10-Q 1 a13-13799_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2013

 

o         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 1-34948

 

GENERAL GROWTH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-2963337

(State or other jurisdiction of

 

(I.R.S. Employer

incorporating or organization)

 

Identification Number)

 

110 N. Wacker Dr., Chicago, IL

 

60606

(Address of principal executive offices)

 

(Zip Code)

 

(312) 960-5000

(Registrant’s telephone number, including area code)

 

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.  xYes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  xYes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o (Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 

Indicate by checkmark whether  the Registrant has filed all documents and reports required to be filed by Sections 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  xYes  o No

 

The number of shares of Common Stock, $.01 par value, outstanding on August 2, 2013 was 966,951,246.

 

 

 



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

INDEX

 

 

 

PAGE
NUMBER

 

 

 

Part I

FINANCIAL INFORMATION

 

 

 

 

 

Item 1: Consolidated Financial Statements (Unaudited)

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012

4

 

 

 

 

Consolidated Statements of Equity for the six months ended June 30, 2013 and 2012

5

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012

6

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

 

Note 1: Organization

8

 

 

 

 

Note 2: Summary of Significant Accounting Policies

8

 

 

 

 

Note 3: Acquisitions and Joint Venture Activity

12

 

 

 

 

Note 4: Discontinued Operations and Gains (Losses) on Dispositions of Interests in Operating Properties

13

 

 

 

 

Note 5: Fair Value

14

 

 

 

 

Note 6: Unconsolidated Real Estate Affiliates

15

 

 

 

 

Note 7: Mortgages, Notes and Loans Payable

17

 

 

 

 

Note 8: Income Taxes

19

 

 

 

 

Note 9: Warrants

19

 

 

 

 

Note 10: Equity and Redeemable Noncontrolling Interests

22

 

 

 

 

Note 11: Earnings Per Share

24

 

 

 

 

Note 12: Stock-Based Compensation Plans

25

 

 

 

 

Note 13: Prepaid Expenses and Other Assets

26

 

 

 

 

Note 14: Accounts Payable and Accrued Expenses

27

 

 

 

 

Note 15: Litigation

27

 

 

 

 

Note 16: Commitments and Contingencies

28

 

 

 

 

Note 17: Subsequent Events

29

 

 

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

 

Liquidity and Capital Resources

34

 

 

 

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

43

 

 

 

 

Item 4: Mine Safety Disclosures

 43

 

 

 

 

Item 5: Controls and Procedures

43

 

 

 

Part II

OTHER INFORMATION

 

 

 

 

 

Item 1: Legal Proceedings

43

 

 

 

 

Item 1A: Risk Factors

45

 

 

 

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

 

Item 3: Defaults Upon Senior Securities

45

 

 

 

 

Item 5: Other Information

45

 

 

 

 

Item 6: Exhibits

45

 

 

 

 

SIGNATURE

46

 

 

 

 

EXHIBIT INDEX

47

 

2



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Dollars in thousands, except share and per share amounts)

 

Assets:

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

Land

 

$

4,264,410

 

$

4,278,471

 

Buildings and equipment

 

17,937,639

 

18,806,858

 

Less accumulated depreciation

 

(1,596,485

)

(1,440,301

)

Construction in progress

 

336,388

 

376,529

 

Net property and equipment

 

20,941,952

 

22,021,557

 

Investment in and loans to/from Unconsolidated Real Estate Affiliates

 

2,963,892

 

2,865,871

 

Net investment in real estate

 

23,905,844

 

24,887,428

 

Cash and cash equivalents

 

704,918

 

624,815

 

Accounts and notes receivable, net

 

254,050

 

260,860

 

Deferred expenses, net

 

188,314

 

179,837

 

Prepaid expenses and other assets

 

1,091,310

 

1,329,465

 

Total assets

 

$

26,144,436

 

$

27,282,405

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages, notes and loans payable

 

$

15,463,928

 

$

15,966,866

 

Investment in and loans to/from Unconsolidated Real Estate Affiliates

 

16,387

 

 

Accounts payable and accrued expenses

 

951,849

 

1,212,231

 

Dividend payable

 

119,742

 

103,749

 

Deferred tax liabilities

 

27,064

 

28,174

 

Tax indemnification liability

 

303,586

 

303,750

 

Junior Subordinated Notes

 

206,200

 

206,200

 

Warrant liability

 

 

1,488,196

 

Total liabilities

 

17,088,756

 

19,309,166

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

Preferred

 

136,087

 

136,008

 

Common

 

127,509

 

132,211

 

Total redeemable noncontrolling interests

 

263,596

 

268,219

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Common stock: 11,000,000,000 shares authorized, $0.01 par value, 966,909,593 issued, 939,450,398 outstanding as of June 30, 2013, and 939,049,318 shares issued and outstanding as of December 31, 2012

 

9,395

 

9,392

 

Preferred Stock: 500,000,000 shares authorized, $.01 par value, 10,000,000 shares issued and outstanding as of June 30, 2013 and none issued and outstanding as of December 31, 2012

 

242,042

 

 

Additional paid-in capital

 

11,361,262

 

10,432,447

 

Retained earnings (accumulated deficit)

 

(2,766,551

)

(2,732,787

)

Accumulated other comprehensive loss

 

(137,010

)

(87,354

)

Total stockholders’ equity

 

8,709,138

 

7,621,698

 

Noncontrolling interests in consolidated real estate affiliates

 

82,946

 

83,322

 

Total equity

 

8,792,084

 

7,705,020

 

Total liabilities and equity

 

$

26,144,436

 

$

27,282,405

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Dollars in thousands, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

394,047

 

$

382,336

 

$

797,357

 

$

759,921

 

Tenant recoveries

 

178,651

 

176,194

 

366,355

 

351,059

 

Overage rents

 

6,415

 

8,099

 

17,894

 

21,184

 

Management fees and other corporate revenues

 

17,307

 

21,652

 

33,239

 

37,823

 

Other

 

16,809

 

18,174

 

36,077

 

32,971

 

Total revenues

 

613,229

 

606,455

 

1,250,922

 

1,202,958

 

Expenses:

 

 

 

 

 

 

 

 

 

Real estate taxes

 

55,730

 

56,995

 

124,984

 

112,656

 

Property maintenance costs

 

15,425

 

18,692

 

39,246

 

39,216

 

Marketing

 

5,762

 

7,234

 

12,281

 

13,972

 

Other property operating costs

 

87,685

 

92,808

 

176,935

 

