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 March 31, 2010
or
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 1-11656
GENERAL GROWTH PROPERTIES, INC.
(Exact name of
registrant as specified in its charter)
Delaware
|
|
42-1283895
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
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.
x
Yes
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).
x
Yes
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
|
Smaller
reporting company
o
|
(Do
not check if a smaller reporting company)
|
|
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
The number of shares of
Common Stock, $.01 par value, outstanding on May 5, 2010 was 317,324,875.
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
Investment
in real estate:
|
|
|
|
|
|
Land
|
|
$
|
3,330,049
|
|
$
|
3,327,447
|
|
Buildings
and equipment
|
|
22,816,895
|
|
22,851,511
|
|
Less
accumulated depreciation
|
|
(4,617,965
|
)
|
(4,494,297
|
)
|
Developments
in progress
|
|
434,449
|
|
417,969
|
|
Net
property and equipment
|
|
21,963,428
|
|
22,102,630
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates
|
|
1,990,367
|
|
1,979,313
|
|
Investment
property and property held for development and sale
|
|
1,768,098
|
|
1,753,175
|
|
Net
investment in real estate
|
|
25,721,893
|
|
25,835,118
|
|
Cash
and cash equivalents
|
|
573,120
|
|
654,396
|
|
Accounts
and notes receivable, net
|
|
393,405
|
|
404,041
|
|
Goodwill
|
|
199,664
|
|
199,664
|
|
Deferred
expenses, net
|
|
286,394
|
|
301,808
|
|
Prepaid
expenses and other assets
|
|
716,158
|
|
754,747
|
|
Total
assets
|
|
$
|
27,890,634
|
|
$
|
28,149,774
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
Liabilities
not subject to compromise:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
13,789,048
|
|
$
|
7,300,772
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates
|
|
39,329
|
|
38,289
|
|
Deferred
tax liabilities
|
|
859,144
|
|
866,400
|
|
Accounts
payable and accrued expenses
|
|
1,190,597
|
|
1,122,888
|
|
Liabilities
not subject to compromise
|
|
15,878,118
|
|
9,328,349
|
|
Liabilities
subject to compromise
|
|
10,852,350
|
|
17,767,253
|
|
Total
liabilities
|
|
26,730,468
|
|
27,095,602
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interests:
|
|
|
|
|
|
Preferred
|
|
120,756
|
|
120,756
|
|
Common
|
|
116,890
|
|
86,077
|
|
Total
redeemable noncontrolling interests
|
|
237,646
|
|
206,833
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Preferred Stock: $100 par value; 5,000,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Common
stock: $.01 par value; 875,000,000 shares authorized, 318,761,705 shares
issued as of March 31, 2010 and 313,831,411 shares issued as of
December 31, 2009
|
|
3,188
|
|
3,138
|
|
Additional
paid-in capital
|
|
3,753,998
|
|
3,729,453
|
|
Retained
earnings (accumulated deficit)
|
|
(2,780,971
|
)
|
(2,832,627
|
)
|
Accumulated
other comprehensive loss
|
|
(763
|
)
|
(249
|
)
|
Less
common stock in treasury, at cost, 1,449,939 shares as of March 31, 2010
and December 31, 2009
|
|
(76,752
|
)
|
(76,752
|
)
|
Total
stockholders equity
|
|
898,700
|
|
822,963
|
|
Noncontrolling
interests in consolidated real estate affiliates
|
|
23,820
|
|
24,376
|
|
Total
equity
|
|
922,520
|
|
847,339
|
|
Total
liabilities and equity
|
|
$
|
27,890,634
|
|
$
|
28,149,774
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
3
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Dollars in thousands, except for per
share amounts)
|
|
Revenues:
|
|
|
|
|
|
Minimum
rents
|
|
$
|
492,758
|
|
$
|
499,107
|
|
Tenant
recoveries
|
|
214,251
|
|
233,019
|
|
Overage
rents
|
|
10,346
|
|
10,025
|
|
Land
sales
|
|
5,070
|
|
8,986
|
|
Management
fees and other corporate revenues
|
|
18,086
|
|
21,858
|
|
Other
|
|
20,726
|
|
15,645
|
|
Total
revenues
|
|
761,237
|
|
788,640
|
|
Expenses:
|
|
|
|
|
|
Real
estate taxes
|
|
72,095
|
|
71,558
|
|
Property
maintenance costs
|
|
35,844
|
|
27,358
|
|
Marketing
|
|
7,081
|
|
7,576
|
|
Other
property operating costs
|
|
127,071
|
|
131,699
|
|
Land
sales operations
|
|
10,167
|
|
10,614
|
|
Provision
for doubtful accounts
|
|
6,327
|
|
10,332
|
|
Property
management and other costs
|
|
35,432
|
|
43,408
|
|
General
and administrative
|
|
7,638
|
|
7,525
|
|
Strategic
initiatives
|
|
|
|
38,300
|
|
Provisions
for impairment
|
|
11,350
|
|
331,093
|
|
Depreciation
and amortization
|
|
177,302
|
|
204,615
|
|
Total
expenses
|
|
490,307
|
|
884,078
|
|
Operating
income (loss)
|
|
270,930
|
|
(95,438
|
)
|
|
|
|
|
|
|
Interest
income
|
|
676
|
|
730
|
|
Interest
expense
|
|
(335,278
|
)
|
(328,489
|
)
|
Loss
before income taxes, noncontrolling interests, equity in income of
Unconsolidated Real Estate Affiliates and reorganization items
|
|
(63,672
|
)
|
(423,197
|
)
|
(Provision
for) benefit from income taxes
|
|
(3,650
|
)
|
11,514
|
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
33,751
|
|
7,538
|
|
Reorganization
items
|
|
89,412
|
|
|
|
Income
(loss) from continuing operations
|
|
55,841
|
|
(404,145
|
)
|
Discontinued
operations - loss on dispositions
|
|
|
|
(55
|
)
|
Net
income (loss)
|
|
55,841
|
|
(404,200
|
)
|
Allocation
to noncontrolling interests
|
|
(4,185
|
)
|
8,118
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
51,656
|
|
$
|
(396,082
|
)
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share:
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.16
|
|
$
|
(1.27
|
)
|
Discontinued
operations
|
|
|
|
|
|
Total
basic earnings (loss) per share
|
|
$
|
0.16
|
|
$
|
(1.27
|
)
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.16
|
|
$
|
(1.27
|
)
|
Discontinued
operations
|
|
|
|
|
|
Total
diluted earnings (loss) per share
|
|
$
|
0.16
|
|
$
|
(1.27
|
)
|
Dividends
declared per share
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Comprehensive Income (loss), Net:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
55,841
|
|
$
|
(404,200
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
Net
unrealized gains on financial instruments
|
|
3,928
|
|
2,109
|
|
Accrued
pension adjustment
|
|
411
|
|
101
|
|
Foreign
currency translation
|
|
(4,868
|
)
|
(2,282
|
)
|
Unrealized
gains on available-for-sale securities
|
|
4
|
|
21
|
|
Other
comprehensive income (loss)
|
|
(525
|
)
|
(51
|
)
|
Other
comprehensive (income) loss allocated to noncontrolling interests
|
|
11
|
|
(9,064
|
)
|
Comprehensive
income (loss), net, attributable to common stockholders
|
|
$
|
55,327
|
|
$
|
(413,315
|
)
|
The accompanying notes are
an integral part of these consolidated financial statements.
4
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
|
|
|
|
|
|
Retained
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
Additional
|
|
Earnings
|
|
Accumulated
Other
|
|
|
|
Interests
in
|
|
|
|
|
|
Common
|
|
Paid-In
|
|
(Accumulated
|
|
Comprehensive
|
|
Treasury
|
|
Consolidated
Real
|
|
Total
|
|
|
|
Stock
|
|
Capital
|
|
Deficit)
|
|
Income
(Loss)
|
|
Stock
|
|
Estate
Affiliates
|
|
Equity
|
|
|
|
(Dollars
in thousands)
|
|
Balance at January 1, 2009
|
|
$
|
2,704
|
|
$
|
3,454,903
|
|
$
|
(1,488,586
|
)
|
$
|
(56,128
|
)
|
$
|
(76,752
|
)
|
$
|
24,266
|
|
$
|
1,860,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
|
|
|
(396,082
|
)
|
|
|
|
|
659
|
|
(395,423
|
)
|
Distributions
to noncontrolling interests in consolidated Real Estate Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
(1,031
|
)
|
(1,031
|
)
|
Conversion
of operating partnership units to common stock (43,408,053 common shares)
|
|
434
|
|
324,054
|
|
|
|
|
|
|
|
|
|
324,488
|
|
Issuance
of common stock (69,309 common shares)
|
|
1
|
|
42
|
|
|
|
|
|
|
|
|
|
43
|
|
Restricted
stock grant, net of forfeitures and compensation expense (65,146 common
shares)
|
|
(1
|
)
|
204
|
|
|
|
|
|
|
|
|
|
203
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
(9,115
|
)
|
|
|
|
|
(9,115
|
)
|
Adjustment
for noncontrolling interest in operating partnership
|
|
|
|
11,583
|
|
|
|
|
|
|
|
|
|
11,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
3,138
|
|
$
|
3,790,786
|
|
$
|
(1,884,668
|
)
|
$
|
(65,243
|
)
|
$
|
(76,752
|
)
|
$
|
23,894
|
|
$
|
1,791,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
3,138
|
|
$
|
3,729,453
|
|
$
|
(2,832,627
|
)
|
$
|
(249
|
)
|
$
|
(76,752
|
)
|
$
|
24,376
|
|
$
|
847,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
51,656
|
|
|
|
|
|
662
|
|
52,318
|
|
Distributions
to noncontrolling interests in consolidated Real Estate Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
(1,218
|
)
|
(1,218
|
)
|
Issuance
of common stock - payment of dividend (4,923,287 common shares)
|
|
50
|
|
53,346
|
|
|
|
|
|
|
|
|
|
53,396
|
|
Restricted
stock grant, net of forfeitures and compensation expense (7,007 common
shares)
|
|
|
|
836
|
|
|
|
|
|
|
|
|
|
836
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
(514
|
)
|
Adjustment
for noncontrolling interest in operating partnership
|
|
|
|
(29,637
|
)
|
|
|
|
|
|
|
|
|
(29,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
3,188
|
|
$
|
3,753,998
|
|
$
|
(2,780,971
|
)
|
$
|
(763
|
)
|
$
|
(76,752
|
)
|
$
|
23,820
|
|
$
|
922,520
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
5
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
55,841
|
|
$
|
(404,200
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
(33,751
|
)
|
(7,538
|
)
|
Provision
for doubtful accounts
|
|
6,327
|
|
10,332
|
|
Distributions
received from Unconsolidated Real Estate Affiliates
|
|
8,726
|
|
10,711
|
|
Depreciation
|
|
165,405
|
|
190,622
|
|
Amortization
|
|
11,897
|
|
13,993
|
|
Amortization
of deferred finance costs
|
|
8,857
|
|
20,316
|
|
Amortization
of debt market rate adjustments
|
|
12,391
|
|
(2,247
|
)
|
Amortization
of intangibles other than in-place leases
|
|
1,049
|
|
1,479
|
|
Straight-line
rent amortization
|
|
(10,547
|
)
|
(8,636
|
)
|
Non-cash
interest expense on Exchangeable Senior Notes
|
|
7,110
|
|
6,692
|
|
Non-cash
interest expense resulting from termination of interest rate swaps
|
|
4,520
|
|
(8,614
|
)
|
Provisions
for impairment
|
|
11,350
|
|
331,093
|
|
Participation
expense pursuant to Contingent Stock Agreement
|
|
|
|
(177
|
)
|
Land/residential
development and acquisitions expenditures
|
|
(16,120
|
)
|
(17,251
|
)
|
Cost
of land sales
|
|
1,326
|
|
2,716
|
|
Reorganization
items - finance costs related to emerged entities
|
|
91,746
|
|
|
|
Non-cash
reorganization items
|
|
(203,580
|
)
|
|
|
Glendale
Matter deposit
|
|
|
|
67,054
|
|
Net
changes:
|
|
|
|
|
|
Accounts
and notes receivable
|
|
14,850
|
|
(2,345
|
)
|
Prepaid
expenses and other assets
|
|
30,000
|
|
(8,592
|
)
|
Deferred
expenses
|
|
(8,087
|
)
|
(11,865
|
)
|
Accounts
payable and accrued expenses and deferred tax liabilities
|
|
53,206
|
|
(11,846
|
)
|
Other,
net
|
|
(14,199
|
)
|
(12,160
|
)
|
Net
cash provided by operating activities
|
|
198,317
|
|
159,537
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Acquisition/development
of real estate and property additions/improvements
|
|
(53,402
|
)
|
(79,596
|
)
|
Proceeds
from sales of investment properties
|
|
|
|
6,393
|
|
Proceeds
from sales of investment in Unconsolidated Real Estate Affiliates
|
|
7,450
|
|
|
|
Decrease
in investments in Unconsolidated Real Estate Affiliates
|
|
(5,882
|
)
|
(21,209
|
)
|
Distributions
received from Unconsolidated Real Estate Affiliates in excess of income
|
|
7,876
|
|
24,799
|
|
Loans
(to) from Unconsolidated Real Estate Affiliates, net
|
|
|
|
(6,621
|
)
|
(Increase)
decrease in restricted cash
|
|
(1,914
|
)
|
3,147
|
|
Other,
net
|
|
(1,350
|
)
|
(752
|
)
|
Net
cash used in investing activities
|
|
(47,222
|
)
|
(73,839
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Principal
payments on mortgages, notes and loans payable
|
|
(134,158
|
)
|
(57,996
|
)
|
Deferred
financing costs
|
|
|
|
(741
|
)
|
Finance
costs related to emerged entities
|
|
(91,746
|
)
|
|
|
Cash
distributions paid to common stockholders
|
|
(5,957
|
)
|
|
|
Cash
distributions paid to holders of Common Units
|
|
|
|
(112
|
)
|
Proceeds
from issuance of common stock, including from common stock plans
|
|
|
|
43
|
|
Other,
net
|
|
(510
|
)
|
(140
|
)
|
Net
cash used in financing activities
|
|
(232,371
|
)
|
(58,946
|
)
|
Net
change in cash and cash equivalents
|
|
(81,276
|
)
|
26,752
|
|
Cash
and cash equivalents at beginning of period
|
|
654,396
|
|
168,993
|
|
Cash
and cash equivalents at end of period
|
|
$
|
573,120
|
|
$
|
195,745
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
6
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
Interest
paid
|
|
$
|
228,236
|
|
$
|
263,934
|
|
Interest
capitalized
|
|
10,339
|
|
15,497
|
|
Income
taxes paid
|
|
1,177
|
|
6,485
|
|
Reorganization
items paid
|
|
114,168
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions:
|
|
|
|
|
|
Common
stock issued in exchange for Operating Partnership Units
|
|
$
|
|
|
$
|
324,489
|
|
Change
in accrued capital expenditures included in accounts payable and accrued
expenses
|
|
(25,320
|
)
|
(42,778
|
)
|
Change
in deferred contingent property acquisition liabilities
|
|
|
|
(120,216
|
)
|
Mortgage
debt market rate adjustment related to emerged entities
|
|
283,072
|
|
|
|
Gain
on Aliansce IPO
|
|
15,266
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
7
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
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,
2009 which are included in the Companys Annual Report on Form 10-K (the Annual
Report) for the fiscal year ended December 31, 2009 (Commission File No. 1-11656),
as certain footnote disclosures which would substantially duplicate those
contained in our Annual
Report have been omitted from this report. 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), a Delaware corporation, is a self-administered and self-managed real
estate investment trust, referred to as a REIT which, as described in Debtors
in Possession below, filed for bankruptcy protection under Chapter 11
of Title 11
of the United States Code
(Chapter 11) in the Southern District of New York (the Bankruptcy
Court) on April 16, 2009 (the Petition Date). GGP was organized in 1986 and through its
subsidiaries and affiliates owns, operates, manages and develops retail and
other rental properties, primarily shopping centers, which are located
primarily throughout the United States. GGP also holds assets through its
international Unconsolidated Real Estate Affiliates in Brazil and Turkey (Note
3). Additionally, GGP develops and sells
land for residential, commercial and other uses primarily in large-scale,
long-term master planned community projects in and around Columbia, Maryland;
Summerlin, Nevada; and Houston, Texas, as well as one residential condominium
project located in Natick (Boston), Massachusetts. Substantially all of our business is
conducted by our operating partnership, GGP Limited Partnership (GGPLP or the
Operating Partnership), in which, at March 31, 2010, GGP holds
approximately a 98% common equity ownership interest. In these notes, the terms we, us and our
refer to GGP and its subsidiaries (the Company).
