General Growth Properties' Management Presents At Barclays 2012 Global Finance Conference - Special Call Transcript

General Growth Properties (GGP)

Special Conference Call

September 12, 2012 9:00 am ET


Michael Berman – Executive Vice President, Chief Financial Officer



Ross Smotrich - Barclays

Good morning. I’m Ross Smotrich, I’m the REIT analyst here at Barclays, and I want to thank you all very much for joining us this morning. We appreciate your interest.

It’s my pleasure to introduce Michael Berman, Executive Vice President and Chief Financial Officer of General Growth Properties. As Michael will walk you through the story, you’ll come to realize that GGP owns interests in 149 malls, regional malls across 41 states and Brazil, making the company the second-largest mall company out there. Michael joined GGP in December of 2011 after serving as CFO of Equity LifeStyles. He brings 25 years—more than 25 years of combined real estate and finance experience to the table, and I’m proud to say I was there near the inception.

So Michael, we very much appreciate your coming this morning and I’ll turn it over to you to tell the story. Thank you.

Michael Berman

Thank you, Ross. What Ross left out was we shared a cubicle many years ago at Chemical Bank, where he taught me everything I know about real estate, so I’m very indebted to him.

Today I’d like to talk about my favorite company, General Growth Properties. A little bit on my background – as Ross mentioned, I’ve been in the real estate business for what feels like a rather long time, and prior to that I had—I’ve had experiences both as a chief financial officer, a money manager, and had a long career at Merrill Lynch real estate investment banking.

One of the things that a new management team likes to do is come up with it’s mission statement for it’s various constituencies, and we probably spent three, four months going back and forth in terms of the wording, and I think we ended up with one that we’re quite proud and we have now put all over our headquarters building and various offices around the country, and I just want to take a moment to read it. Our mission is to own and operate best-in-class malls that provide an outstanding environment and experience for our communities, retailers, employees, consumers and shareholders. And hopefully you’ll see some of those things in the presentation as we move along.

I’m going to cover three things today – a little bit of a GGP overview, kind of a GGP 101 as I would refer to it; going to the regional mall sector for those of you that might not necessarily be familiar with real estate, and in particular the regional mall sector of the business; and then tying it all back together by focusing on the specific fundamentals of GGP itself.

So we have narrowed our strategic focus – one, we want to own and really just want to focus on high-quality regional malls. We get a lot of questions about whether or not we want to own outlets. We say no. We get a lot of questions about whether or not we’re going to be aggressive in terms of acquisition activity. We say if it’s a class A mall and it’s reasonably priced, we’ll take a look at it; but we’re very focused on our current portfolio. Lease, lease, lease is a term that we use a lot in the shop. We have an opportunity to lease millions of square feet of space, and leasing drives the business. The mantra lease, lease, lease, you’ll see some of the activity that we’ve done over the last couple of years is really quite impressive.

Our growth focus is internal – as I mentioned, not really that focused on external acquisitions, although we have spent some capital over the last couple of years to do that; and capital investment really refers to a redevelopment/development program for existing assets inside the portfolio. And a prior and always a current topic for us is how do we de-risk our balance sheet and are we reducing our leverage.

A brief background on our portfolio – today, we own 133 regional malls comprising almost 57 million square feet of inline GLA – gross leasable area. That doesn’t include the anchor space that would substantially inflate that number. Seventy – so more than half – the malls are class A. Class A, class B, class C are terms of ours used in the mall business. Generally, the distinction relates to the sales productivity, sales per square foot of a particular mall. If it’s more than $400 a square foot, it’s generally deemed to be a class A mall. That’s a little bit more art than science, but you know a class A mall when you see it and these assets generate over 70% of our net operating income.

We are almost 94.5% leased as of the end of the second quarter, and we’ll talk a little bit more about the components of that leasing, and we have $533 of tenant sales per square foot which puts us in the top of—we’re near the top of the industry.

Originally this slide had a little history, starting in 1952 when the company was founded, that I thought might had been a bit much going back 60 years, so I thought I’d focus on more recent history. The company came out of bankruptcy in 2010 with a $6.3 billion recapitalization led by Brookfield Asset Management. Howard Hughes Corporation was spun off to shareholders and then there was an initial public offering or a re-initial public offering, if you will, in November of 2010 for $2.3 billion of equity in the real estate space, one of the larger capital raises that was done in the equity markets in the last 15, 20 years.

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