General Growth Properties' CEO Discusses Q1 2012 Results - Earnings Call Transcript

General Growth Properties Inc. (GGP)

Q1 2012 Results Earnings Call

May 2, 2012 10:00 AM ET

Executives

Kevin Berry – Investor Relations

Sandy Mathrani – Chief Executive Officer

Michael Berman – Chief Financial Officer

Analysts

Nathan Isbee – Stifel Nicolaus

Samit Parikh – ISI Group

Ross Nussbaum – UBS

Quentin Velleley – Citi

Ki Bin Kim – Macquarie

Cedrik Lachance – Green Street Advisors

Rich Moore – RBC Capital

Ben Yang – KBW

Michael Mueller – JPMorgan

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the General Growth Properties’ First Quarter 2012 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Kevin Berry. Please go ahead.

Kevin Berry

Thank you, [Tunisia]. Good morning. Welcome to General Growth Properties’ first quarter 2012 earnings conference call. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from those indicated by forward-looking statements due to variety of risks, uncertainties and other factors. Please refer to our filings with the SEC for a detailed discussion.

Acknowledging the fact that this call may be webcast, we believe it is important to note that our call includes time sensitive information that may be accurate only as of today’s date, May 2, 2012.

During today’s call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release and the supplemental information package included in the Form 8-K filed by us tonight. This information is also available on our website in the Investors section.

Participating in today’s call are Sandy Mathrani, Chief Executive Officer; and Michael Berman, Chief Financial Officer.

I will now turn the call over to Sandy.

Sandy Mathrani

Thank you, Kevin. Good morning. I will provide an overview of our operating results for the quarter and then turn the call over to Michael. Yesterday we reported core FFO of $0.22 per diluted share. Core FFO was $222.1 million for the quarter, an increase of 6.7% from the same period last year. It should be noted that the core NOI for the U.S. regional mall portfolio increased 4.1% to $503.8 million from the same period last year.

Before moving on to my review of our operating results, I’d like to recap the refinancing of Ala Moana Center which closed in early April. The original loan was due to mature in 2018 and was pre-payable at par as part of the $8.8 billion of property level debt with such an option. We decided to take advantage of the low interest rate environment, coupled with a demand for high quality real estate.

The new loan is $1.4 billion and bears an interest rate of 4.23% per year, interest only due 2022. The 4.26% interest rate was set at approximately 182 basis points above the 10-year treasury yield.

The transaction further latters our debt maturities and results in annual cash flow savings of approximately $40 million. At this debt level, we believe the center is less than 50% levered. Michael will discuss our financing plans for 2012 later in the call.

Moving on the operating performance for regional mall portfolio continued to strengthen during the first quarter, extending the growth and experience since the beginning of 2011. To recap, our U.S. regional mall portfolio consists of 135 malls encompassing 57.4 million square feet of in-line mall space.

In addition, in Brazil, we owned 15 shopping malls comprising approximately 5.3 million square feet. On a trailing 12 month basis, tenant sales for the U.S. portfolio were $525 per square foot, an increase of 9.5% from a year ago.

Within our Brazilian portfolio, same-store sales of approximately $575 per square foot, an increase of 12.8% from the previous year. The categories where sales have been exceptional include department stores, jewelry, home electronics, Medicare and soft fashion. Needless to say, luxury continues to excel.

The U.S. retail mall portfolio was 93% leased as of the end of the quarter. Our Brazilian mall portfolio is 98.6% leased. Our goal for year end 2012 is to be 95% leased, representing an increase of 80 basis points of year end 2011. We expect to achieve this with permanent occupancy of 88%, temporary occupancy of 5% and signed/not occupied of approximately 2%.

We continue to actively lease space across the portfolio, excluding anchors and percentage of new approximately 4.5 million square feet will commence occupancy at initial rents of $55.30 per square foot. On a suite-to-suite basis, 2.9 million square feet will commence occupancy at initial rent of $62.12 per square foot, this is a gross number.

Netting out cash and taxes, base rent is approximately $46 a square foot. The spread of $4.29 is about a 10% increase on a net basis or 7.4% on a gross basis.

I would like to highlight that we converted approximately 250,000 square feet of temp-to-perm during the quarter. The rent grew from about $20 per square foot gross to about $50 per square foot gross. This spread is not in any of our spread calculations.

In our supplement, you will note that we now present total leasing activity and suite-to-suite activity regardless of when the lease was signed. In past quarters, we showed you a breakdown between leases signed to year end 2010 and then subsequent. Beginning with this quarter, we now report this activity as one since the majority of the leases taking occupancy in 2012 was signed subsequent to 2010.

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