179,461

 

Provision for (recovery of) doubtful accounts

 

766

 

(709

)

2,556

 

1,458

 

Property management and other costs

 

41,568

 

38,698

 

81,923

 

80,238

 

General and administrative

 

13,124

 

11,046

 

24,057

 

21,556

 

Depreciation and amortization

 

191,327

 

188,193

 

386,755

 

394,977

 

Total expenses

 

411,387

 

412,957

 

848,737

 

843,534

 

Operating income

 

201,842

 

193,498

 

402,185

 

359,424

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

429

 

875

 

1,149

 

1,536

 

Interest expense

 

(193,274

)

(183,311

)

(388,657

)

(394,066

)

Warrant liability adjustment

 

 

(146,588

)

(40,546

)

(289,700

)

Gains from changes in control of investment properties

 

219,784

 

18,547

 

219,784

 

18,547

 

Loss on extinguishment of debt

 

(27,159

)

 

(36,478

)

 

Income (loss) before income taxes, equity in income of Unconsolidated Real Estate Affiliates, discontinued operations and allocation to noncontrolling interests

 

201,622

 

(116,979

)

157,437

 

(304,259

)

Provision for income taxes

 

(1,382

)

(1,709

)

(1,523

)

(3,104

)

Equity in income of Unconsolidated Real Estate Affiliates

 

13,987

 

11,843

 

27,181

 

17,795

 

Equity in income of Unconsolidated Real Estate Affiliates - gain on investment

 

 

 

3,448

 

 

Income (loss) from continuing operations

 

214,227

 

(106,845

)

186,543

 

(289,568

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

(Loss) income from discontinued operations, including gains (losses) on dispositions

 

(304

)

499

 

(7,252

)

(11,023

)

(Loss) gain on extinguishment of debt

 

 

 

25,894

 

 

Discontinued operations, net

 

(304

)

499

 

18,642

 

(11,023

)

Net income (loss)

 

213,923

 

(106,346

)

205,185

 

(300,591

)

Allocation to noncontrolling interests

 

(4,548

)

(1,590

)

(7,336

)

(4,957

)

Net income (loss) attributable to General Growth Properties, Inc.

 

209,375

 

(107,936

)

197,849

 

(305,548

)

Preferred Stock dividends

 

(3,984

)

 

(6,109

)

 

Net income (loss) attributable to common stockholders

 

$

205,391

 

$

(107,936

)

$

191,740

 

$

(305,548

)

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) Per Share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.22

 

$

(0.12

)

$

0.18

 

$

(0.32

)

Discontinued operations

 

 

 

0.02

 

(0.01

)

Total basic earnings (loss) per share

 

$

0.22

 

$

(0.12

)

$

0.20

 

$

(0.33

)

 

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) Per Share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.21

 

$

(0.12

)

$

0.18

 

$

(0.32

)

Discontinued operations

 

 

 

0.02

 

(0.01

)

Total diluted earnings (loss) per share

 

$

0.21

 

$

(0.12

)

$

0.20

 

$

(0.33

)

Dividends declared per share

 

$

0.12

 

$

0.10

 

$

0.24

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss), Net:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

213,923

 

$

(106,346

)

$

205,185

 

$

(300,591

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(60,575

)

(47,919

)

(50,927

)

(34,360

)

Unrealized gains on available-for-sale securities

 

682

 

58

 

931

 

110

 

Other comprehensive loss:

 

(59,893

)

(47,861

)

(49,996

)

(34,250

)

Comprehensive income (loss)

 

154,030

 

(154,207

)

155,189

 

(334,841

)

Comprehensive loss allocated to noncontrolling interests

 

(4,154

)

(1,255

)

(6,996

)

(4,719

)

Comprehensive income (loss) attributable to General Growth Properties, Inc.

 

149,876

 

(155,462

)

148,193

 

(339,560

)

Preferred stock dividends

 

(3,984

)

 

(6,109

)

 

Comprehensive income (loss), net, attributable to common stockholders

 

$

145,892

 

$

(155,462

)

$

142,084

 

$

(339,560

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

Retained

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

Additional

 

Earnings

 

Accumulated Other

 

Interests in

 

 

 

 

 

Common

 

Preferred

 

Paid-In

 

(Accumulated

 

Comprehensive

 

Consolidated Real

 

Total

 

 

 

Stock

 

Stock

 

Capital

 

Deficit)

 

Income (Loss)

 

Estate Affiliates

 

Equity

 

 

 

(Dollars in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2012

 

$

 

9,353

 

$

 

 

$

 

10,405,318

 

$

 

(1,883,569

)

$

 

(47,773

)

$

 

96,016

 

$

 

8,579,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(305,548

)

 

 

(662

)

(306,210

)

Distributions to noncontrolling interests in consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(6,484

)

(6,484

)

Restricted stock grants, net of forfeitures (22,397 common shares)

 

 

 

 

4,281

 

 

 

 

 

 

 

4,281

 

Employee stock purchase program (99,533 common shares)

 

1

 

 

 

1,606

 

 

 

 

 

 

 

1,607

 

Stock option grants, net of forfeitures (11,235 common shares)

 

 

 

 

740

 

 

 

 

 

 

 

740

 

Cash dividends reinvested (DRIP) in stock (2,582,327 common shares)

 

26

 

 

 

38,678

 

 

 

 

 

 

 

38,704

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(34,012

)

 

 

(34,012

)

Cash distributions declared ($0.20 per share)

 

 

 

 

 

 

 

(187,555

)

 

 

 

 

(187,555

)

Fair value adjustment for noncontrolling interest in Operating Partnership

 

 

 

 

 

(28,955

)

 

 

 

 

 

 

(28,955

)

Dividend for RPI Spin-off

 

 

 

 

 

 

 

26,044

 

 

 

 

 

26,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2012

 

$

 

9,380

 

$

 

 

$

 

10,421,668

 

$

 

(2,350,628

)

$

 

(81,785

)

$

 

88,870

 

$

 

8,087,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2013

 

$

 

9,392

 

$

 

 

$

 

10,432,447

 

$

 

(2,732,787

)

$

 

(87,354

)

$

 

83,322

 

$

 

7,705,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

197,849

 

 

 

1,270

 

199,119

 

Issuance of Preferred Stock, net of issuance costs

 

 

 

242,042

 

 

 

 

 

 

 

 

242,042

 

Distributions to noncontrolling interests in consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(1,646

)

(1,646

)