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 noncontrolling 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.
Principles of Consolidation
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 partners share of the assets, liabilities
and operations of the joint ventures (generally computed as the joint venture
partners 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.
In the opinion of management,
all adjustments (consisting of normal recurring adjustments) 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
period ended March 31, 2010 are not necessarily indicative of the results
to be obtained for the full fiscal year.
Reclassifications
Certain amounts in the
2009 Consolidated Financial Statements have been reclassified to conform to the
current period presentation. Specifically,
in order to improve our internal and external reporting, we reclassified $2.7
million of asset management and other corporate revenues (such as sponsorship
income, photo income and vending income) from other revenue to management fees
and other corporate revenues. In
addition, we reclassified $28.0 million of cleaning, landscaping and trash
expenses from property maintenance costs to other property operating costs.
Debtors in Possession
As we had significant
past due, or imminently due, and cross-collateralized or cross-defaulted debt,
the Company,
the Operating Partnership and certain of the Companys domestic subsidiaries
filed voluntary petitions for relief under Chapter 11 on the Petition
Date. On April 22, 2009, certain additional domestic subsidiaries
(collectively with the subsidiaries filing on the Petition Date, the Company
and the Operating Partnership, the Debtors) of the Company also filed
voluntary petitions for relief in the Bankruptcy Court
8
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
(collectively, the Chapter 11 Cases) which the Bankruptcy Court has ruled
may be jointly administered.
However, neither GGMI, certain of our
wholly-owned subsidiaries, nor any of our joint ventures, (collectively, the Non-Debtors)
either consolidated or unconsolidated, have sought such protection.
In the aggregate, the Debtors, all of which are
consolidated in the accompanying consolidated financial statements, own and
operate 166 of the more than 200 regional shopping centers that we own and
manage. The Non-Debtors are continuing
their operations and are not subject to the requirements of Chapter 11. Pursuant to Chapter 11, a debtor is afforded
certain protection against its creditors and creditors are prohibited from
taking certain actions (such as pursuing collection efforts or proceeding to
foreclose on secured obligations) related to debts that were owed prior to the
commencement of the Chapter 11 Cases.
Accordingly, although the commencement of the Chapter 11 Cases triggered
defaults on substantially all debt obligations of the Debtors, creditors are
stayed from taking any action as a result of such defaults. Absent an order of the Bankruptcy Court,
these pre-petition liabilities are subject to settlement under a plan of
reorganization.
Since the Petition Date,
the Bankruptcy Court has granted various motions that allow the Company to continue to operate its business in the
ordinary course without interruption; and covering, among other things,
employee obligations and incentive compensation, critical service providers,
tax matters, insurance matters, tenant and contractor obligations, claim
settlements, ordinary course property sales, cash management, cash collateral,
alternative dispute resolution, settlement of pre-petition mechanics liens and
department store transactions.
Through April 30,
2010, of the total 388 Debtors with approximately $21.83 billion of debt that
filed for Chapter 11 protection, 260 Debtors (the Track 1 Debtors) owning 145
properties with $14.80 billion of secured mortgage loans filed consensual plans
of reorganization (the Track 1 Plans).
The effectiveness of the plans of reorganization and emergence from
bankruptcy of the remaining Track 1 Debtors continued in 2010 and is expected
to be completed in May 2010. The Chapter 11 Cases for the remaining
Debtors (generally, GGP, GGPLP and other holding company or investment
subsidiaries (the TopCo Debtors) which own certain individual or groups of
properties and also our Oakwood operating property Debtor with a secured loan
of $95.0 million, (collectively, with the TopCo Debtors, the Remaining Debtors))
will continue until their respective plans of reorganization are filed with the
Bankruptcy Court, approved by the applicable classes of creditors and confirmed
by the Bankruptcy Court.
In regard to the Track 1
Plans, a total of 215 Debtors owning 111 properties with $11.54 billion of
secured mortgage debt emerged from bankruptcy as of March 31, 2010 (the Emerged
Debtors). Of the Emerged Debtors, 102
Debtors owning 61 properties with $6.88 billion of secured mortgage debt
emerged from bankruptcy during the three months ended March 31, 2010,
while 113 Debtors owning 50 properties with $4.66 billion secured debt had
emerged from bankruptcy as of December 31, 2009. Furthermore, subsequent to March 31,
2010, five of the Remaining Debtors owning two properties with $513.2 million
of secured mortgage debt emerged from bankruptcy.
On December 18,
2009, the Bankruptcy Court approved the payment of a $0.19 per share dividend
to holders of record of GGP common stock on December 28, 2009 to allow GGP
to satisfy the REIT dividend distribution requirements (Note 5) for 2009. The dividend was paid on January 28,
2010 in a combination of $6.0 million in cash and 4,923,287 shares of common
stock (with a valuation of $10.8455 calculated based on the volume weighted
average trading prices of GGPs common stock on January 20, 21 and 22,
2010).
As described above, we
have received legal protection from our creditors pursuant to the Chapter 11
Cases. In such regard, we have the
exclusive right until July 15, 2010 to file a plan of reorganization and until
September 15, 2010 to solicit acceptances of such a plan. If we do not file a plan of reorganization
for the Remaining Debtors prior to the lapse of the exclusivity period, any
party in interest would be able to file a plan of reorganization for any of the
Remaining Debtors.
In
this regard, we have entered into agreements (collectively, the Investment
Agreements) with REP Investments LC (REP), an affiliate of Brookfield Asset
Management Inc. (Brookfield),
Fairholme Funds, Inc. (Fairholme) and Pershing Square Capital
Management, L.P. (Pershing and together with REP and Fairholme, the
Investors), pursuant to which GGP would be divided into two companies, GGP
and a second new company, General Growth Opportunities (GGO), and the
Investors would invest in the Companys standalone emergence plan. As a result
of the Investment Agreements, as amended, the Company has equity commitments
for $6.55 billion ($6.3 billion of new equity capital at a value of $10.00 per
share of the restructured GGP and $250 million to backstop a rights offering
for GGO at $5.00 per share) and a $2 billion capital backstop which we believe
provides us with all of the financing necessary for us to emerge from Chapter
11.
In
addition, under the Investment
Agreements, as amended, in lieu of the receipt of any fees that would be
customary in similar transactions, the
Investment Agreements provide for the issuance of interim warrants to
REP and Fairholme to purchase approximately 103 million shares of GGP at $15.00
per share (the Interim Warrants). The Interim Warrants vest: 40% upon issuance, 20% on July 12, 2010,
and the remaining Interim Warrants vest in equal daily installments from July 13,
2010 to December 31, 2010, except that any Interim Warrants that have not
vested on or prior to termination of REPs or Fairholmes Investment Agreement,
as the case may be, will not vest and will be cancelled. Upon consummation of
the plan of reorganization contemplated by the Investment Agreements, the Interim
Warrants will be cancelled and warrants to purchase equity of GGO and the
restructured GGP will be issued to the Investors. Specifically, 80 million
warrants to purchase equity of GGO at an exercise price of $5.00 per share and
120 million warrants to purchase equity of
the restructured GGP at an exercise price of $10.75 per share, in the
case of REP, and an exercise price of $10.50 in the case of Fairholme and
Pershing, will be issued.
On
May 7, 2010, the Bankruptcy Court approved the issuance of the warrants
and the Companys bidding procedures. The Company issued the Interim Warrants
on May 10, 2010. Consummation of the transactions contemplated by the
Investment Agreements is subject to higher and better offers pursuant to the
bidding. There is no assurance that the transactions contemplated by the
Investment Agreements will be consummated. However, if such transactions are
consummated, the Investors are likely to hold, in the aggregate, a controlling
equity ownership in the restructured GGP and are expected to hold a minor
noncontrolling interest in GGO. The Company is focused on continued progress in
the Chapter 11 Cases and a comprehensive capital raise process, and is
continuing to consider all alternatives to maximize value for all of the Companys
stakeholders. The Company expects to select its plan for emergence in early
July.
Our potential inability
to negotiate and obtain confirmation of a mutually agreeable plan of
reorganization for the Remaining Debtors and to address our remaining future
debt maturities raise substantial doubts as to our
9
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
ability to continue as a
going concern. The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. However, as a result of the Chapter 11 Cases, such realization of
assets and satisfaction of liabilities are subject to a significant number of
uncertainties. Our consolidated financial statements do not reflect any
adjustments related to the recoverability of assets and satisfaction of
liabilities that might be necessary should we be unable to continue as a going
concern.
Accounting for Reorganization
The accompanying
unaudited combined condensed financial statements of the Remaining Debtors
presented below have been prepared in accordance with the generally accepted
accounting principles related to financial reporting by entities in
reorganization under the Bankruptcy Code, and on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Such accounting guidance also provides that if a
debtor, or group of debtors, has significant combined assets and liabilities of
entities which have not sought, or no longer remain under, Chapter 11
bankruptcy protection, the debtors and non-debtors should continue to be
combined. However, separate disclosure
of financial statement information solely relating to the debtor entities
should be presented.
The unaudited combined
condensed balance sheets of the Remaining Debtors which are operating under
Chapter 11 protection, excluding the Emerged Debtors, are presented as of the
dates indicated below:
Unaudited
Combined Condensed Balance Sheets
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Net
investment in real estate
|
|
$
|
10,712,042
|
|
$
|
10,706,802
|
|
Cash
and cash equivalents
|
|
500,414
|
|
585,009
|
|
Accounts
and notes receivable, net
|
|
99,737
|
|
99,726
|
|
Other
|
|
579,765
|
|
614,540
|
|
Total
assets
|
|
$
|
11,891,958
|
|
$
|
12,006,077
|
|
|
|
|
|
|
|
Liabilities
not subject to compromise:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
400,000
|
|
$
|
400,000
|
|
Deferred
tax liabilities
|
|
903,046
|
|
910,847
|
|
Investment
in and loans to/from Unconsolidated
|
|
|
|
|
|
Real
Estate Affiliates
|
|
33,288
|
|
33,005
|
|
Accounts
payable and accrued expenses
|
|
634,031
|
|
622,209
|
|
Liabilities
subject to compromise
|
|
10,852,350
|
|
10,827,068
|
|
Total
redeemable non-controlling interest
|
|
237,646
|
|
206,833
|
|
Equity
|
|
(1,168,403
|
)
|
(993,885
|
)
|
Total
liabilities and equity
|
|
$
|
11,891,958
|
|
$
|
12,006,077
|
|
As described above,
certain Track 1 Debtors have emerged from bankruptcy protection as of March 31,
2010. The unaudited combined condensed statements of operations and the unaudited
combined condensed statement of cash flows presented below includes the
Remaining Debtors, and excludes Emerged Debtors, for the three months ended March 31,
2010.
