
|
Credit facilities |
|
|
1,000 |
|
|
|
180,500 |
|
Corporate and other unsecured term loans |
|
|
4,548,200 |
|
|
|
5,137,567 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
5,488,541 |
|
|
|
6,513,179 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,695,136 |
|
|
$ |
20,418,875 |
|
|
|
|
|
|
|
|
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 5.78% at June 30, 2006, 5.64% at December 31, 2005
and 5.45% at June 30, 2005.
17
Commercial Mortgage-Backed Securities
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 is attributed to the Operating Partnership,
GGP/Homart, GGP/Homart II, GGP Ivanhoe III and GGP Ivanhoe IV. In addition, in November 1997
(refinanced in November 2004), the Operating Partnership and GGP Ivanhoe I completed the placement
of 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, certain unconsolidated debt is
cross-defaulted and cross-collateralized by consolidated debt as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance |
|
Number of Collateralized Properties |
|
|
Consolidated |
|
Unconsolidated |
|
Consolidated |
|
Unconsolidated |
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
GGP MPTC |
|
$ |
651.9 |
|
|
$ |
252.1 |
|
|
|
5 |
|
|
|
4 |
|
CMBS 13 |
|
|
868.8 |
|
|
|
138.6 |
|
|
|
11 |
|
|
|
2 |
|
As of June 30, 2006, the weighted-average interest rate on the consolidated fixed-rate
commercial mortgage-backed securities was 5.38% (range of 4.15% to 6.71%). The weighted-average
interest rate on the consolidated variable-rate commercial mortgage-backed securities, excluding
the impact of interest rate swaps, was 6.12% (range of LIBOR plus 80 to 92
basis points).
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 3.13% to 11.40%. The variable-rate collateralized mortgage notes and other property debt
payable bear interest at LIBOR plus 80 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 June
30, 2006, $649 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
June 30,
18
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.
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) and 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.
The interest rate on the Short Term Loan is the same as on the 2006 Credit Facility (currently
LIBOR plus 1.25%). An $800 million principal payment is due under the Short Term Loan on August
14, 2006, with the remaining balance due on December 31, 2006. We are required to apply the net
proceeds of the refinancing of Ala Moana Center, which is expected in August 2006, toward repayment
of the Short Term Loan.
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. However, 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. A
total of $800 million of senior unsecured notes were issued, providing for semi-annual payments
(commencing November 1, 2006) of interest only at a rate per annum of 6.75% and payment of the
principal in full on May 1, 2013.
In August
2006, we expect to close various refinancing transactions on our
Consolidated and Unconsolidated Properties. The proceeds of these expected
transactions will be used to fully repay the GGP MPTC (which includes Ala Moana) and approximately
$1 billion on the Short Term Loan, as described above. The
proposed financing (including our share of the Unconsolidated
Properties), substantially all
of which is expected to be individual non-recourse secured property level mortgage debt, is
expected to have a weighted average interest rate of approximately
5.7%, which is approximately 50
basis points lower than the weighted average rate on the currently outstanding debt that will be
repaid as a result of these transactions. The proposed refinancing will also convert approximately
$1.5 billion of Consolidated and $100 million of Unconsolidated
(at our share) variable rate debt to fixed rate debt. Following the anticipated refinancing, our
consolidated debt portfolio, after giving effect to interest rate swaps, is expected to include
$17.3 billion of fixed rate debt and $3.4 billion of variable rate debt.
As mentioned above, GGP Capital Trust I (the Trust), a Delaware statutory trust (the Trust),
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 Preferred 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 Preferred Securities 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, Consolidation of Variable Interest Entities An Interpretation of ARB No.
51 (FIN 46R). As a result,
19
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 June 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 June 30, 2006 and December 31,
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP |
|
2006 Credit |
|
Property |
|
|
MPTC |
|
Agreement |
|
Specific |
Total notional amount (in millions) |
|
$ |
25.0 |
|
|
$ |
350.0 |
|
|
$ |
195.0 |
|
Average fixed pay rate |
|
|
4.59 |
% |
|
|
3.43 |
% |
|
|
4.78 |
% |
Average variable receive rate |
|
LIBOR |
|
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 June 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
20
rents, related to these leases was $2.3 million for the three months ended June 30,
2006, $2.5 million for the three months ended June 30, 2005 and $4.8 million for both the six
months ended June 30, 2006 and 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.
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). A total of
755,828 shares (including 668,333 treasury shares) of our common stock were delivered to the
beneficiaries in February 2006 pursuant to the CSA.
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. The net book value of the
property damage is currently estimated to be approximately $57 million; however, we are still
assessing the damage estimates and the actual net book value write-off could vary from this
estimate. Changes to these estimates 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 this net book value amount because we believe that it is probable that the insurance
recovery, net of deductibles on a replacement cost basis, will exceed these amounts. While we
expect the insurance proceeds will be sufficient to cover most of the replacement cost of the
restoration of 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. As of
June 30, 2006, an aggregate of $17.5 million in insurance proceeds related to the properties have
been received, which has been applied against this insurance recovery receivable. As only a
portion of the repairs have taken place as of June 30, 2006, substantially all of the remaining
$52.1 million receivable recorded represents the recovery of the net book value of fixed assets
written off.
21
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 six months
ended June 30, 2005, revenues and income before minority interest of such properties were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
|
June 30, |
|
June 30, |
(In thousands) |
|
2005 |
|
2005 |
Revenues |
|
$ |
5,863 |
|
|
$ |
11,685 |
|
Income before minority interest |
|
|
2,173 |
|
|
|
4059 |
|
NOTE 7 OTHER ASSETS & LIABILITIES
The following table summarizes the significant components of Prepaid Expenses and Other Assets.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Below-market ground leases |
|
$ |
283,736 |
|
|
$ |
349,788 |
|
Receivables-finance leases and bonds |
|
|
114,154 |
|
|
|
136,410 |
|
Security and escrow deposits |
|
|
104,213 |
|
|
|
87,126 |
|
Real estate tax stabilization agreement |
|
|
85,048 |
|
|
|
87,188 |
|
Special Improvement District receivable |
|
|
70,365 |
|
|
|
66,206 |
|
Above-market tenant leases |
|
|
65,056 |
|
|
|
77,094 |
|
Prepaid expenses |
|
|
23,541 |
|
|
|
29,884 |
|
Funded defined contribution plan assets |
|
|
16,387 |
|
|
|
20,062 |
|
Other |
|
|
60,930 |
|
|
|
66,611 |
|
|
|
|
|
|
|
|
|
|
$ |
823,430 |
|
|
$ |
920,369 |
|
|
|
|
|
|
|
|
22
The following table summarizes the significant components of Accounts Payable and Accrued
Expenses.