Restricted stock grants, net of forfeitures (11,818 common shares)

 

 

 

 

4,766

 

 

 

 

 

 

 

4,766

 

Employee stock purchase program (84,774 common shares)

 

 

 

 

1,670

 

 

 

 

 

 

 

1,670

 

Stock option grants, net of forfeitures (290,438 common shares)

 

3

 

 

 

27,162

 

 

 

 

 

 

 

27,165

 

Cash dividends reinvested (DRIP) in stock (14,050 common shares)

 

 

 

 

293

 

 

 

 

 

 

 

293

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(49,656

)

 

 

(49,656

)

Cash distributions declared ($0.24 per share)

 

 

 

 

 

 

 

(225,504

)

 

 

 

 

(225,504

)

Cash distributions on Preferred Stock

 

 

 

 

 

 

 

(6,109

)

 

 

 

 

(6,109

)

Cash redemptions for common units in excess of carrying value

 

 

 

 

 

(1,428

)

 

 

 

 

 

 

(1,428

)

Fair value adjustment for noncontrolling interest in Operating Partnership

 

 

 

 

 

839

 

 

 

 

 

 

 

839

 

Common stock warrants

 

 

 

 

 

895,513

 

 

 

 

 

 

 

895,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2013

 

$

 

9,395

 

$

 

242,042

 

$

 

11,361,262

 

$

 

(2,766,551

)

$

 

(137,010

)

$

 

82,946

 

$

 

8,792,084

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

 

 

(Dollars in thousands)

 

Cash Flows provided by (used in) Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

205,185

 

$

(300,591

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Equity in income of Unconsolidated Real Estate Affiliates

 

(27,181

)

(17,795

)

Equity in income of Unconsolidated Real Estate Affiliates - gain on investment

 

(3,448

)

 

Distributions received from Unconsolidated Real Estate Affiliates

 

30,238

 

13,073

 

Provision for doubtful accounts

 

2,587

 

1,983

 

Depreciation and amortization

 

387,230

 

411,645

 

Amortization/write-off of deferred finance costs

 

4,291

 

2,026

 

Accretion/write-off of debt market rate adjustments

 

5,445

 

(29,489

)

Amortization of intangibles other than in-place leases

 

40,858

 

60,037

 

Straight-line rent amortization

 

(25,207

)

(32,435

)

Deferred income taxes

 

(1,682

)

 

Loss on dispositions

 

765

 

175

 

Gains from changes in control of investment properties

 

(219,784

)

(18,547

)

Gain on extinguishment of debt

 

(25,894

)

(9,911

)

Provisions for impairment

 

4,975

 

20,301

 

Warrant liability adjustment

 

40,546

 

289,700

 

Net changes:

 

 

 

 

 

Accounts and notes receivable

 

14,122

 

33,770

 

Prepaid expenses and other assets

 

7,406

 

20,811

 

Deferred expenses

 

(30,471

)

(23,772

)

Restricted cash

 

3,377

 

35,285

 

Accounts payable and accrued expenses

 

(110,512

)

(75,097

)

Other, net

 

11,046

 

285

 

Net cash provided by operating activities

 

313,892

 

381,454

 

 

 

 

 

 

 

Cash Flows provided by (used in) Investing Activities:

 

 

 

 

 

Acquisition of real estate and property additions

 

(63,313

)

(350,663

)

Development of real estate and property improvements

 

(175,667

)

(158,613

)

Proceeds from sales of investment properties

 

419,976

 

12,324

 

Contributions to Unconsolidated Real Estate Affiliates

 

(58,607

)

(56,602

)

Distributions received from Unconsolidated Real Estate Affiliates in excess of income

 

101,434

 

213,213

 

Decrease in restricted cash

 

4,632

 

6,799

 

Net cash provided by (used in) investing activities

 

228,455

 

(333,542

)

 

 

 

 

 

 

Cash Flows provided by (used in) Financing Activities:

 

 

 

 

 

Proceeds from refinancing/issuance of mortgages, notes and loans payable

 

3,662,622

 

2,560,920

 

Principal payments on mortgages, notes and loans payable

 

(3,532,036

)

(2,517,843

)

Prepayment of financing costs

 

 

(42,147

)

Refund of financing fees

 

 

35,105

 

Deferred finance costs

 

(8,864

)

(14,937

)

Net proceeds from issuance of Preferred Stock

 

242,042

 

 

Purchase of Warrants

 

(633,229

)

 

Distributions to noncontrolling interests in consolidated real estate affiliates

 

(1,646

)

 

Cash distributions paid to common stockholders 

 

(216,004

)

(187,291

)

Cash distributions reinvested (DRIP) in common stock

 

293

 

38,704

 

Cash distributions paid to preferred stockholders

 

(2,125

)

 

Cash distributions paid to holders of common units

 

(4,756

)

 

Other, net 

 

31,459

 

3,899

 

Net cash used in financing activities

 

(462,244

)

(123,590

)

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

80,103

 

(75,678

)

Cash and cash equivalents at beginning of period

 

624,815

 

572,872

 

Cash and cash equivalents at end of period

 

$

704,918

 

$

497,194

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(UNAUDITED)

 

 

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Interest paid

 

$

485,407

 

$

431,552

 

Interest capitalized

 

3,878

 

318

 

Income taxes paid

 

4,601

 

536

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

68,627

 

83,569

 

Non-Cash Transactions:

 

 

 

 

 

Notes receivable related to property sale

 

 

17,000

 

Gain on investment in Unconsolidated Real Estate Affiliates

 

3,448

 

 

Amendment of warrant agreement

 

895,513

 

 

Rouse Properties, Inc. Dividend:

 

 

 

 

 

Non-cash dividend for RPI Spin-off

 

 

(26,044

)

Non-Cash Distribution of RPI Spin-off:

 

 

 

 

 

Assets

 

 

1,554,486

 

Liabilities and equity

 

 

(1,554,486

)

Non-Cash Sale of Property to RPI:

 

 

 

 

 

Assets

 

 

 

63,672

 

Liabilities and equity

 

 

 

(63,672

)

Non-Cash Acquisition of The Oaks and Westroads

 

 

 

 

 

Assets

 

 

218,071

 

Liabilities and equity

 

 

(218,071

)

Non-Cash Sale of Regional Mall

 

 

 

 

 

Assets

 

71,881

 

 

Mortgage debt forgiven or assumed by acquirer

 

(91,293

)

 

Other liabilities and equity

 

19,412

 

 

Non-Cash Acquisition of Quail Springs - Refer to Note 3

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Sale of The Grand Canal Shoppes and The Shoppes at The Palazzo:

 

 

 

 

 

Assets

 

544,435

 

 

Liabilities and equity

 

(544,435

)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

NOTE 1                         ORGANIZATION

 

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited consolidated financial statements for the year ended December 31, 2012 which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2012 (Commission File No. 1-34948), as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this Quarterly Report.  In the opinion of management, all adjustments necessary for fair presentation (which include only normal recurring adjustments) have been included.  Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

 

General

 

General Growth Properties, Inc. (“GGP” or the “Company”), a Delaware corporation, was organized in July 2010 and is a self-administered and self-managed real estate investment trust, referred to as a “REIT”.  In these notes, the terms “we,” “us” and “our” refer to GGP and its subsidiaries.