10
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Unaudited Combined Condensed
Statement of Operations
|
|
Three Months Ended
March 31, 2010
|
|
|
|
(In thousands)
|
|
Operating
Revenues
|
|
$
|
160,995
|
|
Operating
Expenses
|
|
112,037
|
|
Provision
for impairment
|
|
11,336
|
|
Operating
Income
|
|
37,622
|
|
Interest
expense, net
|
|
(129,215
|
)
|
Provision
for income taxes
|
|
(3,149
|
)
|
Equity
in income of Real Estate Affiliates
|
|
28,597
|
|
Reorganization
items
|
|
(87,278
|
)
|
Net
loss
|
|
(153,423
|
)
|
Allocation
to noncontrolling interests
|
|
(4,148
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(157,571
|
)
|
Unaudited
Combined Condensed Statement of Cash Flows
|
|
Three Months Ended
March 31, 2010
|
|
|
|
(In thousands)
|
|
Net cash used in:
|
|
|
|
Operating
activities
|
|
$
|
(69,399
|
)
|
Investing
activities
|
|
(9,239
|
)
|
Financing
activities
|
|
(5,957
|
)
|
Net
decrease in cash and cash equivalents
|
|
(84,595
|
)
|
Cash
and cash equivalents, beginning of period
|
|
585,009
|
|
Cash
and cash equivalents, end of period
|
|
$
|
500,414
|
|
|
|
|
|
Cash
paid for reorganization items
|
|
$
|
(22,405
|
)
|
Classification of Liabilities Not
Subject to Compromise
Liabilities not subject
to compromise include: (1) liabilities held by Non-Debtor entities and
Track 1 Debtors that have emerged from bankruptcy; (2) liabilities
incurred after the Petition Date; (3) certain pre-Petition Date
liabilities the Remaining Debtors expect to pay in full, even though certain of
these amounts may not be paid until a plan of reorganization is effective; (4) liabilities
related to pre-petition contracts that affirmatively have not been rejected;
and (5) pre-Petition Date liabilities that have been approved for payment
by the Bankruptcy Court and that the Debtors expect to pay (in advance of a
plan of reorganization) in the ordinary course of business, including certain
employee related items (salaries, vacation and medical benefits).
All liabilities incurred
by the Debtors prior to the Petition Date other than those specified above are
considered liabilities subject to compromise. The amounts of the various
categories of liabilities that are subject to compromise are set forth below.
These amounts represent the Companys estimates of known or potential
pre-Petition Date claims that are likely to be resolved in connection with the
bankruptcy filings. Such claims remain subject to future adjustments.
Adjustments may result from negotiations, actions of the Bankruptcy Court,
rejection of executory contracts and unexpired leases, the determination as to
the value of any collateral securing claims, proofs of claim, or other events.
There can be no assurance that the equity of the Companys stockholders will
not be diluted. The amounts subject to compromise consisted of the following
items:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Mortgages
and secured notes
|
|
$
|
4,255,515
|
|
$
|
11,148,467
|
|
Unsecured
notes
|
|
6,013,502
|
|
6,006,778
|
|
Accounts
payable and accrued liabilities
|
|
583,333
|
|
612,008
|
|
Total
liabilities subject to compromise
|
|
$
|
10,852,350
|
|
$
|
17,767,253
|
|
11
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
The classification of
liabilities not subject to compromise versus liabilities subject to
compromise is based on currently available information and analysis. As the
remaining Chapter 11 Cases proceed and additional information is received and
analysis is completed, or as the Bankruptcy Court rules on relevant
matters, the classification of amounts between these two categories may
change. The amount of any such changes
could be significant.
Reorganization Items
Reorganization items
under the bankruptcy filings are expense or income items that were incurred or
realized by the Debtors as a result of the Chapter 11 Cases and are
presented separately in the Consolidated Statements of Income and Comprehensive
Income and in the unaudited condensed combined statements of operations of the
Remaining Debtors presented above. These items include professional fees and
similar types of expenses and gains on liabilities subject to compromise
directly related to the Chapter 11 Cases, resulting from activities of the
reorganization process, and interest earned on cash accumulated by the Debtors
as a result of the Chapter 11 Cases.
With respect to certain
retained professionals, the terms of engagement and the timing of payment for
services rendered are subject to approval by the Bankruptcy Court. In addition, certain of these retained
professionals have agreements that provide for success or completion fees that
are payable upon the consummation of specified restructuring or sale
transactions. A portion of such fees,
currently estimated at approximately $48.5 million in the aggregate, have been
deemed probable of being paid; and therefore, we accrued the portion related to
the period from the date the Bankruptcy Court approved retention of those
professionals to our estimated date of successful emergence from bankruptcy. As of December 31, 2009, we accrued $7.2
million and as of March 31, 2010, we accrued $17.6 million resulting in
expense in reorganization items of $10.4 million for the three months ended March 31,
2010 related to the success and completion fees.
In addition, the key
employee incentive program (the KEIP) was approved by the Bankruptcy
Court. The KEIP is intended to provide
incentive to certain key employees and provides for payment to these employees
upon successful emergence from bankruptcy.
Although the amount of the KEIP payment is technically uncapped, a
portion of the KEIP, currently estimated at approximately $164.7 million in the
aggregate, has been deemed probable of being paid; therefore, we are
recognizing our estimated KEIP expense in the period from the date the KEIP was
approved by the Bankruptcy Court to our estimated date of successful emergence
from bankruptcy. As of December 31,
2009, we accrued $27.5 million and as of March 31, 2010, we accrued a
total of $78.8 million resulting in expense in reorganization items of $51.3
million for the three months ended March 31, 2010 related to the KEIP.
12
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Reorganization
items are as follows:
|
|
Three Months Ended
|
|
Reorganization Items
|
|
March 31, 2010
|
|
|
|
(In thousands)
|
|
Gains
on liabilities subject to compromise - vendors (1)
|
|
$
|
(1,203
|
)
|
Gains
on liabilities subject to compromise - mortgage debt (2)
|
|
(283,072
|
)
|
Interest
income (3)
|
|
(11
|
)
|
U.S.
Trustee fees (4)
|
|
1,423
|
|
Restructuring
costs (5)
|
|
193,451
|
|
Total
reorganization items
|
|
$
|
(89,412
|
)
|
(1)
This amount includes gains from repudiation, rejection
or termination of contracts or guarantee of obligations. Such gains reflect
agreements reached with certain critical vendors, which were authorized by the
Bankruptcy Court and for which payments on an installment basis began in July 2009.
(2)
Such net gains include $38.0 million resulting from
the write off of existing Fair Value of debt adjustments for the entities that
emerged from bankruptcy.
(3)
Interest income primarily reflects amounts earned on
cash accumulated as a result of our Chapter 11 cases.
(4)
Estimate of fees due remain subject to confirmation
and review by the Office of the United States Trustee (U.S. Trustee).
(5)
Restructuring costs primarily include professional
fees incurred related to the bankruptcy filings, the estimated KEIP payment,
finance costs incurred by the Emerged Debtors and the write off of unamortized
deferred finance costs related to the Emerged Debtors.
Impairment
Operating
properties, land held for development and sale and developments in progress
The generally accepted
accounting principles related to accounting for the impairment or disposal of
long-lived assets require that if impairment indicators exist and the undiscounted
cash flows expected to be generated by an asset are less than its carrying
amount, an impairment provision should be recorded to write down the carrying
amount of such asset to its Fair Value. We review our consolidated and
unconsolidated real estate assets, including operating properties, land held
for development and sale and developments in progress, for potential impairment
indicators whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Impairment indicators for
our retail and other segment are assessed separately for each property and
include, but are not limited to, significant decreases in real estate property
net operating income and occupancy percentages.
Impairment indicators for
our Master Planned Communities segment are assessed separately for each
community and include, but are not limited to, significant decreases in sales
pace or average selling prices, significant increases in expected land
development and construction costs or cancellation rates, and projected losses
on expected future sales.
Impairment indicators for
pre-development costs, which are typically costs incurred during the beginning
stages of a potential development, and developments in progress are assessed by
project and include, but are not limited to, significant changes in projected
completion dates, revenues or cash flows, development costs, market factors and
sustainability of development projects.
If an indicator of
potential impairment exists, the asset is tested for recoverability by
comparing its carrying amount to the estimated future undiscounted cash
flow. The cash flow estimates used both
for determining recoverability and estimating Fair Value are inherently
judgmental and reflect current and projected trends in rental, occupancy and
capitalization rates, and estimated holding periods for the applicable
assets. Although the estimated Fair
Value of certain assets may be exceeded by the carrying amount, 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 necessary; the excess of the carrying amount of the
asset
13
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
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. The
adjusted carrying amount, which represents the new cost basis of the asset, is
depreciated over the remaining useful life of the asset.
We recorded impairment
charges related to our operating properties, land held for development and
sale, and properties under development of $11.4 million for the three months
ended March 31, 2010 and $221.7 million for the three months ended March 31,
2009, as presented in the table below.
All of these impairment charges are included in provisions for
impairment in our consolidated financial statements.
Investment in Unconsolidated Real Estate Affiliates
In accordance with the
generally accepted accounting principles related to the equity method of
accounting for investments, a series of operating losses of an investee or
other factors may indicate that a decrease in value of our investment in the
Unconsolidated Real Estate Affiliates has occurred which is
other-than-temporary. The investment in each of the Unconsolidated Real Estate
Affiliates is evaluated periodically and as deemed necessary for recoverability
and valuation declines that are other than temporary. Accordingly, in addition
to the property-specific impairment analysis that we perform on the investment
properties, land held for development and sale and developments in progress
owned by such joint ventures (as part of our investment property impairment
process described above), we also considered the ownership and distribution
preferences and limitations and rights to sell and repurchase our ownership
interests. Based on our evaluations, no
provisions for impairment were recorded for the three months ended March 31,
2010 and 2009 related to our investments in Unconsolidated Real Estate
Affiliates.
Goodwill
The excess of the cost of
an acquired entity over the net of the amounts assigned to assets acquired
(including identified intangible assets) and liabilities assumed was recorded
as goodwill. Goodwill has been recognized and allocated to specific properties
in our Retail and Other Segment since each individual rental property or each
operating property is an operating segment and considered a reporting unit. The
generally accepted accounting principles related to goodwill and other
intangible assets states that goodwill should be tested for impairment annually
or more frequently if events or changes in circumstances indicate that the
asset might be impaired. We perform this
test by first comparing the estimated Fair Value of each property with our book
value of the property, including, if applicable, its allocated portion of
aggregate goodwill. We assess Fair Value based on estimated future cash flow
projections that utilize discount and capitalization rates which are generally
unobservable in the market place (Level 3 inputs) under these principles, but
approximate the inputs we believe would be utilized by market participants in
assessing fair value. Estimates of
future cash flows are based on a number of factors including the historical
operating results, known trends, and market/economic conditions. If the
carrying amount of a property, including its goodwill, exceeds its estimated
Fair Value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. In this second step, if the
implied Fair Value of goodwill is less than the carrying amount of goodwill, an
impairment charge is recorded.
As of March 31,
2010, there were no events or changes in circumstances that would indicate that
the current carrying amount of goodwill might be impaired; accordingly, we did
not perform interim testing procedures.
As of March 31, 2009, we performed interim impairment tests of
goodwill as changes in current market and economic conditions during the first
quarter of 2009 indicated an impairment of the asset might have occurred. As a
result of the procedures performed, we recorded provisions for impairment of
goodwill for the three months ended March 31, 2009, as presented in the
table below.
General
Certain of our properties
had Fair Values less than their carrying amounts. However, based on the Companys
plans with respect to those properties, we believe that the carrying amounts
are recoverable and therefore, under applicable general accepted accounting
principles guidance, no additional impairments were taken. Nonetheless, due to the uncertain economic
environment, as well as other uncertainties, or if our plans regarding our
assets change, additional impairment charges in the future could result. Therefore, we can provide no assurance that
material impairment charges with respect to operating properties,
Unconsolidated Real Estate Affiliates, developments in progress, property held
for development and sale or goodwill will not occur in future periods. Accordingly, we will continue to monitor
circumstances and events in future periods to determine whether additional
impairments are warranted.
14
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Impaired Asset
|
|
Location
|
|
Method of Determining Fair Value
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
Retail and other:
|
|
|
|
|
|
|
|
|
|
Operating properties:
|
|
|
|
|
|
|
|
|
|
The
Pines
|
|
Pine Bluff, AR
|
|
Direct capitalization
method
|
|
$
|
11,057
|
|
$
|
|
|
Owings
Mills Mall
|
|
Owings Mills, MD
|
|
Discounted cash flow
analysis
|
|
|
|
40,308
|
|
River
Falls Mall
|
|
Clarksville, IN
|
|
Discounted cash flow
analysis
|
|
|
|
81,114
|
|
Total
operating properties
|
|
|
|
|
|
11,057
|
|
121,422
|
|
|
|
|
|
|
|
|
|
|
|
Development:
|
|
|
|
|
|
|
|
|
|
Allen
Towne Mall
|
|
Allen, TX
|
|
Projected sales price
analysis (1)
|
|
|
|
24,166
|
|
Redlands
Promenade
|
|
Redlands, CA
|
|
Projected sales price
analysis (1)
|
|
|
|
6,747
|
|
Total
development
|
|
|
|
|
|
|
|
30,913
|
|
|
|
|
|
|
|
|
|
|
|
Various
pre-development costs
|
|
|
|
(2)
|
|
293
|
|
16,600
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
(3)
|
|
|
|
109,389
|
|
Total Retail and other
|
|
|
|
|
|
11,350
|
|
278,324
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities:
|
|
|
|
|
|
|
|
|
|
Fairwood
Master Planned Community
|
|
Columbia, MD
|
|
Projected sales price
analysis (1)
|
|
|
|
52,769
|
|
Total Master Planned Communities
|
|
|
|
|
|
|
|
52,769
|
|
|
|
|
|
|
|
|
|
|
|
Total Provisions for impairment
|
|
|
|
|
|
$
|
11,350
|
|
$
|
331,093
|
|
(1) Projected sales
price analysis incorporates available market information and other management
assumptions.
(2) Related to the
write down of various pre-development costs that were determined to be
non-recoverable due to the related projects being terminated.
(3) These
impairments were primarily driven by continued increases in capitalization rate
assumptions during 2009 and reduced estimates of NOI, primarily due to the
impact of decline in the retail market on our operations.