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Accounts payable and accrued expenses |
|
$ |
582,896 |
|
|
$ |
594,876 |
|
Below-market tenant leases |
|
|
149,882 |
|
|
|
182,270 |
|
Hughes participation payable |
|
|
74,765 |
|
|
|
61,783 |
|
Deferred gains/income |
|
|
54,351 |
|
|
|
38,736 |
|
Capital lease obligations |
|
|
18,010 |
|
|
|
19,206 |
|
Insurance reserves |
|
|
16,628 |
|
|
|
24,287 |
|
Other |
|
|
106,448 |
|
|
|
111,256 |
|
|
|
|
|
|
|
|
|
|
$ |
1,002,980 |
|
|
$ |
1,032,414 |
|
|
|
|
|
|
|
|
NOTE 8 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 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
23
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.
24
The following tables summarize stock option activity as of and for the six-month period ended June
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 |
|
|
(453,226 |
) |
|
|
27.03 |
|
Exchanged for restricted stock |
|
|
(30,000 |
) |
|
|
47.26 |
|
Forfeited |
|
|
(145,000 |
) |
|
|
43.10 |
|
Expired |
|
|
(600 |
) |
|
|
9.90 |
|
|
|
|
|
|
|
|
Stock
options outstanding at June 30, 2006 |
|
|
3,187,348 |
|
|
$ |
37.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
|
Contractual |
|
|
Average |
|
|
|
|
|
|
Contractual |
|
|
Average |
|
|
|
|
|
|
|
Term |
|
|
Exercise |
|
|
|
|
|
|
Term |
|
|
Exercise |
|
Range of Exercise Prices |
|
Shares |
|
|
(in years) |
|
|
Price |
|
|
Shares |
|
|
(in years) |
|
|
Price |
|
In-the-money stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.05 - $10.09 |
|
|
6,000 |
|
|
|
3.8 |
|
|
$ |
9.99 |
|
|
|
6,000 |
|
|
|
3.8 |
|
|
$ |
9.99 |
|
$10.09 - $15.14 |
|
|
84,700 |
|
|
|
5.7 |
|
|
|
13.58 |
|
|
|
84,700 |
|
|
|
5.7 |
|
|
|
13.58 |
|
$15.14 - $20.19 |
|
|
337,148 |
|
|
|
6.5 |
|
|
|
16.75 |
|
|
|
103,148 |
|
|
|
6.7 |
|
|
|
16.77 |
|
$30.28 - $35.33 |
|
|
612,500 |
|
|
|
3.2 |
|
|
|
30.98 |
|
|
|
298,500 |
|
|
|
3.2 |
|
|
|
31.03 |
|
$35.33 - $40.38 |
|
|
972,000 |
|
|
|
3.6 |
|
|
|
35.61 |
|
|
|
292,000 |
|
|
|
3.6 |
|
|
|
35.55 |
|
$40.38 - $45.06 |
|
|
50,000 |
|
|
|
4.3 |
|
|
|
44.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$45.06 - $50.47 |
|
|
1,125,000 |
|
|
|
4.5 |
|
|
|
49.91 |
|
|
|
205,000 |
|
|
|
4.5 |
|
|
|
49.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,187,348 |
|
|
|
4.4 |
|
|
$ |
37.28 |
|
|
|
989,348 |
|
|
|
4.3 |
|
|
$ |
33.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
$ |
24,798 |
|
|
|
|
|
|
|
|
|
|
$ |
11,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of outstanding and exercisable stock options as of June 30, 2006
represents the excess of our closing stock price ($45.06) 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
$10.1 million for options exercised during the six months ended June 30, 2006 and $6.6 million for
options exercised during the six months ended June 30, 2005.
The weighted-average fair value of stock options as of the grant date was $7.62 for stock options
granted during the six months ended June 30, 2006 and $4.69 for stock options granted during the
six months ended June 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.
25
The following table summarizes restricted stock activity as of and during the six month period
ended June 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 June 30, 2006 |
|
|
72,666 |
|
|
$ |
47.62 |
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
$ |
3,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock grants which vested during the six months ended June 30,
2006 was $2.0 million and during the six months ended June 30, 2005 was $2.8 million.
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 million shares, subject to certain customary adjustments to prevent
dilution.
The following table summarizes TSO activity, by grant year, as of and for the six months ended June
30, 2006.
|
|
|
|
|
|
|
|
|
|
|
TSO Grant Year |
|
|
|
2006 |
|
|
2005 |
|
TSOs outstanding at December 31, 2005 |
|
|
|
|
|
|
1,000,000 |
|
Granted |
|
|
1,400,000 |
|
|
|
|
|
Forfeited |
|
|
(62,824 |
) |
|
|
(104,682 |
) |
|
|
|
|
|
|
|
TSOs outstanding at June 30, 2006 |
|
|
1,337,176 |
|
|
|
895,318 |
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
|
|
|
|
$ |
8,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
4.6 |
|
|
|
3.6 |
|
In addition to the TSOs above, which are accounted for pursuant to SFAS 123(R), 165,602 vested, but
unexercised, TSOs granted prior to 2004 are accounted for using the intrinsic value method.
26
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 six
months ended June 30, 2006 were based on the following assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
4.43 |
% |
Dividend yield |
|
|
4.00 |
|
Expected volatitity |
|
|
22.94 |
|
Expected life (in years) |
|
|
2.5 - 3.5 |
|
Compensation
expense related to the Incentive Stock Plans, TSOs and restricted
stock was $2.3 million for the three months ended June 30, 2006, $2.6
million for the three months ended June 30, 2005, $7.3 million for
the six months ended June 30, 2006, and $5.6 million for the six
months ended June 30, 2005.
As of June 30, 2006, total compensation expense related to nonvested options, TSOs and restricted
stock grants which had not yet been recognized was $22.5 million. Of this total, $4.5 million is
expected to be recognized in the six months ended December 31, 2006, $8.8 million in 2007, $6.6
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 $1.0 million for the three and six months ended June 30, 2006 and $1.2 million for the
same periods in 2005.
27
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 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.