 

GGP, through its subsidiaries and affiliates, operates, manages and selectively re-develops regional mall properties, which are predominantly located throughout the United States.  GGP also owns assets in Brazil through investments in Unconsolidated Real Estate Affiliates (as defined below).  As of June 30, 2013, our portfolio was comprised of 123 regional malls in the United States and 18 malls in Brazil comprising approximately 134 million square feet of gross leasable area (“GLA”).  On July 29, 2013 we entered into agreements to sell our interest in one Unconsolidated Real Estate Affiliate that owns 17 of our 18 malls in Brazil.  Refer to Note 17.  In addition to regional malls, as of June 30, 2013, we owned nine strip/other retail centers totaling 4.0 million square feet, primarily in the Western region of the United States, as well as seven stand-alone office buildings totaling 0.9 million square feet, concentrated in Columbia, Maryland.

 

Substantially all of our business is conducted through GGP Limited Partnership (the “Operating Partnership” or “GGPLP”).   GGPLP owns an interest in the properties that are part of the consolidated financial statements of GGP.  As of June 30, 2013, GGP held approximately a 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units as defined below) of the Operating Partnership, while the remaining 1% was held by limited partners and certain previous contributors of properties to the Operating Partnership.

 

The Operating Partnership also has preferred units of limited partnership interest (the “Preferred Units”) outstanding.  The terms of the Preferred Units provide that the Preferred Units are convertible into Common Units which then are redeemable for cash or, at our option, shares of GGP common stock (Note 10).

 

In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through General Growth Management, Inc. (“GGMI”) and General Growth Services, Inc. (“GGSI”).  GGMI and GGSI are taxable REIT subsidiaries (“TRS”s), which provide management, leasing, and other services for our Unconsolidated Real Estate Affiliates (defined below).  GGMI and GGSI provide various services, including business development, tenant coordination, marketing, and strategic partnership services at all of our Consolidated Properties.  GGSI also serves as a contractor to GGMI for these services.

 

We refer to our ownership interests in properties in which we own a majority or controlling interest and, as a result, are consolidated under accounting principles generally accepted in the United States of America (“GAAP”) as the “Consolidated Properties.”  We also own interests in certain properties through joint venture entities in which we own a noncontrolling interest (“Unconsolidated Real Estate Affiliates”) and we refer to those properties as the “Unconsolidated Properties.”

 

NOTE 2                         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling partner’s share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture

 

8



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

partner’s ownership percentage) is included in noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. All significant intercompany balances and transactions have been eliminated.

 

We operate in a single reportable segment which includes the operation, development and management of retail and other rental properties, primarily regional malls.  Our portfolio of regional malls represents a collection of retail properties that are targeted to a range of market sizes and consumer tastes.  Each of our operating properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available.  We do not distinguish or group our consolidated operations based on geography, size or type. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues.  As a result, the Company’s operating properties are aggregated into a single reportable segment.

 

Reclassifications

 

Certain prior period amounts included in the Consolidated Statements of Operations and Comprehensive Income (Loss) and related footnotes associated with properties we have disposed of have been reclassified to discontinued operations for all periods presented.  Also, we have separately presented certain amounts within our Consolidated Statements of Cash Flows which were previously combined in the line Acquisition/development of real estate and property additions/developments.  The $509.3 million originally presented has been reclassified as Acquisition of real estate and property additions for $350.7 million, and Development of real estate and property improvements for $158.6 million, to conform to the current year presentation.

 

Properties

 

Real estate assets are stated at cost less any provisions for impairments.  Expenditures for significant betterments and improvements are capitalized.  Maintenance and repairs are charged to expense when incurred.  Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized.  Real estate taxes, interest costs, and internal costs associated with leasing and development overhead incurred during construction periods are capitalized.  Capitalization is based on qualified expenditures and interest rates.  Capitalized real estate taxes, interest costs, and internal costs associated with leasing and development overhead are amortized over lives which are consistent with the related assets.

 

Pre-development costs, which generally include legal and professional fees and other third-party costs directly related to the construction assets, are capitalized as part of the property being developed.  In the event a development is no longer deemed to be probable, the capitalized costs are expensed (see also our impairment policies in this note below).

 

The estimated useful lives of our properties are determined so as to allocate as equitably as possible the depreciation or amortization expense for which services are to be obtained from the use of each property.  We periodically review the estimated useful lives of our properties.  In connection with our recent review, we identified certain properties where we determined the estimated useful lives should be shortened based upon our current assessment.  Therefore, we have prospectively reduced the remaining useful lives to reflect the life over which we expect to obtain services from the use of each of these properties.  The estimated useful lives for these properties now range from 10-30 years.

 

9



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

 

 

 

Years

 

Buildings and improvements

 

10 - 45

 

Equipment and fixtures

 

3 - 20

 

Tenant improvements

 

Shorter of useful life or applicable lease term

 

 

Acquisitions of Operating Properties

 

Acquisitions of properties are accounted for utilizing the acquisition method of accounting and, accordingly, the results of operations of acquired properties have been included in the results of operations from the respective dates of acquisition.  Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment, assumed debt liabilities and identifiable intangible assets and liabilities such as amounts related to in-place tenant leases, acquired above and below-market tenant and ground leases, and tenant relationships.

 

Identifiable intangible assets and liabilities are calculated for above-market and below-market tenant and ground leases where we are either the lessor or the lessee. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including significantly below market renewal options for which exercise of the renewal option appears to be reasonably assured.  The remaining term of leases with renewal options at terms significantly below market reflect the assumed exercise of such below market renewal options and assume the amortization period would coincide with the extended lease term.

 

No significant value has been ascribed to tenant relationships.