Noncontrolling
Interests
Generally, the holders of
the Common Units share equally with our common stockholders on a per share
basis in any distributions by the Operating Partnership. However, the Operating Partnership agreement
permits distributions solely to GGP if such distributions are required to allow
GGP to comply with the REIT distribution requirements or to avoid the
imposition of excise tax. Under
circumstances, the conversion rate for each Common Unit is adjusted to give
effect to stock distributions. Under certain circumstances, the Common Units
(other than Common Units held by the parties to the Rights Agreement dated July 27,
1993, as described below) can be redeemed at the option of the holders for cash
or, at our election, shares of GGP common stock. Upon receipt of a request for
redemption by a holder of such Common Units, the Company, as general partner of
the Operating Partnership, has the option to pay the redemption price for such
Common Units with shares of common stock of the Company (subject to certain
conditions), or in cash, with a cash redemption price calculated based upon the
market price of one share of common stock of the Company at the time of
redemption. Parties to the Rights Agreement dated July 27, 1993 (the Rights
Agreement) have the right to redeem the Common Units covered by such agreement
for shares of GGP Common Stock.
All prior requests for
redemption of Common Units have been fulfilled with shares of the Companys
common stock. Notwithstanding this historical practice, the aggregate amount of
cash that would have been paid to the holders of the outstanding Common Units as
of March 31, 2010 if such holders had requested redemption of the Common
Units as of March 31, 2010, and all such Common Units were redeemed (or
purchased in the case of the Rights Agreement) for cash, would have been $116.9
million. As a result of the Chapter 11
Cases, we currently cannot redeem Common Units for cash or shares of GGP common
stock. In addition, the conditions
necessary to issue GGP common stock upon redemption of Common Units are not
currently satisfied. GAAP provides that
the redeemable noncontrolling interests are to be presented in our Consolidated
Balance Sheets at the greater of Fair Value (the conversion value of the units
based on the stock price) or the carrying amount of the units. The applicable stock price was $16.09 and $11.56
per share at March 31, 2010 and December 31, 2009, respectively. Accordingly, the redeemable noncontrolling
interests have been presented at Fair Value at March 31, 2010 and December 31,
2009.
The following table
reflects the activity of the redeemable noncontrolling interests for the three
months ended March 31, 2010 and 2009.
15
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
(In thousands)
|
|
Balance
at January 1, 2009
|
|
$
|
499,925
|
|
Net
loss
|
|
(8,777
|
)
|
Distributions
|
|
(2,336
|
)
|
Conversion
of Operating Partnership units into common shares
|
|
(324,488
|
)
|
Other
comprehensive income
|
|
9,064
|
|
Adjustment
for noncontrolling interests in Operating Partnership
|
|
(11,583
|
)
|
Balance
at March 31, 2009
|
|
$
|
161,805
|
|
|
|
|
|
Balance
at January 1, 2010
|
|
$
|
206,833
|
|
Net
income
|
|
3,524
|
|
Distributions
|
|
(2,336
|
)
|
Other
comprehensive loss
|
|
(11
|
)
|
Adjustment
for noncontrolling interests in Operating Partnership
|
|
29,637
|
|
Balance
at March 31, 2010
|
|
$
|
237,647
|
|
On January 2, 2009,
MB Capital Units LLC, pursuant to the Rights Agreement, converted 42,350,000
Common Units (approximately 13% of all outstanding Common Units, including those
owned by GGP) held in the Companys Operating Partnership into 42,350,000
shares of GGP common stock.
The Operating Partnership
has also issued Convertible Preferred Units, which are convertible, with
certain restrictions, at any time by the holder into Common Units of the
Operating Partnership at the following rates (subject to adjustment):
|
|
Number of Common Units for each
Preferred Unit
|
|
Series B
|
|
3.000
|
|
Series D
|
|
1.508
|
|
Series E
|
|
1.298
|
|
Fair Value Measurements
Fair Value is defined as
the price that would be received to sell or paid to transfer a liability in an
orderly transaction between market participants as the measurement date. 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 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 asset or liability
Fair Value measurement level within the Fair Value hierarchy is based on the
lowest level of any input that is significant to the Fair Value
measurement. Valuation techniques used
need to maximize the use of observable inputs and minimize the use of
unobservable inputs. Any Fair Values
utilized or disclosed in our consolidated financial statements were developed
for the purpose of complying with the accounting principles established for
Fair Value measurements. The Fair Values
of our assets or liabilities for enterprise value in our Chapter 11 Cases or as
a component of our reorganization plan (Note 1) may reflect differing assumptions
and methodologies. These estimates will be subject to a number of approvals and
reviews and therefore may be materially different.
As of March 31,
2010, our derivative financial instruments and our investments in marketable
securities are immaterial to our consolidated financial statements. The
following table summarizes our assets and liabilities that are measured at Fair
Value on a nonrecurring basis:
16
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
Total Fair Value
Measurement
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total (Loss) Gain
Three Months
Ended March 31,
2010
|
|
|
|
(In thousands)
|
|
Investments
in real estate:
|
|
|
|
|
|
|
|
|
|
|
|
The
Pines Mall (1)
|
|
$
|
4,100
|
|
$
|
|
|
$
|
|
|
$
|
4,100
|
|
$
|
(11,057
|
)
|
Total
investments in real estate
|
|
$
|
4,100
|
|
$
|
|
|
$
|
|
|
$
|
4,100
|
|
$
|
(11,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of emerged entity mortgage debt
|
|
$
|
6,549,361
|
|
$
|
|
|
$
|
|
|
$
|
6,549,361
|
|
$
|
245,024
|
|
Total
liabilities
|
|
$
|
6,549,361
|
|
$
|
|
|
$
|
|
|
$
|
6,549,361
|
|
$
|
245,024
|
|
(1) The Fair
Value was calculated using the direct capitalization method.
(2) The Fair Value
of debt relates to the 61 properties that emerged from bankruptcy during the
three months ended March 31, 2010.
Of the Emerged Debtors,
as of March 31, 2010 we have identified 13 properties (the Special
Consideration Properties) as underperforming retail assets. Pursuant to the terms of the agreements with
the lenders for these properties, the Debtors have until two days following
emergence of the TopCo Debtors to determine whether the collateral property for
these loans should be deeded to the respective lender or the property should be
retained with further modified loan terms.
Prior to emergence of the TopCo Debtors, all cash produced by the
property is under the control of respective lenders and we are required to pay
any operating expense shortfall. In
addition, prior to emergence of the TopCo Debtors, the respective lender can
change the manager of the property or put the property in receivership and GGP
has the right to deed the property to the lender, but no such actions have yet
occurred.
Generally accepted
accounting principles state that an entity may choose to elect the Fair Value
option for an eligible item only on the date of the event that requires Fair
Value measurement. As each of the
Special Consideration Properties emerged from Bankruptcy, we elected to measure
and report the mortgages related these properties at Fair Value from the date
of emergence because the Debtor entities of the Special Consideration
Properties have the right to return the properties to the lenders in full
satisfaction of the related debt.
Accordingly, the Fair Value of the mortgage liability should not exceed
the Fair Value of the underlying property.
See our disclosure of Impairment - Operating properties, land held for
development and sale and developments in progress for more detail regarding the
methodology used in determining the Fair Value of these properties.
Of the Special
Consideration Properties, five of the properties had emerged as of December 31,
2009 for which we recorded a gain in reorganization items of $54.2 million for
the year ended December 31, 2009, while the remaining eight properties
emerged during the three months ended March 31, 2010 for which we recorded
a gain in reorganization items of $69.3 million. Any subsequent changes in the Fair Value of
the mortgages related these properties will be recorded in interest expense as
these entities have emerged from Bankruptcy.
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Special
Consideration Properties (elected for Fair Value option)
|
|
$
|
626,273
|
|
$
|
316,966
|
|
Similar
eligible debt (not elected for Fair Value option)
|
|
6,390,408
|
|
4,233,747
|
|
Debt
not eligible for Fair Value option
|
|
7,224,586
|
|
3,010,301
|
|
Market
rate adjustments
|
|
(452,219
|
)
|
(260,242
|
)
|
Total
Mortgages, notes and loans payable, not subject to compromise
|
|
$
|
13,789,048
|
|
$
|
7,300,772
|
|
The unpaid debt balance,
Fair Value estimates, Fair Value measurements, gain (in reorganization items)
and interest expense for the three months ended and for the year ended March 31,
2010 are as follows:
|
|
Unpaid Debt
Balance of Special
Consideration
Properties
|
|
Fair Value
Estimate of Special
Consideration
Properties
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total Gain
Three Months Ended
March 31, 2010
|
|
Interest
Expense
|
|
|
|
(In thousands)
|
|
Mortgages,
notes and loans payable, not subject to compromise
|
|
$
|
749,782
|
|
$
|
626,273
|
|
$
|
626,273
|
|
$
|
69,335
|
|
$
|
5,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
(In thousands)
|
|
Balance
at January 1, 2010
|
|
$
|
316,966
|
|
Additions
during the period - Special Consideration Properties
|
|
309,307
|
|
Balance
at March 31, 2010
|
|
$
|
626,273
|
|
Fair Value of Financial
Instruments
The Fair Values of our
financial instruments approximate their carrying amount in our financial
statements except for debt.
Notwithstanding that we do not believe that a fully-functioning market
for real property financing exists currently, GAAP guidance requires that
management estimate the Fair Value of our debt. However, as a result of the
Companys Chapter 11 filing, the Fair Value for the outstanding debt that is
included in liabilities subject to compromise in our Consolidated Balance
Sheets cannot be reasonably determined at March 31, 2010 as the timing and
amounts to be paid are subject to confirmation by the Bankruptcy Court. For the $13.79 billion of mortgages, notes
and loans payable outstanding that are not subject to compromise at March 31,
2010, managements required estimates of Fair Value are presented below. This Fair Value was estimated solely for
financial statement reporting purposes and should not be used for any other
17
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
purposes, including to
estimate the value of any of the Companys securities or to estimate the
appropriate interest rate for consensual and non-consensual restructuring of
secured debt in our Chapter 11 Cases. We estimated the Fair Value of this debt
based on quoted market prices for publicly-traded debt, recent financing
transactions (which may not be comparable), 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), a
widely quoted market interest rate which is frequently the index used to
determine the rate at which we borrow funds and US 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,
or, in the case of the Emerged Debtors, recorded due to GAAP bankruptcy
emergence guidance. Since such amounts
are estimates that are based on limited available market information for
similar 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 of such debt could be realized by immediate
settlement of the obligation.
|
|
March 31, 2010
|
|
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
|
|
(In
millions)
|
|
Fixed-rate
debt
|
|
$
|
13,789
|
|
$
|
13,964
|
|
Variable-rate
debt
|
|
|
|
|
|
|
|
$
|
13,789
|
|
$
|
13,964
|
|
Derivative
Financial Instruments
As of January 1,
2009, we adopted the generally accepted accounting principles related to
disclosures about derivative instruments and hedging activities which requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about the Fair Value of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative instruments.
We use derivative
financial instruments to reduce risk associated with movement in interest
rates. We may choose or be required by lenders to reduce cash flow and
earnings volatility associated with interest rate risk exposure on
variable-rate borrowings and/or forecasted fixed-rate borrowings by entering
into interest rate swaps or interest rate caps. We do not use derivative
financial instruments for speculative purposes. During the first quarter of
2009, our interest rate swaps no longer qualified as highly effective and
therefore no longer qualified for hedge accounting treatment as the Company
made the decision not to pay future settlement payments under such swaps. As a
result of the terminations of the swaps, we incurred termination fees of $34.8
million. Accordingly, we reduced the
liability associated with these derivative financial instruments during the
first and second quarter of 2009 (included
in interest expense in our
consolidated financial statements) which
for the three months ended March 31, 2009
resulted in a reduction in interest expense of $13.1 million. As
the interest payments on the hedged debt remain probable, the net balance
in the gain or loss in accumulated other comprehensive (loss) income of $(27.7)
million that existed as of December 31, 2008 remains in
accumulated other comprehensive (loss) income and is amortized to interest
expense as the hedged forecasted transactions impact earnings or
are deemed probable not to occur. The amortization of the accumulated
other comprehensive (loss) income resulted in additional interest expense of
$4.5 million for the three months ended March 31, 2010 and March 31,
2009.
Under interest rate cap
agreements, we make initial premium payments to the counterparties in exchange
for the right to receive payments from them if interest rates exceed specified
levels during the agreement period. Notional principal amounts are used to
express the volume of these transactions, but the cash requirements and amounts
subject to credit risk are substantially less. We had no interest rate cap
derivatives for our Consolidated Properties as of March 31, 2010 while as
of March 31, 2009, we had three outstanding interest rate cap derivatives
that were designated as cash flow hedges of interest rate risk with a notional
value of $1.13 billion.
Parties to interest rate
exchange agreements are subject to market risk for changes in interest rates
and risk of credit loss in the event of nonperformance by the
counterparty. We do not require any collateral under these
18
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
agreements, but deal only
with well known financial institution counterparties (which, in certain cases,
are also the lenders on the related debt) and expect that all counterparties
will meet their obligations.
We have not recognized
any losses as a result of hedge discontinuance and the expense that we recognized
related to changes in the time value of interest rate cap agreements were
insignificant for 2010 and 2009.
Revenue Recognition and Related Matters
Minimum rent revenues are
recognized on a straight-line basis over the terms of the related leases.
Minimum rent revenues also include amounts collected from tenants to allow the
termination of their leases prior to their scheduled termination dates and
accretion related to above and below-market tenant leases on acquired
properties. Termination income recognized was $9.5 million for the three months
ended March 31, 2010 and $7.4 million for the three months ended March 31,
2009. Net accretion related to above and below-market tenant leases was $1.3
million for the three months ended March 31, 2010 and $0.9 million for the
three months ended March 31, 2009.
Straight-line
rent receivables, which represent the current net cumulative rents recognized
prior to when billed and collectible as provided by the terms of the leases,
of $265.3 million as of March 31, 2010 and $236.8 million as of March 31,
2009, are included in Accounts and notes receivable, net in our consolidated
financial statements.
Percentage
rent in lieu of fixed minimum rent received from tenants was $13.6 million for
the three months ended March 31, 2010 and $11.4 million for the three
months ended March 31, 2009, and is included in Minimum Rents in our
consolidated financial statements.