28
Operating results for the segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2006 |
|
(In thousands) |
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
Retail
and Other |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
425,052 |
|
|
$ |
103,851 |
|
|
$ |
528,903 |
|
Tenant recoveries |
|
|
190,733 |
|
|
|
45,886 |
|
|
|
236,619 |
|
Overage rents |
|
|
8,603 |
|
|
|
1,387 |
|
|
|
9,990 |
|
Other, including minority interest |
|
|
23,282 |
|
|
|
20,312 |
|
|
|
43,594 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
647,670 |
|
|
|
171,436 |
|
|
|
819,106 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
54,551 |
|
|
|
14,643 |
|
|
|
69,194 |
|
Repairs and maintenance |
|
|
48,762 |
|
|
|
11,536 |
|
|
|
60,298 |
|
Marketing |
|
|
11,639 |
|
|
|
2,958 |
|
|
|
14,597 |
|
Other property operating costs |
|
|
90,412 |
|
|
|
34,821 |
|
|
|
125,233 |
|
Provision for doubtful accounts |
|
|
7,106 |
|
|
|
817 |
|
|
|
7,923 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
212,470 |
|
|
|
64,775 |
|
|
|
277,245 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
435,200 |
|
|
|
106,661 |
|
|
|
541,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
33,035 |
|
|
|
20,250 |
|
|
|
53,285 |
|
Land sales operations |
|
|
(25,102 |
) |
|
|
(15,531 |
) |
|
|
(40,633 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
7,933 |
|
|
|
4,719 |
|
|
|
12,652 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
443,133 |
|
|
$ |
111,380 |
|
|
$ |
554,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2005 |
|
(In thousands) |
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
Retail
and Other |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
404,663 |
|
|
$ |
93,046 |
|
|
$ |
497,709 |
|
Tenant recoveries |
|
|
183,045 |
|
|
|
43,688 |
|
|
|
226,733 |
|
Overage rents |
|
|
9,706 |
|
|
|
1,127 |
|
|
|
10,833 |
|
Other, including minority interest |
|
|
25,927 |
|
|
|
19,484 |
|
|
|
45,411 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
623,341 |
|
|
|
157,345 |
|
|
|
780,686 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
52,424 |
|
|
|
13,627 |
|
|
|
66,051 |
|
Repairs and maintenance |
|
|
45,813 |
|
|
|
9,935 |
|
|
|
55,748 |
|
Marketing |
|
|
14,399 |
|
|
|
3,547 |
|
|
|
17,946 |
|
Other property operating costs |
|
|
93,319 |
|
|
|
33,078 |
|
|
|
126,397 |
|
Provision for doubtful accounts |
|
|
4,165 |
|
|
|
672 |
|
|
|
4,837 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
210,120 |
|
|
|
60,859 |
|
|
|
270,979 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
413,221 |
|
|
|
96,486 |
|
|
|
509,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
114,157 |
|
|
|
28,655 |
|
|
|
142,812 |
|
Land sales operations |
|
|
(94,181 |
) |
|
|
(18,930 |
) |
|
|
(113,111 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
19,976 |
|
|
|
9,725 |
|
|
|
29,701 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
433,197 |
|
|
$ |
106,211 |
|
|
$ |
539,408 |
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2006 |
|
(In thousands) |
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
Retail
and Other |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
862,784 |
|
|
$ |
209,182 |
|
|
$ |
1,071,966 |
|
Tenant recoveries |
|
|
376,176 |
|
|
|
92,453 |
|
|
|
468,629 |
|
Overage rents |
|
|
22,829 |
|
|
|
3,735 |
|
|
|
26,564 |
|
Other, including minority interest |
|
|
44,648 |
|
|
|
42,476 |
|
|
|
87,124 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,306,437 |
|
|
|
347,846 |
|
|
|
1,654,283 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
109,515 |
|
|
|
29,509 |
|
|
|
139,024 |
|
Repairs and maintenance |
|
|
95,817 |
|
|
|
22,091 |
|
|
|
117,908 |
|
Marketing |
|
|
23,669 |
|
|
|
6,464 |
|
|
|
30,133 |
|
Other property operating costs |
|
|
176,860 |
|
|
|
72,885 |
|
|
|
249,745 |
|
Provision for doubtful accounts |
|
|
13,319 |
|
|
|
952 |
|
|
|
14,271 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
419,180 |
|
|
|
131,901 |
|
|
|
551,081 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
887,257 |
|
|
|
215,945 |
|
|
|
1,103,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
170,255 |
|
|
|
38,799 |
|
|
|
209,054 |
|
Land sales operations |
|
|
(123,699 |
) |
|
|
(27,950 |
) |
|
|
(151,649 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
46,556 |
|
|
|
10,849 |
|
|
|
57,405 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
933,813 |
|
|
$ |
226,794 |
|
|
$ |
1,160,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2005 |
|
(In thousands) |
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
Retail
and Other |
|
Properties |
|
|
Properties |
|
|
Basis |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
810,497 |
|
|
$ |
189,341 |
|
|
$ |
999,838 |
|
Tenant recoveries |
|
|
368,102 |
|
|
|
86,924 |
|
|
|
455,026 |
|
Overage rents |
|
|
23,312 |
|
|
|
2,849 |
|
|
|
26,161 |
|
Other, including minority interest |
|
|
49,992 |
|
|
|
35,050 |
|
|
|
85,042 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,251,903 |
|
|
|
314,164 |
|
|
|
1,566,067 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
105,614 |
|
|
|
27,196 |
|
|
|
132,810 |
|
Repairs and maintenance |
|
|
94,249 |
|
|
|
20,567 |
|
|
|
114,816 |
|
Marketing |
|
|
28,350 |
|
|
|
6,995 |
|
|
|
35,345 |
|
Other property operating costs |
|
|
186,242 |
|
|
|
62,928 |
|
|
|
249,170 |
|
Provision for doubtful accounts |
|
|
8,361 |
|
|
|
1,719 |
|
|
|
10,080 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
422,816 |
|
|
|
119,405 |
|
|
|
542,221 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
829,087 |
|
|
|
194,759 |
|
|
|
1,023,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
175,407 |
|
|
|
37,223 |
|
|
|
212,630 |
|
Land sales operations |
|
|
(147,991 |
) |
|
|
(24,590 |
) |
|
|
(172,581 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
27,416 |
|
|
|
12,633 |
|
|
|
40,049 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
856,503 |
|
|
$ |
207,392 |
|
|
$ |
1,063,895 |
|
|
|
|
|
|
|
|
|
|
|
30
The following reconciles NOI to GAAP-basis operating income and income (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Real estate property net operating income |
|
$ |
554,513 |
|
|
$ |
539,408 |
|
|
$ |
1,160,607 |
|
|
$ |
1,063,895 |
|
Unconsolidated Properties NOI |
|
|
(111,380 |
) |
|
|
(106,211 |
) |
|
|
(226,794 |
) |
|
|
(207,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties NOI |
|
|
443,133 |
|
|
|
433,197 |
|
|
|
933,813 |
|
|
|
856,503 |
|
Management and other fees |
|
|
24,650 |
|
|
|
22,780 |
|
|
|
53,362 |
|
|
|
41,135 |
|
Property management and other costs |
|
|
(45,285 |
) |
|
|
(42,956 |
) |
|
|
(91,945 |
) |
|
|
(77,892 |
) |
General and administrative |
|
|
(3,132 |
) |
|
|
(3,635 |
) |
|
|
(6,691 |
) |
|
|
(6,446 |
) |
Depreciation and amortization |
|
|
(178,372 |
) |
|
|
(171,902 |
) |
|
|
(343,718 |
) |
|
|
(333,626 |
) |
Discontinued operations and minority
interest in consolidated NOI |
|
|
4,454 |
|
|
|
(2,048 |
) |
|
|
8,374 |
|
|
|
(3,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
245,448 |
|
|
|
235,436 |
|
|
|
553,195 |
|
|
|
475,916 |
|
Interest income |
|
|
1,469 |
|
|
|
3,403 |
|
|
|
4,690 |
|
|
|
4,443 |
|
Interest expense |
|
|
(278,611 |
) |
|
|
(244,529 |
) |
|
|
(557,404 |
) |
|
|
(489,803 |
) |
Provision for income taxes |
|
|
(14,490 |
) |
|
|
(15,359 |
) |
|
|
(40,894 |
) |
|
|
(14,093 |
) |
Minority interest |
|
|
(638 |
) |
|
|
(7,714 |
) |
|
|
(11,862 |
) |
|
|
(20,378 |
) |
Equity in income of unconsolidated affiliates |
|
|
21,009 |
|
|
|
29,647 |
|
|
|
49,476 |
|
|
|
56,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(25,813 |
) |
|
$ |
884 |
|
|
$ |
(2,799 |
) |
|
$ |
12,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reconciles segment revenues to GAAP-basis consolidated revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Segment basis total property revenues |
|
$ |
819,106 |
|
|
$ |
780,686 |
|
|
$ |
1,654,283 |
|
|
$ |
1,566,067 |
|
Unconsolidated segment revenues |
|
|
(171,436 |
) |
|
|
(157,345 |
) |
|
|
(347,846 |
) |
|
|
(314,164 |
) |
Land sales |
|
|
33,035 |
|
|
|
114,157 |
|
|
|
170,255 |
|
|
|
175,407 |
|
Management and other fees, net of discontinued operations |
|
|
24,650 |
|
|
|
22,780 |
|
|
|
53,362 |
|
|
|
41,135 |
|
Real estate net operating income attributable to
minority interests, net of discontinued operations |
|
|
4,454 |
|
|
|
(2,048 |
) |
|
|
8,374 |
|
|
|
(3,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP-basis consolidated total revenues |
|
$ |
709,809 |
|
|
$ |
758,230 |
|
|
$ |
1,538,428 |
|
|
$ |
1,464,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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 repayment of debt, including the ratio of variable to fixed-rate debt in our portfolio |
|
|
|
Future interest rates |
|
|
|
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.