 

The gross asset balances of the in-place value of tenant leases are included in buildings and equipment in our Consolidated Balance Sheets.

 

 

 

Gross Asset

 

Accumulated
Amortization

 

Net Carrying
Amount

 

 

 

 

 

 

 

 

 

As of June 30, 2013

 

 

 

 

 

 

 

Tenant leases:

 

 

 

 

 

 

 

In-place value

 

$

816,025

 

$

(380,826

)

$

435,199

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

 

 

 

 

Tenant leases:

 

 

 

 

 

 

 

In-place value

 

$

972,495

 

$

(423,492

)

$

549,003

 

 

The above-market tenant leases and below-market ground leases are included in Prepaid expenses and other assets (Note 13); the below-market tenant leases, above-market ground leases and above-market building lease are included in Accounts payable and accrued expenses (Note 14) in our Consolidated Balance Sheets.

 

Amortization/accretion of all intangibles, including the intangibles in Note 13 and Note 14, had the following effects on our Loss from continuing operations:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Amortization/accretion effect on continuing operations

 

$

(58,134

)

$

(84,641

)

$

(128,140

)

$

(181,109

)

 

10



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

Future amortization/accretion of all intangibles, including the intangibles in Note 13 and Note 14, is estimated to decrease results from continuing operations as follows:

 

Year

 

Amount

 

2013 Remaining

 

$

104,594

 

2014

 

177,212

 

2015

 

144,963

 

2016

 

113,033

 

2017

 

84,161

 

 

Management Fees and Other Corporate Revenues

 

Management fees and other corporate revenues primarily represent management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates.  Management fees are reported at 100% of the revenue earned from the joint venture in management fees and other corporate revenues on our Consolidated Statements of Operations and Comprehensive Income (Loss).  Our share of the management fee expense incurred by the Unconsolidated Real Estate Affiliates is reported within equity in income of Unconsolidated Real Estate Affiliates on our Consolidated Statements of Operations and Comprehensive Income (Loss) and in Property management and other costs in the Condensed Combined Statements of Income in Note 6.  The following table summarizes the management fees from affiliates and our share of the management fee expense:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Management fees from affiliates

 

$

17,281

 

$

21,202

 

$

33,139

 

$

36,880

 

Management fee expense

 

(6,146

)

(5,556

)

(12,117

)

(11,679

)

Net management fees from affiliates

 

$

11,135

 

$

15,646

 

$

21,022

 

$

25,201

 

 

Impairment

 

Operating properties

 

We regularly review our consolidated properties for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment indicators are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income, significant decreases in occupancy percentage, debt maturities, management’s intent with respect to the properties and prevailing market conditions.

 

If an indicator of potential impairment exists, the property is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows.   Although the carrying amount may exceed the estimated fair value of certain properties, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows.  To the extent an impairment provision is determined to be necessary, the excess of the carrying amount of the property over its estimated fair value is expensed to operations.  In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset group.  The adjusted carrying amount, which represents the new cost basis of the property, is depreciated over the remaining useful life of the property.

 

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and construction in progress, are assessed by project and include, but are not limited to, significant changes in the Company’s plans with respect to the project, significant changes in projected completion dates, tenant demand, anticipated revenues or cash flows, development costs, market factors and sustainability of development projects.

 

Impairment charges are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss) when the carrying value of a property is not recoverable and it exceeds the estimated fair value of the property, which can occur in accounting periods preceding disposition and / or in the period of disposition.

 

Although we may market a property for sale, there can be no assurance that the transaction will be complete until the sale is finalized.  However, GAAP requires us to utilize the Company’s expected holding period of our

 

11



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

properties when assessing recoverability.  If we cannot recover the carrying value of these properties within the planned holding period, we will estimate the fair values of the assets and record impairment charges for properties when the estimated fair value is less than their carrying value.

 

There were no provisions for impairment for the three months ended June 30, 2013 and 2012, included in continuing operations of our Consolidated Statements of Operations and Comprehensive Income (Loss). During the six months ended June 30, 2013, we recorded $5.0 million of impairment charges in discontinued operations in our Consolidated Statements of Operations and Comprehensive Income (Loss), which was incurred as a result of the sale of two operating properties.  One of the operating properties was previously transferred to a special servicer, and was sold in a lender-directed sale in full satisfaction of the related debt.  This resulted in the recognition of a gain on extinguishment of debt of $25.9 million (Note 4).  The other operating property related to a regional mall where the sales price of the property was lower than its carrying value. During the six months ended June 30, 2012, we recorded $10.4 million of impairment charges in discontinued operations in our Consolidated Statements of Operations and Comprehensive Income (Loss) related to the disposal of two operating properties.

 

Investment in Unconsolidated Real Estate Affiliates

 

A series of operating losses of an investee or other factors may indicate that an other-than-temporary decline in value of our investment in an Unconsolidated Real Estate Affiliate has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated for valuation declines below the carrying amount.  Accordingly, in addition to the property-specific impairment analysis that we perform for such joint ventures (as part of our operating property impairment process described above), we also considered whether there were other-than-temporary declines with respect to the carrying values of our Unconsolidated Real Estate Affiliates. No impairments related to our investments in Unconsolidated Real Estate Affiliates were recognized for the three and six months ended June 30, 2013 and 2012.

 

General

 

Impairment charges could be taken in the future if economic conditions change or if the plans regarding our assets change.  Therefore, we can provide no assurance that material impairment charges with respect to our assets, including operating properties, construction in progress and investments in Unconsolidated Real Estate Affiliates, will not occur in future periods.  We will continue to monitor circumstances and events in future periods to determine whether impairments are warranted.

 

Fair Value Measurements

 

The accounting principles for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include:

 

·                  Level 1 - defined as observable inputs such as quoted prices for identical assets or liabilities in active markets;

·                  Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

·                  Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

The impairment section above includes a discussion of all impairments recognized during the six months ended June 30, 2013 and 2012 that were based on Level 2 inputs.  Note 5 includes a discussion of properties measured at fair value on a non-recurring basis using Level 2 and Level 3 inputs and the fair value of debt, which is estimated on a recurring basis using Level 2 and Level 3 inputs.   Note 9 includes a discussion of our outstanding warrant liability which was previously measured at fair value using Level 3 inputs.  Note 10 includes a discussion of certain redeemable noncontrolling interests that are measured at fair value using Level 1 inputs.