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 periods. For example, 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 acquisitions, impairment of long-lived assets and goodwill, Fair
Value of debt of the Emerged Debtors and cost ratios and completion percentages
used for land sales. Actual results could differ from these and other
estimates.
Earnings
Per Share (EPS)
Information
related to our EPS calculations is summarized as follows:
19
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
|
|
(In thousands)
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
55,841
|
|
$
|
55,841
|
|
$
|
(404,145
|
)
|
$
|
(404,145
|
)
|
Allocation
to noncontrolling interests
|
|
(4,185
|
)
|
(4,185
|
)
|
8,120
|
|
8,120
|
|
Income
(loss) from continuing operations - net of noncontrolling interests
|
|
51,656
|
|
51,656
|
|
(396,025
|
)
|
(396,025
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - loss on dispositions
|
|
|
|
|
|
(55
|
)
|
(55
|
)
|
Allocation
to noncontrolling interests
|
|
|
|
|
|
(2
|
)
|
(2
|
)
|
Discontinued
operations - net of noncontrolling interests
|
|
|
|
|
|
(57
|
)
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
51,841
|
|
51,841
|
|
(404,200
|
)
|
(404,200
|
)
|
Allocation
to noncontrolling interests
|
|
(4,185
|
)
|
(4,185
|
)
|
8,118
|
|
8,118
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
51,656
|
|
$
|
51,656
|
|
$
|
(396,082
|
)
|
$
|
(396,082
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
outstanding
|
|
315,773
|
|
315,773
|
|
310,868
|
|
310,868
|
|
Effect
of dilutive securities - stock options
|
|
|
|
1,297
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
315,773
|
|
317,070
|
|
310,868
|
|
310,868
|
|
Diluted EPS excludes
options where the exercise price was higher than the average market price of
our common stock, and therefore would have an anti-dilutive effect. Such
options totaled 3,565,184 shares as of March 31, 2010 and 4,966,829 as of
March 31, 2009. Outstanding Common Units have also been excluded from the
diluted earnings per share calculation because including such Common Units
would also require that the share of GGPLP income attributable to such Common
Units be added back to net income therefore resulting in no effect on EPS.
Finally, the impact of the exchange feature of the exchangeable senior notes
that were issued in April 2007 is also excluded from EPS because the
conditions for exchange were not satisfied as of March 31, 2009, and while
the conditions for exchange were met as of March 31, 2010, as a result of
the Chapter 11 Cases, the holders of such notes are stayed from exercising such
exchange rights absent an order from the Bankruptcy Court.
Debt
Market Rate Adjustments
We record market rate
adjustments related to our mortgages, notes and loans payable primarily for
debt held by the Debtors upon emergence from bankruptcy, with the exception of
the Special Consideration Properties. Such debt market rate adjustments
are recorded based on the estimated Fair Value of the debt at the time of
emergence and are recorded within mortgages, notes and loans payable on our
Consolidated Balance Sheets. The debt market rate adjustments are
amortized as interest expense over the remaining term of the loans.
Transactions with Affiliates
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 and for
properties owned by third parties. Fees earned from the Unconsolidated
Properties totaled $15.8 million for the three months ended March 31, 2010
and $18.3 million for the three months ended March 31, 2009. Such fees are
recognized as revenue when earned.
20
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTE
2 INTANGIBLE ASSETS AND
LIABILITIES
The following table summarizes our intangible assets
and liabilities:
|
|
Gross Asset
(Liability)
|
|
Accumulated
(Amortization)/
Accretion
|
|
Net Carrying
Amount
|
|
|
|
(In thousands)
|
|
As of March 31, 2010
|
|
|
|
|
|
|
|
Tenant
leases:
|
|
|
|
|
|
|
|
In-place
value
|
|
$
|
526,006
|
|
$
|
(334,905
|
)
|
$
|
191,101
|
|
Above-market
|
|
80,213
|
|
(48,853
|
)
|
31,360
|
|
Below-market
|
|
(144,922
|
)
|
85,893
|
|
(59,029
|
)
|
Ground
leases:
|
|
|
|
|
|
|
|
Above-market
|
|
(16,968
|
)
|
2,542
|
|
(14,426
|
)
|
Below-market
|
|
271,602
|
|
(31,394
|
)
|
240,208
|
|
Real
estate tax stabilization agreement
|
|
91,879
|
|
(21,253
|
)
|
70,626
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
Tenant
leases:
|
|
|
|
|
|
|
|
In-place
value
|
|
$
|
539,257
|
|
$
|
(335,310
|
)
|
$
|
203,947
|
|
Above-market
|
|
94,194
|
|
(59,855
|
)
|
34,339
|
|
Below-market
|
|
(149,978
|
)
|
86,688
|
|
(63,290
|
)
|
Ground
leases:
|
|
|
|
|
|
|
|
Above-market
|
|
(16,968
|
)
|
2,423
|
|
(14,545
|
)
|
Below-market
|
|
271,602
|
|
(29,926
|
)
|
241,676
|
|
Real
estate tax stabilization agreement
|
|
91,879
|
|
(20,272
|
)
|
71,607
|
|
The gross asset balances
of the in-place value of tenant leases are included in Buildings and equipment
in our Consolidated Balance Sheets. The above-market and below-market tenant
and ground leases are included in Prepaid expenses and other assets and
Accounts payable and accrued expenses (Note 7) in our consolidated financial
statements. The decrease in the gross
asset (liability) accounts at March 31, 2010 compared to December 31,
2009 is primarily due to the write-off of fully amortized assets/(liabilities)
in the three months ended March 31, 2010.
Amortization/accretion of
these intangible assets and liabilities, and similar assets and liabilities
from our Unconsolidated Real Estate Affiliates at our share, decreased our
income (excluding the impact of noncontrolling interests and the provision for
income taxes) by $16.6 million for the three months ended March 31, 2010
and $14.5 million for the three months ended March 31, 2009. Future amortization, including our share of
such items from Unconsolidated Real Estate Affiliates, is estimated to decrease
net income (excluding the impact of noncontrolling interests and the provision
for income taxes) by approximately $57.4 million in 2010, $44.1 million in
2011, $36.6 million in 2012, $30.5 million in 2013 and $31.1 million in 2014.
NOTE
3 UNCONSOLIDATED REAL
ESTATE AFFILIATES
The Unconsolidated Real
Estate Affiliates include our noncontrolling investments in real estate joint
ventures. 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. As we have joint interest and control
of these ventures with our venture partners and they have substantive
participating rights in such ventures, we account for these joint ventures
using the equity method. Some of the joint
ventures have elected to be taxed as REITs.
As described in Note 1, at March 31, 2010, we have two joint
venture investments located outside the U.S.
These investments, with an aggregate carrying amount of $231.2 million
at March 31, 2010 and $214.4 million at December 31, 2009, are
managed by the respective joint venture partners in each country. As we also have substantial participation
rights with respect to these international joint ventures, we account for them
on the equity method. Lastly, during March 2010,
we closed on the sale of our Costa Rica investment for $7.5 million, yielding a
gain of $0.9 million.
Generally, we anticipate
that the 2010 operations of our joint venture properties will support the
operational cash needs of the properties, including debt service payments, with
the exception of two properties (Silver City
21
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
and Montclair) owned by
our Unconsolidated Real Estate Affiliates with approximately $393.5 million of non-recourse
secured mortgage debt, of which our share is $198.1 million, that we have
identified as underperforming assets. With respect to each of the properties
owned by such Unconsolidated Real Estate Affiliates, all cash produced by such
properties are under the control of the applicable lender. In the event we are unable to satisfactorily
modify the terms of each of the loans associated with these properties, the
collateral property for any such loan we are unable to satisfactorily
restructure may be deeded to the respective lender in full satisfaction of the
related debt.
On May 3, 2010, the
joint venture that owned the Highland Mall located in Austin, Texas conveyed
the property to the lender in full satisfaction of the non-recourse mortgage
loan secured by the property. Such
conveyance yielded to the Highland joint venture a gain on forgiveness of debt
of approximately $55 million. Our
allocable share of such gains was approximately $27 million, with such gains
yielding an equal increase in our investment account. Immediately subsequent to the conveyance, GGP
wrote-off the balance of its investment in Highland, yielding a nominal gain on
our investment in such joint venture.
In June and July,
2009 we made capital contributions of $28.7 million and $57.5 million,
respectively, to fund our portion of $172.2 million of joint venture mortgage
debt which had reached maturity. As of March 31,
2010, $6.22 billion of indebtedness was secured by our Unconsolidated
Properties, our proportionate share of which was $2.94 billion. There can be no assurance that we 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.
In certain circumstances,
we have debt obligations in excess of our pro rata 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 pro rata share of the non-recourse mortgage
indebtedness of such Unconsolidated Real Estate Affiliates. The proceeds of the
Retained Debt which are distributed to us are included as a reduction in our
investment in Unconsolidated Real Estate Affiliates. Such Retained Debt totaled $157.5 million as
of March 31, 2010 and $158.2 million as of December 31, 2009, and has
been reflected as a reduction in our investment in Unconsolidated Real Estate
Affiliates. We are obligated to
contribute funds 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, could be reduced to the extent of such deficiencies. As of March 31, 2010, we do not
anticipate an inability to perform on our obligations with respect to such
Retained Debt.
In certain other
circumstances, the Company, in connection with the debt obligations of certain
Unconsolidated Real Estate Affiliates, has agreed to provide supplemental
guarantees or master-lease commitments to provide to the debt holders
additional credit-enhancement or security.
As of March 31, 2010, we do not expect to be required to perform
pursuant to any of such supplemental credit-enhancement provisions for our
Unconsolidated Real Estate Affiliates, either due to estimates of the current
obligations represented by such provisions or as a result of the protections
afforded us through our Chapter 11 Cases.
The significant
accounting policies used by the Unconsolidated Real Estate Affiliates are the same
as ours.
On January 29, 2010,
our Brazilian joint venture, Aliansce Shopping Centers S.A. (Aliansce),
commenced trading on the Brazilian Stock Exchange, or BM&FBovespa, as a
result of an initial public offering of Aliansces common shares in Brazil (the
Aliansce IPO). Although we did not sell any of our Aliansce shares in
the Aliansce IPO, our ownership interest in Aliansce was diluted from 49% to
approximately 31% as a result of the stock sold in the Aliansce IPO. We will continue to apply the equity method
of accounting to our ownership interest in Aliansce. Generally accepted accounting principles state
that as an equity method investor, we need to account for the shares issued by Aliansce
as if we had sold a proportionate share of our investment at the issuance price
per share of the Aliansce IPO.
Accordingly, we recognized a gain of $15.3 million in the three months
ended March 31, 2010 which is reflected in equity in income of
Unconsolidated Real Estate Affiliates.
22
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Condensed Combined Financial
Information of Unconsolidated Real Estate Affiliates
Following is summarized
financial information for our Unconsolidated Real Estate Affiliates as of March 31,
2010 and December 31, 2009 and for the three months ended March 31,
2010 and 2009. Certain amounts in the
2009 condensed combined financial information have been reclassified to conform
to the current period presentation.