32
MANAGEMENTS OVERVIEW & SUMMARY
Overview Retail and Other Segment
Our primary business is acquiring, owning, managing, leasing and developing retail and other office
and industrial rental property. As of June 30, 2006, we had ownership interest in or management
responsibility for a portfolio of over 200 regional shopping malls in 44 states. 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.
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. The average annual new/renewal lease rate for our Consolidated Retail
Properties for the first half of 2006 was $35.43 per square foot, which was $1.78 per square
foot higher than the average annualized in place rent per square foot, as detailed in the
table below. |
|
|
|
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 91.2 percent at June 30, 2006, compared to 90.7 percent at June 30, 2005. |
|
|
|
Increased tenant sales in which we participate through overage rents. In the first half
of 2006, tenant sales per square foot in our Retail Company Portfolio increased 6.0 percent
over 2005 to $448 per square foot. |
33
The following table summarizes selected operating statistics as of June 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
Unconsolidated |
|
Retail |
|
|
Retail |
|
Retail |
|
Company |
|
|
Properties |
|
Properties |
|
Portfolio |
Operating Statistics (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy |
|
|
91.1 |
% |
|
|
91.6 |
% |
|
|
91.2 |
% |
Trailing 12 month total tenant sales per sq. ft. (b) |
|
$ |
438 |
|
|
$ |
469 |
|
|
$ |
448 |
|
% change in total sales (b) |
|
|
6.5 |
% |
|
|
5.2 |
% |
|
|
6.0 |
% |
% change in comparable sales (b) |
|
|
2.7 |
|
|
|
2.7 |
|
|
|
2.7 |
|
Mall and freestanding GLA (in sq. ft.) |
|
|
40,889,137 |
|
|
|
18,268,650 |
|
|
|
59,157,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain Financial Information |
|
|
|
|
|
|
|
|
|
|
|
|
Average
annualized in place rent per sq. ft. |
|
$ |
33.65 |
|
|
$ |
36.63 |
|
|
|
|
|
Average rent per sq. ft. for new/renewal leases |
|
|
35.43 |
|
|
|
39.10 |
|
|
|
|
|
Average rent per sq. ft. for lease expiring in 2006 |
|
|
29.64 |
|
|
|
36.64 |
|
|
|
|
|
|
|
|
(a) |
|
Excludes properties at which significant physical or mershandising changes have been made and miscellaneous (non-mall) properties. |
|
(b) |
|
Due to tenant sales reporting timelines, data presented is as of May 31,2006. |
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 June 30, 2006, we had 24 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. In September 2005, we opened the Shops at La
Cantera in San Antonio, Texas. We have seven retail center development projects currently under
construction, all of which are scheduled to open in late 2006 or 2007:
|
|
Lincolnshire Commons in Lincolnshire (Chicago), Illinois |
|
|
|
Otay Ranch Town Center in Chula Vista (San Diego), California |
|
|
|
Gateway Overlook in Benson, Maryland |
|
|
|
Natick West in Natick, Massachusetts |
|
|
|
The Shops at Fallen Timbers, Maumee (Toledo), Ohio |
|
|
|
Pinnacle Hills Promenade in Rogers, Arkansas |
|
|
|
Vista Commons in Las Vegas, Nevada |
Total projected expenditures (including our share of the Unconsolidated Real Estate Affiliates) for
these redevelopment and development projects were approximately $1.5 billion as of June 30, 2006.
We also have eight other potential new retail or mixed-use developments that are currently
projected to open in 2008 and 2009.
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
$600 million.
34
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 JUNE 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 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.
35
Retail and Other Segment
The following table compares major revenue and expense items for the three months ended June 30,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
528,903 |
|
|
$ |
497,709 |
|
|
$ |
31,194 |
|
|
|
6.3 |
% |
Tenant recoveries |
|
|
236,619 |
|
|
|
226,733 |
|
|
|
9,886 |
|
|
|
4.4 |
|
Overage rents |
|
|
9,990 |
|
|
|
10,833 |
|
|
|
(843 |
) |
|
|
(7.8 |
) |
Other |
|
|
43,594 |
|
|
|
45,411 |
|
|
|
(1,817 |
) |
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
819,106 |
|
|
|
780,686 |
|
|
|
38,420 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
69,194 |
|
|
|
66,051 |
|
|
|
3,143 |
|
|
|
4.8 |
|
Repairs and maintenance |
|
|
60,298 |
|
|
|
55,748 |
|
|
|
4,550 |
|
|
|
8.2 |
|
Marketing |
|
|
14,597 |
|
|
|
17,946 |
|
|
|
(3,349 |
) |
|
|
(18.7 |
) |
Other property operating costs |
|
|
125,233 |
|
|
|
126,397 |
|
|
|
(1,164 |
) |
|
|
(0.9 |
) |
Provision for doubtful accounts |
|
|
7,923 |
|
|
|
4,837 |
|
|
|
3,086 |
|
|
|
63.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
277,245 |
|
|
|
270,979 |
|
|
|
6,266 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
541,861 |
|
|
$ |
509,707 |
|
|
$ |
32,154 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in minimum rents is primarily attributable to the following:
|
|
|
Higher specialty leasing 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 |
|
|
|
|
Higher permanent occupancy which increased 50 basis points
from June 30, 2005 to 91.2 percent at June 30, 2006 |
|
|
|
|
Greater use of vacant space for temporary tenant rentals |
|
|
|
|
The acquisition of Whalers Village by one of our joint ventures |
|
|
|
|
Higher accretion of net below market tenant leases, due in part to the re-allocation of
TRCLP purchase price as discussed in Note 1 |
These increases were partially offset by lower lease termination income in the second quarter of
2006.