 

NOTE 3                         ACQUISITIONS AND JOINT VENTURE ACTIVITY

 

On June 28, 2013, we acquired the 50% interest in Quail Springs Mall, previously held by our joint venture partner, for total consideration of $90.2 million, which included $55.5 million of cash and the assumption of the remaining 50% of debt.  The joint venture property was previously recorded under the equity method of

 

12



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

accounting and is now consolidated.  The acquisition resulted in a remeasurement of the net assets acquired to fair value.  We recorded Gains from changes in control of investment properties in our Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013, since the fair value of the net assets acquired was greater than our investment in the Unconsolidated Real Estate Affiliate and the cash paid to acquire our joint venture partner’s interest.  The table below summarizes the gain calculation:

 

Total fair value of net assets acquired

 

$

110,893

 

Previous investment in Quail Springs Mall

 

(35,610

)

Cash paid to acquire our joint venture partner’s interest

 

(55,507

)

Gain from change in control of investment properties

 

$

19,776

 

 

The following table summarizes the preliminary allocation of the purchase price to the net assets acquired at the date of acquisition.  These allocations were based on the relative fair values of the assets acquired and liabilities assumed.  The preliminary allocation was based upon estimates and assumptions that will be updated once our valuation is finalized (a period that is generally not to exceed one year from the acquisition date).

 

Investment in real estate

 

$

184,899

 

Fair value of debt

 

(77,204

)

Net working capital

 

3,198

 

Net assets acquired

 

$

110,893

 

 

On May 16, 2013, we formed a joint venture with TIAA-CREF Global Investments, LLC (“TIAACREF”) that holds 100% of The Grand Canal Shoppes and The Shoppes at The Palazzo.  We received $411.5 million in cash, net of debt assumed, and TIAACREF received a 49.9% economic interest in the joint venture.  We recorded Gains from changes in control of investment properties of $200.0 million on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013, as a result of this transaction.  We are the general partner, however we account for the joint venture under the equity method of accounting because we share control over major decisions with TIAACREF and TIAACREF has substantive participating rights.  The following table reflects the Gains from changes in control of investment properties recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss).

 

Cash received from joint venture partner

 

$

411,476

 

Proportionate share of previous investment in
The Grand Canal Shoppes and The Shoppes at The Palazzo

 

(211,468

)

Gain from change in control of investment properties

 

$

200,008

 

 

On April 5, 2012, we acquired the remaining 49% interest in The Oaks and Westroads, previously held by our joint venture partner for total consideration of $191.1 million, which included $98.3 million of cash and the assumption of the remaining 49% of debt and net working capital.  The joint venture properties were previously recorded under the equity method of accounting and are now consolidated.  The acquisition resulted in a remeasurement of the net assets acquired to fair value.  We recorded Gains from changes in control of investment properties of $18.5 million, since the fair value of the net assets acquired was greater than our investment in the Unconsolidated Real Estate Affiliate and the cash paid to acquire the joint venture partner’s interest.

 

NOTE 4                         DISCONTINUED OPERATIONS AND GAINS (LOSSES) ON DISPOSITIONS OF INTERESTS IN OPERATING PROPERTIES

 

All of our dispositions, for all periods presented, are included in discontinued operations in our Consolidated Statements of Operations and Comprehensive Income (Loss) and are summarized in the table below.  Gains on disposition and gains on debt extinguishment are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the period the property is disposed.

 

During the six months ended June 30, 2013, we sold our interests in three non-core assets totaling approximately 2 million square feet of GLA, which reduced our property level debt by $121.2 million. One property, which was previously transferred to a special servicer, was sold in a lender-directed sale in full satisfaction of the debt.  This resulted in a gain on extinguishment of debt of $25.9 million.

 

During the six months ended June 30, 2012, we sold our interests in four non-core assets totaling approximately one million square feet of GLA, which reduced our property level debt by $71.9 million.

 

During the six months ended June 30, 2012, we completed the spin-off of RPI, a 30-mall portfolio totaling approximately 21 million square feet.  The RPI Spin-off was accomplished through a special dividend of the common stock of RPI to holders of GGP common stock as of December 30, 2011.

 

13



Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

The following table summarizes the operations of the properties included in discontinued operations.

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Retail and other revenue

 

$

334

 

$

19,108

 

$

1,514

 

$

55,458

 

Total revenues

 

334

 

19,108

 

1,514

 

55,458

 

Retail and other operating expenses

 

181

 

12,884

 

1,489

 

40,705

 

Provisions for impairment and other gains

 

 

 

4,975

 

10,393

 

Total expenses

 

181

 

12,884

 

6,464

 

51,098

 

Operating income (loss)

 

153

 

6,224

 

(4,950

)

4,360

 

Interest expense, net

 

(15

)

(5,571

)

(1,536

)

(15,185

)

Gain on debt extinguishment

 

 

 

25,894

 

 

Net income (loss) from operations

 

138

 

653

 

19,408

 

(10,825

)

Provision for income taxes

 

 

(7

)

 

(23

)

Losses on dispositions

 

(442

)

(147

)

(766

)

(175

)

Net (loss) income from discontinued operations

 

$

(304

)

$

499

 

$

18,642

 

$

(11,023

)

 

NOTE 5                         FAIR VALUE

 

Fair Value of Operating Properties

 

We estimate fair value relating to impairment assessments based upon discounted cash flow and direct capitalization models that include all projected cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable.  Such projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed.  Based upon these inputs, we determined that our valuations of properties using a discounted cash flow or a direct capitalization model were classified within Level 3 of the fair value hierarchy.  For our properties for which the estimated fair value was based on negotiated sales prices, we determined that our valuation was classified within Level 2 of the fair value hierarchy.  As of June 30, 2013, and December 31, 2012, we carried all of our operating properties at their historical cost, less accumulated depreciation.

 

Fair Value of Financial Instruments

 

The fair values of our financial instruments approximate their carrying amount in our consolidated financial statements except for debt.  Management’s estimates of fair value are presented below for our debt as of June 30, 2013 and December 31, 2012.

 

 

 

June 30, 2013

 

December 31, 2012

 

 

 

Carrying Amount(1)

 

Estimated Fair
Value

 

Carrying Amount(1)

 

Estimated Fair
Value

 

Fixed-rate debt

 

$

13,963,928

 

$

14,289,526

 

$

14,954,601

 

$

16,190,518

 

Variable-rate debt

 

1,500,000

 

$

1,537,386

 

1,012,265

 

1,040,687

 

 

 

$

15,463,928

 

$

15,826,912

 

$

15,966,866

 

$

17,231,205

 

 


(1) Includes market rate adjustments.