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Condensed Combined Balance Sheets
- Unconsolidated Real Estate Affiliates
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
891,016
|
|
$
|
901,387
|
|
Buildings and equipment
|
|
8,009,387
|
|
7,924,577
|
|
Less accumulated depreciation
|
|
(1,749,048
|
)
|
(1,691,362
|
)
|
Developments in progress
|
|
261,364
|
|
333,537
|
|
Net property and equipment
|
|
7,412,719
|
|
7,468,139
|
|
Investment in unconsolidated joint ventures
|
|
533,496
|
|
452,291
|
|
Investment property and property held for
development and sale
|
|
257,369
|
|
266,253
|
|
Net investment in real estate
|
|
8,203,584
|
|
8,186,683
|
|
Cash and cash equivalents
|
|
482,188
|
|
275,018
|
|
Accounts and notes receivable, net
|
|
224,783
|
|
226,385
|
|
Deferred expenses, net
|
|
195,509
|
|
197,663
|
|
Prepaid expenses and other assets
|
|
160,637
|
|
209,568
|
|
Total assets
|
|
$
|
9,266,701
|
|
$
|
9,095,317
|
|
|
|
|
|
|
|
Liabilities and Owners Equity:
|
|
|
|
|
|
Mortgages, notes and loans payable
|
|
$
|
6,310,003
|
|
$
|
6,358,718
|
|
Accounts payable, accrued expenses and other
liabilities
|
|
438,078
|
|
490,814
|
|
Owners equity
|
|
2,518,620
|
|
2,245,785
|
|
Total liabilities and owners equity
|
|
$
|
9,266,701
|
|
$
|
9,095,317
|
|
|
|
|
|
|
|
Investment In and Loans To/From
Unconsolidated Real Estate Affiliates, Net:
|
|
|
|
|
|
Owners equity
|
|
$
|
2,518,620
|
|
$
|
2,245,785
|
|
Less joint venture partners equity
|
|
(2,157,922
|
)
|
(1,935,689
|
)
|
Capital or basis differences and loans
|
|
1,590,340
|
|
1,630,928
|
|
Investment in and loans to/from
|
|
|
|
|
|
Unconsolidated Real Estate Affiliates, net
|
|
$
|
1,951,038
|
|
$
|
1,941,024
|
|
|
|
|
|
|
|
Reconciliation - Investment In
and Loans To/From Unconsolidated Real Estate Affiliates:
|
|
|
|
|
|
Asset - Investment in and loans to/from Unconsolidated
Real Estate Affiliates
|
|
$
|
1,990,367
|
|
$
|
1,979,313
|
|
Liability - Investment in and loans to/from Unconsolidated
Real Estate Affiliates
|
|
(39,329
|
)
|
(38,289
|
)
|
Investment in and loans to/from Unconsolidated
Real Estate Affiliates, net
|
|
$
|
1,951,038
|
|
$
|
1,941,024
|
|
23
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Condensed Combined Statements of
Income - Unconsolidated Real Estate Affiliates
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
|
$
|
191,766
|
|
$
|
189,660
|
|
Tenant recoveries
|
|
83,318
|
|
86,597
|
|
Overage rents
|
|
2,610
|
|
1,559
|
|
Land sales
|
|
24,066
|
|
9,716
|
|
Management and other fees
|
|
8,242
|
|
7,317
|
|
Other
|
|
21,420
|
|
23,165
|
|
Total revenues
|
|
331,422
|
|
318,014
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Real estate taxes
|
|
26,158
|
|
27,077
|
|
Property maintenance costs
|
|
11,451
|
|
10,331
|
|
Marketing
|
|
3,255
|
|
3,118
|
|
Other property operating costs
|
|
58,768
|
|
64,000
|
|
Land sales operations
|
|
18,366
|
|
10,097
|
|
Provision for doubtful accounts
|
|
2,933
|
|
2,592
|
|
Property management and other costs
|
|
19,207
|
|
18,775
|
|
General and administrative
|
|
1,251
|
|
7,860
|
|
Provisions for impairment
|
|
|
|
2,900
|
|
Depreciation and amortization
|
|
67,853
|
|
67,473
|
|
Total expenses
|
|
209,242
|
|
214,223
|
|
Operating income
|
|
122,180
|
|
103,791
|
|
|
|
|
|
|
|
Interest income
|
|
1,338
|
|
1,768
|
|
Interest expense
|
|
(87,490
|
)
|
(84,645
|
)
|
Benefit from (provision for) income taxes
|
|
270
|
|
(240
|
)
|
Equity in income of unconsolidated joint ventures
|
|
17,327
|
|
7,773
|
|
Income from continuing operations
|
|
53,625
|
|
28,447
|
|
Allocation to noncontrolling interests
|
|
(142
|
)
|
(287
|
)
|
Net income attributable to joint venture partners
|
|
$
|
53,483
|
|
$
|
28,160
|
|
|
|
|
|
|
|
Equity In Income of
Unconsolidated Real Estate Affiliates:
|
|
|
|
|
|
Net income attributable to joint venture partners
|
|
$
|
53,483
|
|
$
|
28,160
|
|
Joint venture partners share of income
|
|
(22,801
|
)
|
(15,063
|
)
|
Amortization of capital or basis differences
|
|
(12,197
|
)
|
(5,257
|
)
|
Gain on Aliansce IPO
|
|
15,266
|
|
|
|
Elimination of Unconsolidated Real Estate
Affiliates loan interest
|
|
|
|
(302
|
)
|
Equity in income of Unconsolidated Real Estate
Affiliates
|
|
$
|
33,751
|
|
$
|
7,538
|
|
Condensed Financial Information
of Individually Significant Unconsolidated Real Estate Affiliates
Following is summarized
financial information for GGP/Homart II L.L.C. (GGP/Homart II), GGP-TRS
L.L.C. (GGP/Teachers) and The Woodlands Land Development Holdings, L.P. (The
Woodlands Partnership). We account for these joint ventures using the equity
method because we have joint interest and control of these ventures with our
venture partners and they have substantive participating rights in such
ventures. For financial reporting purposes, we consider each of these joint
ventures to be an individually significant Unconsolidated Real Estate
Affiliate. Our investment in such affiliates varies from a strict ownership
percentage due to capital or basis differences or loans and related
amortization.
24
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
GGP/Homart II
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
238,164
|
|
$
|
238,164
|
|
Buildings and equipment
|
|
2,783,457
|
|
2,783,869
|
|
Less accumulated depreciation
|
|
(547,925
|
)
|
(526,985
|
)
|
Developments in progress
|
|
5,335
|
|
5,129
|
|
Net investment in real estate
|
|
2,479,031
|
|
2,500,177
|
|
Cash and cash equivalents
|
|
85,481
|
|
70,417
|
|
Accounts and notes receivable, net
|
|
48,310
|
|
47,843
|
|
Deferred expenses, net
|
|
92,169
|
|
92,439
|
|
Prepaid expenses and other assets
|
|
15,941
|
|
20,425
|
|
Total assets
|
|
$
|
2,720,932
|
|
$
|
2,731,301
|
|
|
|
|
|
|
|
Liabilities and Capital:
|
|
|
|
|
|
Mortgages, notes and loans payable
|
|
$
|
2,239,040
|
|
$
|
2,245,582
|
|
Accounts payable, accrued expenses and other
liabilities
|
|
56,523
|
|
63,923
|
|
Capital
|
|
425,369
|
|
421,796
|
|
Total liabilities and capital
|
|
$
|
2,720,932
|
|
$
|
2,731,301
|
|
|
|
GGP/Homart II
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
|
$
|
61,589
|
|
$
|
61,625
|
|
Tenant recoveries
|
|
26,731
|
|
28,800
|
|
Overage rents
|
|
815
|
|
521
|
|
Other
|
|
1,755
|
|
1,958
|
|
Total revenues
|
|
90,890
|
|
92,904
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Real estate taxes
|
|
8,521
|
|
9,315
|
|
Property maintenance costs
|
|
3,208
|
|
2,903
|
|
Marketing
|
|
1,062
|
|
1,166
|
|
Other property operating costs
|
|
12,641
|
|
12,816
|
|
Provision for doubtful accounts
|
|
875
|
|
736
|
|
Property management and other costs
|
|
5,568
|
|
5,763
|
|
General and administrative
|
|
70
|
|
125
|
|
Provisions for impairment
|
|
|
|
511
|
|
Depreciation and amortization
|
|
24,961
|
|
24,748
|
|
Total expenses
|
|
56,906
|
|
58,083
|
|
Operating income
|
|
33,984
|
|
34,821
|
|
|
|
|
|
|
|
Interest income
|
|
82
|
|
1,343
|
|
Interest expense
|
|
(30,330
|
)
|
(30,258
|
)
|
Provision for income taxes
|
|
(162
|
)
|
(106
|
)
|
Net income
|
|
3,574
|
|
5,800
|
|
Allocation to noncontrolling interests
|
|
49
|
|
2
|
|
Net income attributable to joint venture partners
|
|
$
|
3,623
|
|
$
|
5,802
|
|
25
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
GGP/Teachers
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
195,833
|
|
$
|
195,832
|
|
Buildings and equipment
|
|
1,071,679
|
|
1,071,748
|
|
Less accumulated depreciation
|
|
(161,352
|
)
|
(153,778
|
)
|
Developments in progress
|
|
2,791
|
|
3,586
|
|
Net investment in real estate
|
|
1,108,951
|
|
1,117,388
|
|
Cash and cash equivalents
|
|
8,531
|
|
6,663
|
|
Accounts and notes receivable, net
|
|
17,988
|
|
17,622
|
|
Deferred expenses, net
|
|
42,181
|
|
42,941
|
|
Prepaid expenses and other assets
|
|
7,309
|
|
7,216
|
|
Total assets
|
|
$
|
1,184,960
|
|
$
|
1,191,830
|
|
|
|
|
|
|
|
Liabilities and Members Capital:
|
|
|
|
|
|
Mortgages, notes and loans payable
|
|
$
|
1,009,778
|
|
$
|
1,011,700
|
|
Accounts payable, accrued expenses and other
liabilities
|
|
30,180
|
|
32,914
|
|
Members Capital
|
|
145,002
|
|
147,216
|
|
Total liabilities and members capital
|
|
$
|
1,184,960
|
|
$
|
1,191,830
|
|
|
|
GGP/Teachers
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
|
$
|
26,331
|
|
$
|
26,239
|
|
Tenant recoveries
|
|
12,760
|
|
12,893
|
|
Overage rents
|
|
354
|
|
157
|
|
Other
|
|
561
|
|
493
|
|
Total revenues
|
|
40,006
|
|
39,782
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Real estate taxes
|
|
3,868
|
|
3,661
|
|
Property maintenance costs
|
|
1,437
|
|
1,389
|
|
Marketing
|
|
499
|
|
601
|
|
Other property operating costs
|
|
5,997
|
|
5,981
|
|
Provision for doubtful accounts
|
|
355
|
|
630
|
|
Property management and other costs
|
|
2,243
|
|
2,297
|
|
General and administrative
|
|
61
|
|
64
|
|
Depreciation and amortization
|
|
9,564
|
|
10,240
|
|
Total expenses
|
|
24,024
|
|
24,863
|
|
Operating income
|
|
15,982
|
|
14,919
|
|
|
|
|
|
|
|
Interest income
|
|
1
|
|
2
|
|
Interest expense
|
|
(14,065
|
)
|
(13,644
|
)
|
Benefit from (provision for) income taxes
|
|
762
|
|
(2
|
)
|
Net income attributable to joint venture partners
|
|
$
|
2,680
|
|
$
|
1,275
|
|
26
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
The Woodlands Partnership
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
19,841
|
|
$
|
19,841
|
|
Buildings and equipment
|
|
131,120
|
|
101,119
|
|
Less accumulated depreciation
|
|
(15,005
|
)
|
(14,105
|
)
|
Developments in progress
|
|
3,522
|
|
31,897
|
|
Investment property and property held for
development and sale
|
|
257,369
|
|
266,253
|
|
Net investment in real estate
|
|
396,847
|
|
405,005
|
|
Cash and cash equivalents
|
|
30,541
|
|
30,373
|
|
Accounts and notes receivable, net
|
|
8,214
|
|
4,660
|
|
Deferred expenses, net
|
|
385
|
|
593
|
|
Prepaid expenses and other assets
|
|
32,487
|
|
30,275
|
|
Total assets
|
|
$
|
468,474
|
|
$
|
470,906
|
|
|
|
|
|
|
|
Liabilities and Owners Equity:
|
|
|
|
|
|
Mortgages, notes and loans payable
|
|
$
|
277,764
|
|
$
|
281,964
|
|
Accounts payable, accrued expenses and other
liabilities
|
|
(121
|
)
|
629
|
|
Owners equity
|
|
190,831
|
|
188,313
|
|
Total liabilities and owners equity
|
|
$
|
468,474
|
|
$
|
470,906
|
|
|
|
The Woodlands Partnership
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
|
$
|
899
|
|
$
|
1,312
|
|
Land sales
|
|
24,066
|
|
9,716
|
|
Other
|
|
2,166
|
|
2,280
|
|
Total revenues
|
|
27,131
|
|
13,308
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Real estate taxes
|
|
485
|
|
91
|
|
Property maintenance costs
|
|
(289
|
)
|
249
|
|
Other property operating costs
|
|
2,459
|
|
3,844
|
|
Land sales operations
|
|
18,366
|
|
10,097
|
|
Depreciation and amortization
|
|
900
|
|
725
|
|
Total expenses
|
|
21,921
|
|
15,006
|
|
Operating income (loss)
|
|
5,210
|
|
(1,698
|
)
|
|
|
|
|
|
|
Interest income
|
|
128
|
|
210
|
|
Interest expense
|
|
(993
|
)
|
(895
|
)
|
Provision for income taxes
|
|
(206
|
)
|
(84
|
)
|
Net income (loss) attributable to joint venture
partners
|
|
$
|
4,139
|
|
$
|
(2,467
|
)
|
27
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTE 4 MORTGAGES,
NOTES AND LOANS PAYABLE
Mortgages, notes and
loans payable are summarized as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In
thousands)
|
|
Fixed-rate
debt:
|
|
|
|
|
|
Collateralized
mortgages, notes and loans payable
|
|
$
|
15,042,159
|
|
$
|
15,446,962
|
|
Corporate
and other unsecured term loans
|
|
3,731,663
|
|
3,724,463
|
|
|
|
|
|
|
|
Total
fixed-rate debt
|
|
18,773,822
|
|
19,171,425
|
|
|
|
|
|
|
|
Variable-rate debt:
|
|
|
|
|
|
Collateralized
mortgages, notes and loans payable
|
|
2,500,543
|
|
2,500,892
|
|
Corporate
and other unsecured term loans
|
|
2,783,700
|
|
2,783,700
|
|
|
|
|
|
|
|
Total
variable-rate debt
|
|
5,284,243
|
|
5,284,592
|
|
|
|
|
|
|
|
Total
Mortgages, notes and loans payable
|
|
24,058,065
|
|
24,456,017
|
|
|
|
|
|
|
|
Less:
Mortgages, notes and loans payable subject to compromise
|
|
(10,269,017
|
)
|
(17,155,245
|
)
|
Total
mortgages, notes and loans payable not subject to compromise
|
|
$
|
13,789,048
|
|
$
|
7,300,772
|
|
As previously discussed,
on April 16 and 22, 2009, the Debtors filed voluntary petitions for relief
under Chapter 11, which triggered defaults on substantially all debt
obligations of the Debtors. However, under section 362 of Chapter 11, the
filing of a bankruptcy petition automatically stays most actions against the
debtors estate. These pre-petition liabilities are subject to settlement under
a plan of reorganization, and therefore are presented as Liabilities subject to
compromise on the Consolidated Balance Sheet. The $13.79 billion that is not
subject to compromise as of March 31, 2010 consists primarily of the
collateralized mortgages of the Non-Debtors, the Emerged Debtors and the DIP
Facility.
As discussed in Note 1,
in regard to the Track 1 Plans, a total of 215 Debtors owning 111 properties
with $11.54 billion of secured mortgage debt emerged from bankruptcy as of March 31,
2010. Of the Emerged Debtors, 102
Debtors owning 61 properties with $6.88 billion of secured mortgage debt
emerged from bankruptcy during the three months ended March 31, 2010,
while 113 Debtors owning 50 properties with $4.66 billion secured debt had
emerged from bankruptcy as of December 31, 2009. The Track 1 Plans for such Emerged Debtors
provided for, in exchange for payment of certain extension fees and cure of
previously unpaid amounts due on the applicable mortgage loans (primarily,
principal amortization otherwise scheduled to have been paid since the Petition
Date), the extension of the secured mortgage loans at previously existing
non-default interest rates. As a result of the extensions, none of these loans
will have a maturity prior to January 1, 2014 and the weighted average
remaining duration of the secured loans associated with these properties as of March 31,
2010 is 4.63 years. In conjunction with these extensions, certain financial and
operating covenants and guarantees were created or reinstated, all to be
effective with the bankruptcy emergence of the Remaining Debtors.