Tenant recoveries increased primarily as a result of higher operating costs, as discussed below,
that are substantially recoverable from our tenants.
The decrease in overage rents is primarily due to the timing of recognition of certain amounts at
selected properties in our portfolio since, as detailed in the six month comparative analysis
below, year-to-date results for 2006 are comparable to those for year-to-date 2005.
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. The decrease in other revenues during the
current quarter is primarily attributable to minority interest allocations at The Shops at La
Cantera which opened in September 2005.
Higher real estate taxes were primarily the result of real estate taxes at The Shops at La Cantera,
which opened in September 2005, and higher real estate taxes across the remainder of our portfolio.
The increase in repairs and maintenance is primarily attributable to repairs and maintenance at The
Grand Canal Shoppes and The Shops at La Cantera.
36
Marketing
expenses decreased at substantially all of our properties due to
overall cost containment policies implemented.
Property operating expenses were comparable to the prior year.
The increase in the provision for doubtful accounts is primarily due to Oakwood Center, which has
been 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 |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Land sales |
|
$ |
53,285 |
|
|
$ |
142,812 |
|
|
$ |
(89,527 |
) |
|
|
(62.7 |
)% |
Land sales operations |
|
|
(40,633 |
) |
|
|
(113,111 |
) |
|
|
72,478 |
|
|
|
(64.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
12,652 |
|
|
$ |
29,701 |
|
|
$ |
(17,049 |
) |
|
|
(57.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in real estate property net operating income is primarily due to the timing of sales
at our Summerlin and Columbia developments. Although land sale revenues and sales pace declined in
the second quarter of 2006 as compared to 2005, year-to-date 2006 land sale revenues are comparable
to the prior year and 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 current quarter as a result of 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. Sales at Bridgeland, which began in the first quarter of
2006, partially offset the decreases at our other developments.
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant rents |
|
$ |
624,388 |
|
|
$ |
597,414 |
|
|
$ |
26,974 |
|
|
|
4.5 |
% |
Land sales |
|
|
33,035 |
|
|
|
114,157 |
|
|
|
(81,122 |
) |
|
|
(71.1 |
) |
Management and other fees |
|
|
24,650 |
|
|
|
22,780 |
|
|
|
1,870 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
212,470 |
|
|
|
210,120 |
|
|
|
2,350 |
|
|
|
1.1 |
|
Land sales operations |
|
|
25,102 |
|
|
|
94,181 |
|
|
|
(69,079 |
) |
|
|
(73.3 |
) |
Property management and other costs |
|
|
45,285 |
|
|
|
42,956 |
|
|
|
2,329 |
|
|
|
5.4 |
|
Depreciation and amortization |
|
|
178,372 |
|
|
|
171,902 |
|
|
|
6,470 |
|
|
|
3.8 |
|
Interest expense |
|
|
278,611 |
|
|
|
244,529 |
|
|
|
34,082 |
|
|
|
13.9 |
|
Provision
for income taxes |
|
|
14,490 |
|
|
|
15,359 |
|
|
|
(869 |
) |
|
|
(5.7 |
) |
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 which did not impact our consolidated portfolio.
37
Management and other fees increased primarily 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, as well as revised allocations between our operating properties
and management cost centers.
Depreciation and amortization increased primarily 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 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 |
|
|
|
Higher outstanding debt balances |
|
|
|
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). In the second quarter of 2005, we revised the estimated mark-to-market
adjustments on the debt acquired in the TRC Merger. As a result, interest expense in 2005
includes $5.3 million related to prior periods. Additionally, this amortization is reduced
as debt is repaid and refinanced. |
These increases were partially offset by lower interest on our corporate and other unsecured term
loans as a result of refinancing activity in February 2006 and by lower debt extinguishment costs
as a result of reduced refinancing activity during the current quarter. See Liquidity and Capital
Resources for additional discussion of debt activity.
The decrease in the provision for income taxes is primarily attributable to the decreases in sale
revenues in our Master Planned Communities segment. This decrease was largely offset by higher
taxes at GGMI, our TRS.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
Retail and Other Segment
The
following table compares major revenue and expense items for the six months ended June 30,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,071,966 |
|
|
$ |
999,838 |
|
|
$ |
72,128 |
|
|
|
7.2 |
% |
Tenant recoveries |
|
|
468,629 |
|
|
|
455,026 |
|
|
|
13,603 |
|
|
|
3.0 |
|
Overage rents |
|
|
26,564 |
|
|
|
26,161 |
|
|
|
403 |
|
|
|
1.5 |
|
Other |
|
|
87,124 |
|
|
|
85,042 |
|
|
|
2,082 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,654,283 |
|
|
|
1,566,067 |
|
|
|
88,216 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
139,024 |
|
|
|
132,810 |
|
|
|
6,214 |
|
|
|
4.7 |
|
Repairs and maintenance |
|
|
117,908 |
|
|
|
114,816 |
|
|
|
3,092 |
|
|
|
2.7 |
|
Marketing |
|
|
30,133 |
|
|
|
35,345 |
|
|
|
(5,212 |
) |
|
|
(14.7 |
) |
Other property operating costs |
|
|
249,745 |
|
|
|
249,170 |
|
|
|
575 |
|
|
|
0.2 |
|
Provision for doubtful accounts |
|
|
14,271 |
|
|
|
10,080 |
|
|
|
4,191 |
|
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
551,081 |
|
|
|
542,221 |
|
|
|
8,860 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,103,202 |
|
|
$ |
1,023,846 |
|
|
$ |
79,356 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Increases and decreases in our Retail and Other Segment for the six months ended June 30, 2006 and
2005 are consistent with the changes noted in the discussion of Results of Operations for the Three
Months Ended June 30, 2006 and 2005 except as noted below.
In addition to the items noted above, the increase in minimum rents is also attributable to higher
lease termination income. Lease termination income recorded in the first quarter of 2006 was $19.1
million higher than the comparable amount recorded in first quarter of 2005.
The increase in repairs and maintenance is primarily attributable to repairs and maintenance at The
Shops at La Cantera and increases across our portfolio.
Master Planned Communities Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Land sales |
|
$ |
209,054 |
|
|
$ |
212,630 |
|
|
$ |
(3,576 |
) |
|
|
(1.7 |
)% |
Land sales operations |
|
|
(151,649 |
) |
|
|
(172,581 |
) |
|
|
20,932 |
|
|
|
(12.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
57,405 |
|
|
$ |
40,049 |
|
|
$ |
17,356 |
|
|
|
43.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales at Bridgeland, which began in the first quarter of 2006 were partially 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 reduced land sales operations. These costs decreased during the current quarter as we sold more
developed lots which have a higher profit margin than lots which were finished at the time of the
TRC Merger as discussed above.