 

The fair value of our Junior Subordinated Notes approximates their carrying amount as of June 30, 2013 and December 31, 2012.  We estimated the fair value of mortgages, notes and other loans payable using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate (“LIBOR”), U.S. treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed.  Since such amounts are estimates that are based on limited available market information for similar

 

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Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.

 

NOTE 6                         UNCONSOLIDATED REAL ESTATE AFFILIATES

 

Following is summarized financial information for all of our Unconsolidated Real Estate Affiliates, including our investment in Aliansce Shopping Centers, S.A. (“Aliansce”).

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Dollars in thousands)

 

Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates

 

 

 

 

 

Assets:

 

 

 

 

 

Land

 

$

1,075,440

 

$

960,335

 

Buildings and equipment

 

9,268,026

 

7,658,965

 

Less accumulated depreciation

 

(2,225,207

)

(2,080,361

)

Construction in progress

 

183,047

 

173,419

 

Net property and equipment

 

8,301,306

 

6,712,358

 

Investments in unconsolidated joint ventures

 

476,986

 

1,201,044

 

Net investment in real estate

 

8,778,292

 

7,913,402

 

Cash and cash equivalents

 

352,138

 

485,387

 

Accounts and notes receivable, net

 

163,466

 

167,548

 

Deferred expenses, net

 

243,017

 

298,050

 

Prepaid expenses and other assets

 

245,406

 

140,229

 

Total assets

 

$

9,782,319

 

$

9,004,616

 

 

 

 

 

 

 

Liabilities and Owners’ Equity:

 

 

 

 

 

Mortgages, notes and loans payable

 

$

7,057,743

 

$

6,463,377

 

Accounts payable, accrued expenses and other liabilities

 

432,270

 

509,064

 

Cumulative effect of foreign currency translation (“CFCT”)

 

(199,123

)

(158,195

)

Owners’ equity, excluding CFCT

 

2,491,429

 

2,190,370

 

Total liabilities and owners’ equity

 

$

9,782,319

 

$

9,004,616

 

 

 

 

 

 

 

Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net:

 

 

 

 

 

Owners’ equity

 

$

2,292,306

 

$

2,032,175

 

Less: joint venture partners’ equity

 

(1,259,224

)

(1,105,457

)

Plus: excess investment/basis differences*

 

1,914,423

 

1,939,153

 

Investment in and loans to/from
Unconsolidated Real Estate Affiliates, net

 

$

2,947,505

 

$

2,865,871

 

 

 

 

 

 

 

Reconciliation - Investment In and Loans To/From Unconsolidated Real Estate Affiliates:

 

 

 

 

 

Asset - Investment in and loans to/from
Unconsolidated Real Estate Affiliates

 

$

2,963,892

 

$

2,865,871

 

Liability - Investment in and loans to/from
Unconsolidated Real Estate Affiliates

 

(16,387

)

 

Investment in and loans to/from
Unconsolidated Real Estate Affiliates, net

 

$

2,947,505

 

$

2,865,871

 

 


*Includes gain on investment in Aliansce of $3.4 million.

 

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GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

215,471

 

$

190,743

 

$

414,988

 

$

384,977

 

Tenant recoveries

 

83,159

 

73,364

 

159,288

 

150,292

 

Overage rents

 

5,828

 

4,628

 

13,670

 

10,955

 

Management and other fees(1)

 

3,992

 

7,284

 

8,908

 

12,142

 

Other

 

10,495

 

9,568

 

31,777

 

32,387

 

Total revenues

 

318,945

 

285,587

 

628,631

 

590,753

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Real estate taxes

 

26,094

 

23,645

 

51,609

 

47,931

 

Property maintenance costs

 

7,638

 

8,715

 

16,261

 

18,814

 

Marketing

 

3,388

 

3,428

 

6,529

 

6,814

 

Other property operating costs

 

49,309

 

31,443

 

92,747

 

78,329

 

Provision for doubtful accounts

 

492

 

81

 

2,025

 

768

 

Property management and other costs(2)

 

12,686

 

12,035

 

25,124

 

24,725

 

General and administrative(1)

 

6,527

 

9,501

 

16,794

 

20,097

 

Depreciation and amortization

 

74,244

 

66,650

 

147,429

 

138,787

 

Total expenses

 

180,378

 

155,498

 

358,518

 

336,265

 

Operating income

 

138,567

 

130,089

 

270,113

 

254,488

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

4,027

 

3,490

 

7,790

 

5,714

 

Interest expense

 

(96,173

)

(87,385

)

(185,038

)

(168,818

)

Provision for income taxes

 

(132

)

(232

)

(288

)

(451

)

Equity in income of unconsolidated joint ventures

 

14,829

 

11,120

 

29,185

 

17,914

 

Income from continuing operations

 

61,118

 

57,082

 

121,762

 

108,847

 

Discontinued operations

 

 

(14

)

 

(941

)

Allocation to noncontrolling interests

 

(1,058

)

(839

)

207

 

(732

)

Net income attributable to the ventures

 

$

60,060

 

$

56,229

 

$

121,969

 

$

107,174

 

 

 

 

 

 

 

 

 

 

 

Equity In Income of Unconsolidated Real Estate Affiliates:

 

 

 

 

 

 

 

 

 

Net income attributable to the ventures

 

$

60,060

 

$

56,229

 

$

121,969

 

$

107,174

 

Joint venture partners’ share of income

 

(33,082

)

(33,860

)

(67,741

)

(64,954

)

Amortization of capital or basis differences

 

(12,991

)

(10,526

)

(27,047

)

(24,425

)

Equity in income of Unconsolidated Real Estate Affiliates

 

$

13,987

 

$

11,843

 

$

27,181

 

$

17,795

 

 


(1)         Primarily includes activity from Aliansce (defined below).

(2)         Includes management fees charged to the unconsolidated joint ventures by GGMI and GGSI.

 

The amounts described as Unconsolidated Real Estate Affiliates represents our investments in real estate joint ventures that are not consolidated. We hold interests in 19 domestic joint ventures, comprising 31 U.S. regional malls, and two international joint ventures, comprising 18 regional malls in Brazil. 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 domestic properties owned by these joint ventures.  As we have joint control of these ventures with our venture partners, we account for these joint ventures under the equity method.