Also in conjunction with
these extensions, the Special Consideration Properties have until two days
following emergence of the TopCo Debtors to determine whether the collateral
property should be deeded to the respective lender or the property should be
retained with further modified loan terms.
Prior to emergence of the TopCo Debtors, the lenders related to the
Special Consideration Properties control all cash produced by the property and
we are required to pay any operating expense shortfall. In addition, prior to emergence of the TopCo
Debtors, the respective lender can change the manager of the property or put
the property in receivership and GGP has an unrestricted right to deed the
property to the lender. As of March 31,
2010, the 13 Special Consideration Properties with $749.8 million in secured
debt have emerged from bankruptcy.
The weighted-average
interest rate including the effects of interest rate swaps, excluding the
effects of deferred finance costs and using the contract rate prior to any
defaults on such loans, on our collateralized mortgages, notes and loans
payable was 5.29% at March 31, 2010 and 5.31% at December 31,
2009. The weighted average interest
rate, using the contract rate prior to any defaults on such loans, on the
remaining corporate unsecured fixed and variable rate debt and the revolving
credit facility was 4.21% at March 31, 2010 and 4.24% at December 31,
2009. With respect to those loans and Debtors that remain in bankruptcy at March 31,
2010, we are currently recognizing interest expense on our loans based on
contract rates in effect prior to bankruptcy as the Bankruptcy Court has ruled
that interest payments based on such contract rates constitutes adequate
protection to the secured lenders.
28
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Collateralized
Mortgages, Notes and Loans Payable
As of March 31,
2010, $23.84 billion of land, buildings and equipment and developments in
progress (before accumulated depreciation) have been pledged as collateral for
our mortgages, notes and loans payable. Certain of these secured loans,
representing $3.31 billion of debt, are cross-collateralized with other
properties. Although substantially all
of the $17.54 billion of fixed and variable rate collateralized mortgages,
notes and loans payable are non-recourse, $2.90 billion of such mortgages,
notes and loans payable are recourse due to guarantees or other security
provisions for the benefit of the note holder. Enforcement of substantially all
of these security provisions are stayed by our Chapter 11 cases. In addition, certain mortgage loans as of March 31,
2010 contain other credit enhancement provisions (primarily master leases for
all or a portion of the property) which have been provided by Remaining Debtors
upon which we do not expect to be required to perform during the pendency of
our Chapter 11 Cases. Certain mortgage notes 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.
Corporate and Other Unsecured
Loans
The TopCo Debtors have
certain unsecured debt obligations which are described below. Although the contractual terms of such loans
are summarized below, as a result of the Chapter 11 Cases, the TopCo Debtors
are not paying dividends nor are they paying interest on such obligations.
Satisfaction of these obligations will be addressed in the TopCo Debtors plan
of reorganization.
In
April 2007, G
GPLP
sold $1.55 billion aggregate principal amount of 3.98% Exchangeable
Notes. Interest on the Exchangeable
Notes is payable semi-annually in arrears on April 15 and October 15
of each year, beginning October 15, 2007.
The Exchangeable Notes will mature on April 15, 2027 unless
previously redeemed by GGPLP, repurchased by GGPLP or exchanged in accordance
with their terms prior to such date.
Prior to April 15, 2012, we will not have the right to redeem the
Exchangeable Notes, except to preserve our status as a REIT. On or after April 15,
2012, we may redeem for cash all or part of the Exchangeable Notes at any time,
at 100% of the principal amount of the Exchangeable Notes, plus accrued and
unpaid interest, if any, to the redemption date. On each of April 15,
2012, April 15, 2017 and April 15, 2022, holders of the Exchangeable
Notes may require us to repurchase the Exchangeable Notes, in whole or in part,
for cash equal to 100% of the principal amount of Exchangeable Notes to be
repurchased, plus accrued and unpaid interest.
The Exchangeable Notes
are exchangeable for GGP common stock or a combination of cash and common
stock, at our option, upon the satisfaction of certain conditions, and any exchange
currently is stayed by our Chapter 11 cases. The exchange rate for each $1,000
principal amount of the Exchangeable Notes is 11.45 shares of GGP common stock,
which is subject to adjustment under certain circumstances.
The 2006 Credit Facility
provides for a $2.85 billion term loan (the Term Loan) and a $650.0 million
revolving credit facility. However, as of March 31, 2010, $1.99 billion of
the Term Loan and $590.0 million of the revolving credit facility was
outstanding under the 2006 Credit Facility and no further amounts were
available to be drawn due to our Chapter 11 cases. The 2006 Credit Facility had a scheduled
maturity of February 24, 2010, although collection of such amount has been
stayed by the Chapter 11 cases. The
interest rate, as of March 31, 2010, was LIBOR plus 1.25%.
In May 2006 TRCLP
sold $800.0 million of senior unsecured notes which provide for semi-annual,
interest only payments at a rate of 6.75% and payment of the principal in full
on May 1, 2013.
Concurrently with the 2006
Credit Facility transaction, GGP Capital Trust I, a Delaware statutory trust
(the Trust) and a wholly-owned subsidiary of GGPLP, completed a private
placement of $200 million of trust preferred securities (TRUPS). The Trust also issued $6.2 million of Common
Securities to GGPLP. The Trust used the
proceeds from the sale of the TRUPS and Common Securities to purchase $206.2
million of floating rate Junior Subordinated Notes of GGPLP due 2036. Distributions on the TRUPS are equal to LIBOR
plus 1.45%. Distributions are cumulative
and accrue from the date of original issuance.
The TRUPS mature on April 30, 2036, but may be redeemed beginning
on April 30, 2011 if the Trust exercises its right to redeem a like amount
of the Junior Subordinated Notes. The
Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the
Trust is a wholly-owned subsidiary of GGPLP, we are not the primary
beneficiary of the Trust and, accordingly, it is not consolidated for
accounting purposes. As a result, we have recorded the Junior
29
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Subordinated Notes as
Mortgages, Notes and Loans Payable and our common equity interest in the Trust
as Prepaid Expenses and Other Assets in our Consolidated Balance Sheets at March 31,
2010 and December 31, 2009.
In conjunction with the
TRC Merger, we assumed certain publicly-traded unsecured debt which totaled
$1.45 billion at March 31, 2010 and December 31, 2009.
Debtor-in-Possession Facility
On May 14, 2009, the
Bankruptcy Court issued an order authorizing certain of the Debtors to enter
into a Senior Secured Debtor in Possession Credit, Security and Guaranty
Agreement among the Company, as co-borrower, GGP Limited Partnership, as
co-borrower, certain of their subsidiaries, as guarantors, UBS AG, Stamford
Branch, as agent, and the lenders party thereto (the DIP Facility).
The DIP Facility, which
closed on May 15, 2009, provides for an aggregate commitment of
$400.0 million (the DIP Term Loan), which was used to refinance the
$215.0 million remaining balance on the short-term secured loan and the
remainder of which has been used to provide additional liquidity to the Debtors
during the pendency of their Chapter 11 Cases. The DIP Facility provides that principal
outstanding on the DIP Term Loan bears interest at an annual rate equal to
LIBOR (subject to a minimum LIBOR floor of 1.5%) plus 12% and matures at the
earlier of May 16, 2011 or the effective date of a plan of reorganization
of the Remaining Debtors and has an outstanding balance of $400.0 million at March 31,
2010.
Subject to certain
conditions being present, the Company will have the right to elect to repay all
or a portion of the outstanding principal amount of the DIP Term Loan, plus
accrued and unpaid interest thereon and all exit fees at maturity, by issuing (i) common
stock of the Company to the lenders (the Equity Conversion) or (ii) debt
to the lenders, which would be issued for a three-year term, prepayable at any
time without penalty or premium, and otherwise on terms substantially similar
to those of the DIP Term Loan. Any Equity Conversion will be limited to the
lenders receipt of Company common stock equaling no more than (i) 8.0% of
the Company common stock distributed in connection with the Debtors plan of
reorganization, as confirmed by the Bankruptcy Court (the Plan of
Reorganization) on a fully-diluted basis, or (ii) 9.9% of the Company
common stock actually distributed in connection with the Plan of Reorganization
on its effective date, without giving effect to common stock held back for the
payment of contingencies. The DIP Credit Agreement contains customary
non-financial covenants, representations and warranties, and events of
default. Although the DIP Agreement
contains no financial covenants, it does include obligations to periodically
provide certain operating information concerning the Debtors directly to the
DIP Agent.
Letters of Credit and Surety
Bonds
We had outstanding
letters of credit and surety bonds of $106.6 million as of March 31, 2010
and $112.8 million as of December 31, 2009. These letters of credit and
bonds were issued primarily in connection with insurance requirements, special
real estate assessments and construction obligations.
NOTE
5 INCOME TAXES
We elected to be taxed as
a REIT under sections 856-860 of the Internal Revenue Code, commencing with our
taxable year beginning January 1, 1993.
We currently intend to maintain our REIT status. To qualify as a REIT, we must meet a number
of organizational and operational requirements, including requirements to distribute
at least 90% of our ordinary taxable income and to either distribute capital
gains to stockholders, or pay corporate income tax on the undistributed capital
gains. In addition, we are required to meet certain asset and income
tests. In December, 2009, we obtained
Bankruptcy Court approval to distribute $0.19 per share (approximately $5.9
million in cash and the remainder in common stock) to our stockholders (paid on
January 28, 2010) to satisfy such GGP REIT distribution requirements for
2009.
We also have
subsidiaries which we have elected to be treated as taxable real estate
investment trust subsidiaries and which are therefore subject to federal and
state income taxes.
Unrecognized tax benefits
recorded pursuant to uncertain tax positions were $102.3 million and $104.0
million as of March 31, 2010 and December 31, 2009, respectively,
excluding interest, of which $31.5 million as of March 31, 2010 and $32.0
million as of December 31, 2009 would impact our effective tax rate.
Accrued
30
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
interest related to these
unrecognized tax benefits amounted to $27.2 million as of March 31, 2010
and $25.4 million as of December 31, 2009. We recognized an increase of
interest expense related to the unrecognized tax benefits of $1.8 million for
the three months ended March 31, 2010 and we recognized interest expense
related to the unrecognized tax benefits of $1.5 million for the three months
ended March 31, 2009.
We recognized previously
unrecognized tax benefits related to tax positions taken in prior years,
excluding accrued interest, of $1.7 million for the three months ended March 31,
2010; all of which increased our deferred tax liability. We recognized $4.6 million of such tax
benefits for the three months ended March 31, 2009; all of which decreased
our deferred tax liability.
Although we believe our tax returns are correct, the
final determination of tax examinations and any related litigation could be
different than what was reported on the returns. In the opinion of management,
we have made adequate tax provisions for years subject to examination.
Generally, we are currently open to audit under the statute of limitations by
the Internal Revenue Service for the years ending December 31, 2005
through 2009 and are open to audit by state taxing authorities for years ending
December 31, 2004 through 2009.
In the fourth
quarter of 2008, we effectively settled with the IRS with respect to the audits
for the years 2001 through 2005 for two of our taxable REIT subsidiaries. In February 2009,
we were notified that the IRS had commenced examination of the year ended December 31,
2007 with respect to two taxable REIT subsidiaries. We received a letter of
Income Tax Examination Changes (30 Day Letter) for the two taxable REIT
subsidiaries with the proposed changes amounting to additional tax of
$128.1 million. We timely filed a protest disputing the proposed changes.
In December 2009, we were notified that the same two taxable REIT
subsidiaries are also under audit for the year ended December 31,
2008. In April 2010, we received 30
Day Letters with the proposed changes amounting to $20.1 million. We intend to timely file a protest disputing
the proposed changes. It is the Companys
position that the pertinent tax law in question has been properly applied and
reflected in the income tax returns for both 2008 and 2007. We are unable to
determine when the examinations will be resolved.
Based on our assessment
of the expected outcome of these remaining examinations or examinations that
may commence, or as a result of the expiration of the statute of limitations
for specific jurisdictions, it is reasonably possible that the related unrecognized
tax benefits, excluding accrued interest, for tax positions taken regarding
previously filed tax returns will materially change from those recorded at March 31,
2010. A material change in unrecognized tax benefits could have a material
effect on our statements of income and comprehensive income. As of March 31,
2010, there are $54.9 million of unrecognized tax benefits, excluding accrued
interest, which due to the reasons above, could significantly increase or
decrease during the next twelve months.
There are certain tax
attributes, such as net operating loss carry forwards, that may be limited in
the event of an ownership change as defined under section 382 of the Internal
Revenue Code. If an ownership change were to occur, there could be significant
valuation allowances placed on deferred tax assets that do not have valuation
allowances as of March 31, 2010.
NOTE
6 STOCK-BASED COMPENSATION
PLANS
Incentive Stock Plans
Prior to the Chapter 11
Cases, we granted qualified and non-qualified stock options and restricted
stock grants to attract and retain officers and key employees through the 2003
Incentive Stock Plan (the 2003 Incentive Plan). The 2003 Incentive Plan
provides for the issuance of 9,000,000 shares, of which 5,793,359 shares (5,036,627
stock options and 756,732 restricted shares) have been granted as of March 31,
2010 (subject to certain customary adjustments to prevent dilution).
Additionally, the Compensation Committee of the Board of Directors (the Compensation
Committee) grants employment inducement awards to senior executives on a
discretionary basis, and in the fourth quarter of 2008 granted 1,800,000 stock
options to two senior executives. In
addition, during the three months ended March 31, 2010 the Compensation
Committee granted 100,000 stock options to a senior executive under the 2003
Incentive Plan. Further, as a result of the stock dividend, the number of
shares issuable upon exercise of all outstanding options was increased by
58,127 shares. 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 Value of our common stock on the date of
grant. The other terms of these options
were determined by the Compensation Committee.