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant rents |
|
$ |
1,261,789 |
|
|
$ |
1,201,911 |
|
|
$ |
59,878 |
|
|
|
5.0 |
% |
Land sales |
|
|
170,255 |
|
|
|
175,407 |
|
|
|
(5,152 |
) |
|
|
(2.9 |
) |
Management and other fees |
|
|
53,362 |
|
|
|
41,135 |
|
|
|
12,227 |
|
|
|
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
419,180 |
|
|
|
422,816 |
|
|
|
(3,636 |
) |
|
|
(0.9 |
) |
Land sales operations |
|
|
123,699 |
|
|
|
147,991 |
|
|
|
(24,292 |
) |
|
|
(16.4 |
) |
Property management and other costs |
|
|
91,945 |
|
|
|
77,892 |
|
|
|
14,053 |
|
|
|
18.0 |
|
Depreciation and amortization |
|
|
343,718 |
|
|
|
333,626 |
|
|
|
10,092 |
|
|
|
3.0 |
|
Interest expense |
|
|
557,404 |
|
|
|
489,803 |
|
|
|
67,601 |
|
|
|
13.8 |
|
Provision for income taxes |
|
|
40,894 |
|
|
|
14,093 |
|
|
|
26,801 |
|
|
|
190.2 |
|
Increases and decreases in certain significant consolidated revenues and expenses for the six
months ended June 30, 2006 and 2005 are consistent with the changes noted in the discussion of
Results of Operations for the Three Months Ended June 30, 2006 and 2005 except as noted below.
The increase in the provision for income taxes is primarily attributable to the increases in
operating margins in our Master Planned Communities segment,
increases in management and other fees as discussed above and a non-recurring reduction in
a valuation allowance which reduced the provision in 2005. Cash requirements to meet federal
income tax
39
requirements are likely to increase in future years as we exhaust certain net loss carry
forwards of certain TRS entities and as certain master planned community developments are
completed. Such increases could be significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
Net cash
provided by operating activities was $338.3 million for the six months ended June 30, 2006
compared to $356.8 million for the six months ended June 30, 2005. The decrease in net cash
provided by operating activities is primarily attributable to the decrease in earnings (primarily due to a significant increase in net interest expense) and an
increase in land development and acquisition expenditures. These decreases were partially offset
by increases in working capital, including receipt of approximately $36 million in deposits on
future transactions.
Cash requirements to meet current federal income tax requirements are likely to increase in future
years as we exhaust certain net loss carry forwards of certain TRS entities and as certain master
planned community developments are completed. Such increases could be significant.
Cash Flows from Investing Activities
Net cash
used in investing activities was $180.6 million for the six months ended June 30, 2006
compared to $95.4 million for the six months ended June 30, 2005. The effect of increased
development expenditures and reduced loans from affiliates were partially offset by distributions
from our unconsolidated joint ventures.
As of June 30, 2006, we had 24 major approved redevelopment projects underway (each with budgeted
projected expenditures, at our ownership share, in excess of $10 million), seven new retail center
development projects under construction and eight 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 $185.1 million for the six months ended June 30, 2006
compared to $250.4 million for the six months ended June 30, 2005. The decrease was primarily due
to cash used for preferred stock redemptions in 2005, partially offset by higher deferred finance
costs which were primarily related to the February 2006 refinancing activity and common stock
repurchases in 2006.
40
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:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
Consolidated: |
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
$ |
15,777 |
|
|
$ |
14,789 |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Corporate and other unsecured |
|
|
4,198 |
|
|
|
4,875 |
|
Other variable-rate debt |
|
|
720 |
|
|
|
755 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
4,918 |
|
|
|
5,630 |
|
|
|
|
|
|
|
|
Total consolidated |
|
$ |
20,695 |
|
|
$ |
20,419 |
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
5.78 |
% |
|
|
5.64 |
% |
|
|
|
|
|
|
|
|
|
Unconsolidated: |
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
$ |
2,862 |
|
|
$ |
2,788 |
|
Variable-rate debt |
|
|
544 |
|
|
|
455 |
|
|
|
|
|
|
|
|
Total Unconsolidated Real Estate Affiliates |
|
$ |
3,406 |
|
|
$ |
3,243 |
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
5.64 |
% |
|
|
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 June
30, 2006, $649 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.
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) and 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.
The interest rate on the Short Term Loan is the same as on the 2006 Credit Facility (currently
LIBOR plus 1.25%). An $800 million principal payment is due under the Short Term Loan on August
14, 2006, with
41
the remaining balance due on December 31, 2006. We are required to apply the net
proceeds of the refinancing of Ala Moana Center, which is expected in August 2006, toward repayment
of the Short Term Loan.
In August
2006, we expect to close various finance transactions on our
Consolidated and Unconsolidated Properties. The proceeds of these expected
transactions will be used to fully repay the GGP MPTC (which includes Ala Moana) and approximately
$1 billion on the Short Term Loan, as described above. The
proposed financing (including our share of the Unconsolidated
Properties), substantially all
of which is expected to be individual non-recourse secured property level mortgage debt, is
expected to have a weighted average interest rate of approximately
5.7%, which is approximately 50
basis points lower than the weighted average rate on the currently outstanding debt. The proposed
financing will also convert approximately $1.5 billion of
Consolidated and $100 million of Unconsolidated (at our share) variable rate debt to fixed rate debt.
Following the anticipated refinancing, our consolidated debt portfolio, after giving effect to
interest rate swaps, is expected to include $17.3 billion of
fixed rate debt and $3.4 billion of
variable rate debt.
In addition to these August transactions, we are in the process of finalizing additional
refinancing transactions which will allow for the full replacement of the Short Term Loan with long
term fixed rate mortgage debt by the end of September 2006. As such transactions have not yet been
fully negotiated or committed, there can be no assurance that these additional replacement loans
can be completed on satisfactory terms by the end of September.
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. However, 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. A
total of $800 million of senior unsecured notes were issued, providing for semi-annual payments
(commencing November 1, 2006) of interest only at a rate per annum of 6.75% and payment of the
principal in full on May 1, 2013.
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 Preferred 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 Preferred
Securities 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%.
Contractual Cash Obligations and Commitments
The following table aggregates the future maturities of our long-term debt (excluding mark-to
market adjustments) as of June 30, 2006.
|
|
|
|
|
(In thousands) |
|
|
|
|
2006 |
|
$ |
2,066,508 |
|
2007 |
|
|
1,413,874 |
|
2008 |
|
|
2,166,731 |
|
2009 |
|
|
3,026,342 |
|
2010 |
|
|
6,662,417 |
|
Subsequent |
|
|
5,230,674 |
|
|
|
|
|
Total |
|
$ |
20,566,546 |
|
|
|
|
|
42
There have been no significant changes in the other cash obligations as disclosed in our 2005
Annual Report on Form 10-K.
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.
Assuming no changes other than the reduced interest rates and the changing maturity dates, interest
payments under the new financings are approximately $60 million lower in 2006 and $30 million lower
in 2007 than that of the previously outstanding debt, but higher in future years as a result of the
extended maturities. We expect to continue to reduce the ratio of variable-rate debt to total debt
during 2006 and, as a result, cannot accurately forecast future interest expense at this time.