 

On May 16, 2013, we formed a joint venture with TIAACREF (Note 3).  This transaction brings our ownership interest in The Grand Canal Shoppes and the Shoppes at the Palazzo to 50.1%.  We are the general partner, however we account for the joint venture under the equity method of accounting because we share control over major decisions with TIAACREF and TIAACREF has substantive participating rights.

 

On June 28, 2013, we acquired the 50% interest in Quail Springs Mall previously held by our joint venture partner (Note 3).  This transaction brings our ownership interest in the mall to 100%.  As such, we began accounting for the property as a consolidated property as of June 28, 2013.

 

Aliansce Shopping Centers S.A.

 

On December 13, 2012, as a result of a secondary public offering of Aliansce’s common shares in Brazil, our ownership interest was reduced from 45.5% to 40.5%.  As a result of the reduction, we recorded a gain of $23.4 million on our investment in Aliansce during the year ended December 31, 2012.  The underwriters were provided an over-allotment option to the secondary offering, which allowed for the purchase of an additional 15% of shares within 30 days.  The additional 15% of over-allotted shares were issued on January 14, 2013, and our ownership interest was further diluted to 40.0%.  As a result of the dilution from the over-allotment, we recorded a gain of $3.4 million on our investment in Aliansce for the six months ended June 30, 2013.

 

As of June 30, 2013, we held a 40.0% non-controlling ownership interest in Aliansce, as well as, a 35% non-controlling interest in a large regional mall, Shopping Leblon, in Rio de Janeiro (Brazil). The ownership interests in Aliansce and Shopping Leblon are accounted for under the equity method. Our investment in

 

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Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

Aliansce is an ownership interest in approximately 64,000,000 shares of the public real estate operating company. On July 29, 2013, we entered into agreements to sell our interest in Aliansce.  Refer to Note 17.

 

Unconsolidated Mortgages, Notes and Loans Payable and Retained Debt

 

Our proportionate share of the mortgages, notes and loans payable of the unconsolidated joint ventures was $3.4 billion as of June 30, 2013 and $3.1 billion as of December 31, 2012, including Retained Debt (as defined below).  There can be no assurance that the Unconsolidated Properties will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

 

We have debt obligations in excess of our proportionate share of the debt of our Unconsolidated Real Estate Affiliates (“Retained Debt”). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our proportionate share of the non-recourse mortgage indebtedness.  The proceeds of the Retained Debt which were distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates.  We had retained debt of $91.2 million at one property as of June 30, 2013, and $91.8 million as of December 31, 2012.  We are obligated to contribute funds on an ongoing basis to our Unconsolidated Real Estate Affiliates in amounts sufficient to pay debt service on such Retained Debt.  If we do not contribute such funds, our distributions from such Unconsolidated Real Estate Affiliates, or our interest in them, could be reduced to the extent of such deficiencies.  As of June 30, 2013, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.

 

NOTE 7        MORTGAGES, NOTES AND LOANS PAYABLE

 

Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:

 

 

 

June 30,

 

Weighted-Average

 

December 31,

 

Weighted-Average

 

 

 

2013(1)

 

Interest Rate(2)

 

2012(3)

 

Interest Rate(2)

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

Collateralized mortgages, notes and loans payable

 

$

13,948,140

 

4.67

%

$

14,225,011

 

4.88

%

Corporate and other unsecured loans

 

15,788

 

4.41

%

729,590

 

6.51

%

 

 

 

 

 

 

 

 

 

 

Total fixed-rate debt

 

13,963,928

 

4.67

%

14,954,601

 

4.96

%

 

 

 

 

 

 

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

Collateralized mortgages, notes and loans payable (4)

 

1,500,000

 

2.75

%

1,012,265

 

3.42

%

 

 

 

 

 

 

 

 

 

 

Total Mortgages, notes and loans payable

 

$

15,463,928

 

4.48

%

$

15,966,866

 

4.86

%

 

 

 

 

 

 

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

Junior Subordinated Notes

 

$

206,200

 

1.73

%

$

206,200

 

1.76

%

 


(1) Includes ($5.0) million of debt market rate adjustments.

(2) Represents the weighted-average interest rates on our principal balances, excluding the effects of deferred finance costs.

(3) Includes ($23.3) million of debt market rate adjustments.

(4) Corporate loan secured by cross-collateralized mortgages on 16 properties.

 

Collateralized Mortgages, Notes and Loans Payable

 

As of June 30, 2013, $19.3 billion of land, buildings and equipment (before accumulated depreciation) and construction in progress have been pledged as collateral for our mortgages, notes and loans payable. Certain of these consolidated secured loans, representing $1.8 billion of debt, are cross-collateralized with other properties.  Although a majority of the $15.4 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $1.6 billion of such mortgages, notes and loans payable are recourse to the Company.  In addition, certain mortgage loans contain other credit enhancement provisions which have been provided by GGP.  Certain mortgages, notes and loans payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.

 

During the six months ended June 30, 2013, we refinanced consolidated mortgage notes totaling $3.3 billion related to 25 properties with net proceeds of $959.8 million.  The prior loans had a weighted-average term-to-maturity of 2.6 years, and a weighted-average interest rate of 4.7%.  The new loans have a weighted-average term-to-maturity of 7.9 years, and a weighted-average interest rate of 3.2%.

 

$1.5 billion of the refinanced debt relates to a corporate loan secured by cross-collateralized mortgages on 16 properties with a weighted-average interest rate of LIBOR + 2.50% and a term-to-maturity of 3.0 years (with 2 one-year options).  The prior loans were secured by 16 properties and had a weighted-average interest rate of 3.98% and a term to maturity of 3.3 years.  We expensed financing fees of $6.6 million associated with this loan in Loss on extinguishment of debt on our Consolidated Statements of Operations and Comprehensive Income (Loss), and we capitalized $9.5 million as deferred financing costs within Deferred expenses on our Consolidated Balance Sheets.

 

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Table of Contents

 

GENERAL GROWTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

Unsecured Loans

 

During the six months ended June 30, 2013, we paid down $700.5 million of corporate unsecured bonds.  We have certain unsecured debt obligations, the terms of which are described below:

 

 

 

June 30,

 

Weighted-Average

 

December 31,

 

Weighted-Average

 

 

 

2013(2)

 

Interest Rate

 

2012 (3)

 

Interest Rate

 

Unsecured fixed-rate debt:

 

 

 

 

 

 

 

 

 

Unsecured Corporate Bonds - 2010 Indenture

 

$

 

 

$

608,688

 

6.75

%

HHC Note(1)

 

16,297

 

4.41

%

19,347