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). A total of
755,828 shares of our common stock (including 668,333 shares issued from treasury stock) were
delivered to the beneficiaries in February 2006 pursuant to the CSA.
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 real estate investment trust (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 |
43
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
June 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
Consolidated |
|
|
Unconsolidated |
|
Variable rate: |
|
|
|
|
|
|
|
|
Subject to interest rate swaps |
|
$ |
570 |
|
|
$ |
125 |
|
Not subject to interest rate swaps |
|
|
4,918 |
|
|
|
544 |
|
|
|
|
|
|
|
|
Total |
|
|
5,488 |
|
|
|
669 |
|
Fixed rate |
|
|
15,207 |
|
|
|
2,737 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,695 |
|
|
$ |
3,406 |
|
|
|
|
|
|
|
|
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 $12 million and on our unconsolidated debt (at our share) by
approximately $1 million.
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
44
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 believes they will be remediated before completion of
our 2006 Annual Report on Form 10-K.
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.
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.
ITEM 2. UNREGISTERED SALES OF 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 |
|
May 11 - 31, 2006 |
|
|
818,500 |
|
|
$ |
44.13 |
|
|
|
818,500 |
|
|
$ |
163,880,427 |
|
June 8 - 28, 2006 |
|
|
397,700 |
|
|
|
43.36 |
|
|
|
397,700 |
|
|
|
146,636,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,216,200 |
|
|
$ |
43.88 |
|
|
|
1,216,200 |
|
|
$ |
146,636,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
45
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Companys Annual Meeting of Stockholders held on May 16, 2006, the stockholders voted on the
matters listed below. A total of 241,015,206 shares were eligible to vote on each matter presented
at the Annual Meeting.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Matter |
|
Shares For |
|
Withheld |
|
1. |
|
(a) Election of Adam Metz |
|
|
214,189,701 |
|
|
|
1,752,988 |
|
|
|
(b) Election of Robert Michaels |
|
|
211,046,653 |
|
|
|
4,896,036 |
|
|
|
(c) Election of Thomas Nolan |
|
|
209,729,245 |
|
|
|
6,213,444 |
|
|
|
(d) Election of John Riordan |
|
|
209,224,640 |
|
|
|
6,718,049 |
|
Matthew Bucksbaum, John Bucksbaum, Alan Cohen, Anthony Downs, Bernard Freibaum
and Beth Stewart all continue as directors of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Number |
|
|
|
|
Number of |
|
Shares |
|
of Shares |
|
Broker Non |
Matter |
|
Shares For |
|
Against |
|
Abstain |
|
-Votes |
|
2. Amendment to the
Companys 2003
Incentive Stock
Plan to provide for
an annual award of
1,500 shares of
restricted stock to
non-employee
directors (in lieu
of an annual grant
of stock options)
and to permit all
issuances under the
plan to be effected
electronically |
|
|
189,179,515 |
|
|
|
5,792,984 |
|
|
|
268,171 |
|
|
|
20,702,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Number |
|
|
|
|
Number of |
|
Shares |
|
of Shares |
|
Broker Non |
Matter |
|
Shares For |
|
Against |
|
Abstain |
|
-Votes |
|
3. Ratification of
the selection of
Deloitte & Touche
LLP as the
Companys
independent
auditors for the
year ending
December 31, 2006 |
|
|
215,265,538 |
|
|
|
525,091 |
|
|
|
152,058 |
|
|
|
0 |
|
46
ITEM 5. OTHER INFORMATION
The following is Unaudited consolidated financial information for our subsidiary, TRCLP, as of June
30, 2006 and December 31, 2005 and for the six months ended June 30, 2006 and 2005, as discussed in
Note 4 to the accompanying Consolidated Financial Statements.
TRCLP
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
1,326,677 |
|
|
$ |
1,263,288 |
|
Buildings and equipment |
|
|
8,412,890 |
|
|
|
8,370,635 |
|
Less accumulated depreciation |
|
|
(521,376 |
) |
|
|
(357,859 |
) |
Developments in progress |
|
|
217,390 |
|
|
|
203,027 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
9,435,581 |
|
|
|
9,479,091 |
|
Investment in and loans to/from Unconsolidated Real Estate
Affiliates |
|
|
1,171,876 |
|
|
|
1,192,976 |
|
Investment land and land held for development and sale |
|
|
1,683,569 |
|
|
|
1,651,063 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
12,291,026 |
|
|
|
12,323,130 |
|
Cash and cash equivalents |
|
|
40,962 |
|
|
|
73,374 |
|
Accounts and notes receivable, net |
|
|
81,062 |
|
|
|
88,142 |
|
Insurance recovery receivable |
|
|
52,082 |
|
|
|
63,382 |
|
Goodwill |
|
|
361,897 |
|
|
|
420,624 |
|
Deferred expenses, net |
|
|
68,308 |
|
|
|
51,607 |
|
Prepaid expenses and other assets |
|
|
719,927 |
|
|
|
814,872 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,615,264 |
|
|
$ |
13,835,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital |
|
|
|
|
|
|
|
|
Mortgage notes and other property debt payable |
|
$ |
7,437,545 |
|
|
$ |
6,503,073 |
|
Deferred tax liabilities |
|
|
1,249,086 |
|
|
|
1,286,576 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
580,526 |
|
|
|
591,679 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
9,267,157 |
|
|
|
8,381,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital: |
|
|
|
|
|
|
|
|
Partners capital |
|
|
7,181,096 |
|
|
|
7,191,001 |
|
Accumulated other comprehensive income |
|
|
1,275 |
|
|
|
877 |
|
|
|
|
|
|
|
|
Total partners capital, before
receivable from General Growth Properties, Inc. |
|
|
7,182,371 |
|
|
|
7,191,878 |
|
Receivable from General Growth Properties, Inc. |
|
|
(2,834,264 |
) |
|
|
(1,738,075 |
) |
|
|
|
|
|
|
|
Total partners capital |
|
|
4,348,107 |
|
|
|
5,453,803 |
|
|
|
|
|
|
|
|
Total liabilities and partners capital |
|
$ |
13,615,264 |
|
|
$ |
13,835,131 |
|
|
|
|
|
|
|
|
47
TRCLP
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
322,928 |
|
|
$ |
298,386 |
|
Tenant recoveries |
|
|
137,634 |
|
|
|
134,784 |
|
Overage rents |
|
|
6,536 |
|
|
|
6,147 |
|
Land sales |
|
|
170,255 |
|
|
|
175,407 |
|
Management and other fees |
|
|
9,908 |
|
|
|
5,918 |
|
Other |
|
|
24,375 |
|
|
|
21,884 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
671,636 |
|
|
|
642,526 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
42,161 |
|
|
|
39,106 |
|
Repairs and maintenance |
|
|
38,855 |
|
|
|
38,394 |
|
Marketing |
|
|
4,840 |
|
|
|
5,992 |
|
Other property operating costs |
|
|
74,158 |
|
|
|
88,697 |
|
Land sales operations |
|
|
123,699 |
|
|
|
147,991 |
|
Provision for doubtful accounts |
|
|
8,204 |
|
|
|
4,264 |
|
Property management and other costs |
|
|
38,618 |
|
|
|
18,935 |
|
Depreciation and amortization |
|
|
163,252 |
|
|
|
160,119 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
493,787 |
|
|
|
503,498 |
|
|
|
|
|
|
|
|
Operating income |
|
|
177,849 |
|
|
|
139,028 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2,326 |
|
|
|
2,865 |
|
Interest expense |
|
|
(164,275 |
) |
|
|
(118,385 |
) |
Income
before income taxes, minority interest
and equity in income of
unconsolidated real estate affiliates |
|
|
15,900 |
|
|
|
23,508 |
|
Provision for income taxes |
|
|
(35,315 |
) |
|
|
(19,473 |
) |
Minority interest |
|
|
(3,540 |
) |
|
|
(1,987 |
) |
Equity in income of unconsolidated real estate affiliates |
|
|
13,060 |
|
|
|
9,238 |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(9,895 |
) |
|
|
11,286 |
|
Income from discontinued operations |
|
|
|
|
|
|
4,058 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(9,895 |
) |
|
$ |
15,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(9,895 |
) |
|
$ |
15,344 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on financial instruments |
|
|
(870 |
) |
|
|
374 |
|
Unrealized gains on available-for-sale securities |
|
|
1,268 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Comprehensive income (loss), net |
|
$ |
(9,497 |
) |
|
$ |
15,808 |
|
|
|
|
|
|
|
|
48
TRCLP
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(9,895 |
) |
|
$ |
15,344 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization, including discontinued
operations |
|
|
165,074 |
|
|
|
163,418 |
|
Equity in income of unconsolidated real estate affiliates |
|
|
(13,060 |
) |
|
|
(9,238 |
) |
Operating distributions received from unconsolidated real
estate affiliates |
|
|
6,626 |
|
|
|
9,238 |
|
Losses (gains) on extinguishment of debt |
|
|
(3,143 |
) |
|
|
238 |
|
Participation expense pursuant to Contingent Stock
Agreement |
|
|
48,331 |
|
|
|
51,687 |
|
Land development and acquisition expenditures |
|
|
(95,281 |
) |
|
|
(59,610 |
) |
Cost of land sales |
|
|
61,630 |
|
|
|
84,287 |
|
Provision for doubtful accounts, including discontinued
operations |
|
|
8,204 |
|
|
|
4,261 |
|
Debt assumed by purchasers of land |
|
|
(4,698 |
) |
|
|
(4,133 |
) |
Proceeds from the sale of marketable securities |
|
|
4,307 |
|
|
|
5,699 |
|
Straight-line rent amortization |
|
|
(13,212 |
) |
|
|
(9,559 |
) |
Above and below market tenant lease amortization |
|
|
(4,798 |
) |
|
|
(1,031 |
) |
Other intangible amortization |
|
|
2,919 |
|
|
|
5,819 |
|
Amortization
of debt market rate adjustment |
|
|
(15,944 |
) |
|
|
(25,945 |
) |
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
7,427 |
|
|
|
(8,870 |
) |
Other assets |
|
|
10,348 |
|
|
|
20,945 |
|
Accounts payable, accrued expenses, and
income taxes |
|
|
26,343 |
|
|
|
244 |
|
Other, net |
|
|
3,459 |
|
|
|
163 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
184,637 |
|
|
|
242,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition/development of real estate and property
additions/improvements |
|
|
(59,114 |
) |
|
|
(82,302 |
) |
Proceeds from sale of property |
|
|
6,208 |
|
|
|
|
|
Increase in investments in unconsolidated real estate
affiliates |
|
|
(6,309 |
) |
|
|
(9,672 |
) |
Distributions received from unconsolidated real estate
affiliates in excess of income |
|
|
22,207 |
|
|
|
24,345 |
|
Change in restricted cash |
|
|
(9,899 |
) |
|
|
121 |
|
Insurance recoveries |
|
|
13,400 |
|
|
|
|
|
Other, net |
|
|
4,847 |
|
|
|
3,755 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(28,660 |
) |
|
|
(63,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of mortgage notes and other property debt payable |
|
|
1,743,000 |
|
|
|
1,415,037 |
|
Principal payments on mortgage notes and other property debt
payable |
|
|
(787,202 |
) |
|
|
(724,886 |
) |
Deferred financing costs |
|
|
(12,293 |
) |
|
|
(2,150 |
) |
Advances to General Growth Properties, Inc. |
|
|
(1,131,538 |
) |
|
|
(855,402 |
) |
Other, net |
|
|
(356 |
) |
|
|
(5,728 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(188,389 |
) |
|
|
(173,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(32,412 |
) |
|
|
6,075 |
|
Cash and cash equivalents at beginning of period |
|
|
73,374 |
|
|
|
30,196 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
40,962 |
|
|
$ |
36,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
194,500 |
|
|
$ |
116,725 |
|
Interest capitalized |
|
|
21,073 |
|
|
|
25,309 |
|
Income taxes paid |
|
|
10,276 |
|
|
|
6,530 |
|
49
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 $9.0 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
$3.1 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 $5.2 million decrease in land sales due to
decreased sales at our Summerlin and Columbia developments in the second
quarter of 2006.
Operating expenses
Real estate taxes increased $3.1 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 $3.9 million in 2006 which is primarily due to Riverwalk Marketplace and Oakwood
Center, which were damaged in the third quarter of 2005 (Note 5). Although land sale revenues and
sales pace declined in the second quarter of 2006 as compared to 2005, year-to-date 2006 land sale
revenues are comparable to the prior year and we expect the full year land sale revenues to exceed
2005 based upon anticipated sales and executed, but not yet closed, contracts.
Depreciation and amortization increased primarily 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 the margins at the master planned communities.
Cash position at June 30, 2006
TRCLPs cash and cash equivalents decreased $32.4 million to $41.0 million as of June 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.
50
ITEM 6. EXHIBITS
10.1 |
|
General Growth Properties, Inc. 2003 Incentive Stock Plan, as amended. |
|
10.2 |
|
Form of Employee Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan. |
|
10.3 |
|
Form of Non-Employee Director Restricted Stock Agreement pursuant to the 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 June 30, 2006. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
51
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: August 9, 2006
|
|
by:
|
|
/s/: Bernard Freibaum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Freibaum |
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
(On behalf of the Registrant and as Principal Accounting Officer) |
|
|
52
EXHIBIT INDEX
|
10.1 |
|
General Growth Properties, Inc. 2003 Incentive Stock Plan, as amended. |
|
|
10.2 |
|
Form of Employee Restricted Stock Agreement pursuant to the 2003 Incentive
Stock Plan. |
|
|
10.3 |
|
Form of Non-Employee Director Restricted Stock Agreement pursuant to the 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 June 30, 2006. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
53