31
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
The following tables
summarize stock option activity for the 2003 Incentive Plan as of and for the
three months ended March 31, 2010 and 2009.
|
|
2010
|
|
2009
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding at January 1
|
|
4,241,500
|
|
$
|
31.63
|
|
4,730,000
|
|
$
|
33.01
|
|
Granted
|
|
100,000
|
|
16.75
|
|
|
|
|
|
Stock
dividend adjustment
|
|
58,127
|
|
30.32
|
|
|
|
|
|
Forfeited
|
|
(7,111
|
)
|
64.79
|
|
(290,000
|
)
|
54.66
|
|
Expired
|
|
(919,174
|
)
|
44.48
|
|
(197,300
|
)
|
30.90
|
|
Stock
options outstanding at March 31
|
|
3,473,342
|
|
$
|
27.21
|
|
4,242,700
|
|
$
|
31.63
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
|
Range of Exercise Prices
|
|
Shares
|
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|
Weighted Average
Exercise Price
|
|
Shares
|
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|
Weighted Average
Exercise Price
|
|
$ 0 - $ 6.5810
|
|
1,828,369
|
|
3.6
|
|
$
|
3.67
|
|
1,828,369
|
|
3.6
|
|
$
|
3.67
|
|
$ 6.5811 - $ 13.1620
|
|
3,048
|
|
0.0
|
|
9.83
|
|
3,048
|
|
0.0
|
|
9.83
|
|
$ 13.1621 - $ 19.7430
|
|
150,788
|
|
4.1
|
|
16.25
|
|
50,788
|
|
4.1
|
|
15.25
|
|
$ 32.9051 - $ 39.4860
|
|
7,618
|
|
0.0
|
|
34.21
|
|
7,618
|
|
0.0
|
|
34.21
|
|
$ 39.4861 - $ 46.0670
|
|
25,394
|
|
0.7
|
|
45.91
|
|
25,394
|
|
0.7
|
|
45.91
|
|
$ 46.0671 - $ 52.6480
|
|
698,333
|
|
0.9
|
|
49.63
|
|
698,333
|
|
0.9
|
|
49.63
|
|
$ 59.2291 - $ 65.8100
|
|
759,792
|
|
1.9
|
|
64.79
|
|
633,511
|
|
1.9
|
|
64.79
|
|
Total
|
|
3,473,342
|
|
2.7
|
|
$
|
27.21
|
|
3,247,061
|
|
2.6
|
|
$
|
26.07
|
|
Intrinsic
value (in thousands)
|
$
|
22,727
|
|
|
|
|
|
$
|
22,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options generally
vest 20% at the time of the grants and in 20% annual increments thereafter. The
intrinsic value of outstanding and exercisable stock options as of March 31,
2010 represents the excess of our closing stock price on that date, $16.09,
over the weighted average exercise price multiplied by the applicable number of
shares that may be acquired upon exercise of stock options, and is therefore not
presented in the table above if the result is a negative value. 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. No options were
exercised while 100,000 options were granted to a senior executive and the
number of shares issuable upon exercise of outstanding options was adjusted to
reflect 58,127 additional shares. No
options were exercised or granted during the three months ended March 31,
2009.
Restricted Stock
Pursuant to the 2003
Incentive Plan, we make restricted stock grants to certain employees and
non-employee directors. The vesting terms of these grants are specific to the
individual grant. The vesting terms vary in that a portion of the shares vest
either immediately or on the first anniversary and the remainder vest in equal
annual amounts over the next two to five years. Participating employees must
remain employed for vesting to occur (subject to certain exceptions in the case
of retirement). Shares that do not vest are forfeited. Dividends are paid on
stock subject to restrictions and are not returnable, even if the related stock
does not ultimately vest.
The following table
summarizes restricted stock activity for the respective grant years as of and
for the three months ended March 31, 2010 and 2009.
32
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
|
|
2010
|
|
2009
|
|
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Nonvested
restricted stock grants outstanding as of January 1
|
|
275,433
|
|
$
|
33.04
|
|
410,767
|
|
$
|
41.29
|
|
Granted
|
|
10,000
|
|
16.73
|
|
|
|
|
|
Canceled
|
|
(2,993
|
)
|
35.51
|
|
(65,146
|
)
|
46.76
|
|
Vested
|
|
(78,183
|
)
|
38.37
|
|
(99,709
|
)
|
41.57
|
|
Nonvested
restricted stock grants outstanding as of March 31
|
|
204,257
|
|
$
|
30.17
|
|
245,912
|
|
$
|
39.72
|
|
The weighted
average remaining contractual term (in years) of nonvested awards as of March 31,
2010 was 1.7 years.
The total Fair Value of
restricted stock grants vested during the three months ended March 31,
2010 was $1.0 million while the total Fair Value of restricted stock grants
which vested during the three months ended March 31, 2009 was $0.05
million.
Threshold-Vesting Stock Options
Under the 1998 Incentive
Stock Plan (the 1998 Incentive Plan), stock incentive awards to employees in
the form of threshold-vesting stock options (TSOs) have been granted. The exercise
price of the TSO is the Current Market Price (CMP) as defined in the 1998
Incentive Plan 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 applicable
threshold price for at least 20 consecutive trading days at any time during the
five years following the date of grant. Participating employees must remain
employed until vesting occurs in order to exercise the options. The threshold
price is determined by multiplying the CMP on the date of grant by an Estimated
Annual Growth Rate (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 terminated according to its terms December 31, 2008. As of March 31,
2010, a total of 1,964,229 TSOs were outstanding for all grant years.
Other Required Disclosures
Historical data, such as
the past performance of our common stock and the length of service by
employees, is used to estimate expected life of the stock options, TSOs and our
restricted stock and represents the period of time the options or grants are
expected to be outstanding. During the
three months ended March 31, 2010, we granted awards from the 2003
Incentive Plan of which 100,000 stock options were granted to a senior
executive, the number of shares issuable upon exercise of outstanding options
was adjusted to reflect 58,127 additional shares and 10,000 restricted shares were
issued to a non-employee director. No
TSOs were granted during the three months ended March 31, 2010 and no
stock options, TSOs or restricted shares were granted during the three months
ended March 31, 2009. The weighted
average estimated values of options granted during 2010 were based on the
following assumptions:
Risk-free
interest rate
|
|
1.55
|
%
|
Dividend
yield
|
|
4.50
|
%
|
Expected
volatility
|
|
50.82
|
%
|
Expected
life (in years)
|
|
3.0
|
|
Compensation expense related
to the Incentive Stock Plans, TSOs and restricted stock was $4.5 million for
the three months ended March 31, 2010, and $3.3 million for the three
months ended March 31, 2009.
As of March 31,
2010, total compensation expense which had not yet been recognized related to
nonvested options, TSOs and restricted stock grants was $11.6 million. Of this
total, $5.4 million is expected to be recognized in the remaining months of
2010, $5.5 million in 2011 and $0.7 million in 2012. These amounts may be impacted
by future grants, changes in forfeiture estimates or vesting terms, actual
forfeiture rates which differ from estimated forfeitures, timing of TSO vesting
and/or our plan of reorganization.
33
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTE
7 OTHER ASSETS AND
LIABILITIES
The following table
summarizes the significant components of prepaid expenses and other assets.
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Below-market
ground leases (Note 2)
|
|
$
|
240,208
|
|
$
|
241,676
|
|
Security
and escrow deposits
|
|
114,221
|
|
99,685
|
|
Receivables
- finance leases and bonds
|
|
89,524
|
|
119,506
|
|
Prepaid
expenses
|
|
88,100
|
|
88,651
|
|
Real
estate tax stabilization agreement (Note 2)
|
|
70,626
|
|
71,607
|
|
Special
Improvement District receivable
|
|
48,695
|
|
48,713
|
|
Above-market
tenant leases (Note 2)
|
|
31,360
|
|
34,339
|
|
Deferred
tax, net of valuation allowances
|
|
15,909
|
|
28,615
|
|
Other
|
|
17,515
|
|
21,955
|
|
|
|
$
|
716,158
|
|
$
|
754,747
|
|
The following table
summarizes the significant components of accounts payable, accrued expenses and
other liabilities.
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
450,202
|
|
$
|
366,398
|
|
Accounts
payable and accrued expenses
|
|
369,872
|
|
434,911
|
|
Accrued
payroll and other employee liabilities
|
|
137,452
|
|
104,926
|
|
Uncertain
tax position liability
|
|
129,482
|
|
129,413
|
|
Construction
payable
|
|
124,746
|
|
150,746
|
|
Accrued
real estate taxes
|
|
90,187
|
|
88,511
|
|
Deferred
gains/income
|
|
87,017
|
|
67,611
|
|
Hughes
participation payable (Note 8)
|
|
68,554
|
|
68,378
|
|
Below-market
tenant leases (Note 2)
|
|
59,029
|
|
63,290
|
|
Conditional
asset retirement obligation liability
|
|
25,159
|
|
24,601
|
|
Tenant
and other deposits
|
|
22,899
|
|
23,250
|
|
Other
|
|
209,331
|
|
212,861
|
|
Total
accounts payable and accrued expenses
|
|
1,773,930
|
|
1,734,896
|
|
Less:
amounts subject to compromise (Note 1)
|
|
(583,333
|
)
|
(612,008
|
)
|
Accounts
payable and accrued expenses not subject to compromise
|
|
$
|
1,190,597
|
|
$
|
1,122,888
|
|
NOTE 8 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are
involved in legal proceedings 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.
The leases generally provide us with a
right of first refusal in the event of a proposed sale of the property by the
landlord. R
ental payments are expensed as incurred and have, to the
extent applicable, been straight-lined over the term of the lease. Contractual
r
ental expense, including participation rent, was $4.3 million for the
three months ended March 31, 2010
and $5.0 million for the three months ended March 31,
2009.
The same rent expense excluding amortization of above and below-market
ground leases and straight-line rents, as presented in our consolidated
financial statements, was $2.9 million for the three months ended March 31,
2010, and $3.6 million for the three months ended March 31, 2009.
34
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
We
have, in the past, periodically entered into contingent agreements for the
acquisition of properties. Each acquisition subject to such agreements was
subject to satisfactory completion of due diligence and, in the case of
property acquired under development, completion of the project. In conjunction
with the acquisition of The Grand Canal Shoppes in 2004, we entered into an
agreement (the Phase II Agreement) to acquire the multi-level retail space
that is part of The Shoppes at The Palazzo in Las Vegas, Nevada (The Phase II
Acquisition) which is connected to the existing Venetian and the Sands Expo
and Convention Center facilities and The Grand Canal Shoppes. The project
opened on January 18, 2008. The acquisition closed on February 29,
2008 for an initial purchase price payment of $290.8 million, which was
primarily funded with $250.0 million of new variable-rate short-term debt
collateralized by the property and for Federal income tax purposes was used as
replacement property in a like-kind exchange. The Phase II Agreement provides
for additional purchase price payments based on net operating income, as defined,
of the Phase II retail space. Such additional payments, if any, are to be made
during the 30 months after closing with the final payment being subject to
re-adjustment 48 months after closing. Although we have currently estimated
that no additional amounts will be paid pursuant to the Phase II Agreement, the
total final purchase price of the Phase II Acquisition could be different than
the current estimate.
See Note 5 for our
obligations related to uncertain tax positions for disclosure of additional
contingencies.
Contingent Stock Agreement
In conjunction with GGPs
acquisition of The Rouse Company (TRC) in November 2004, GGP assumed TRCs
obligations under the CSA. TRC entered into the CSA in 1996 when it acquired
The Hughes Corporation (Hughes). This acquisition included various assets,
including Summerlin (the CSA Assets), a development in GGPs Master Planned
Communities segment. The CSA is an unsecured obligation of GGP and
therefore, GGPs obligations to the former Hughes owners or their successors
(the Beneficiaries) under the CSA are, and will be, subject to treatment in
accordance with applicable requirements of the bankruptcy law and any plan of
reorganization that may be confirmed by the Bankruptcy Court.
Under the terms of the
CSA, GGP was required through August 2009 to issue shares of
its common stock semi-annually (February and August) to the Beneficiaries
with the number of shares to be issued in any period based on cash flows from
the development and/or sale of the CSA Assets and GGPs stock price. The
Beneficiaries share of earnings from the CSA Assets is accounted for as a land
sales operations expense. During 2009, GGP was not obligated to deliver
any shares of its common stock under the CSA as the net development and sales
cash flows were negative for the applicable periods.
Under the terms of the
CSA, GGP is also required to make a final distribution to the Beneficiaries in
2010, following a final valuation of the remaining CSA Assets as of December 31,
2009. The CSA sets forth a methodology for establishing this final valuation
and requires the payment, if any, be made in shares of GGP common stock. GGP
would account for any final distribution to the Beneficiaries as an additional
GGP investment in the CSA Assets (that is, contingent consideration). However,
since GGPs plan of reorganization is still being developed, treatment of the
CSA and the final distribution amount, if any, to the Beneficiaries cannot
currently be determined and, therefore, no liability for any final distribution
amount is probable or estimable at March 31, 2010 or at December 31,
2009. The carrying amount of the CSA Assets as reflected in the Companys
Consolidated Financial Statements is not the final valuation, and should not be
relied upon for purposes of determining, or estimating, the final distribution
amount, if any, to the Beneficiaries.
NOTE 9 RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
On June 12, 2009,
the FASB issued new generally accepted accounting guidance that amends the
consolidation guidance applicable to variable interest entities. The amendments
significantly affect the overall consolidation analysis under previously issued
guidance. The amendments to the consolidation guidance affect all entities and
enterprises currently within the scope of the previous guidance and are
effective on January 1, 2010. We
have adopted this new pronouncement and it did not have a material impact on
our consolidated financial statements.
35
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
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, development and management of retail and other rental property,
primarily shopping 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, and our one residential condominium project located in Natick (Boston),
Massachusetts
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 and, with respect to our retail and
other segment, provisions for impairment. 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 report unconsolidated real estate 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 Real Estate 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 are
reduced by the NOI attributable to our noncontrolling interests in consolidated
joint ventures.
The total expenditures
for additions to long-lived assets for the Master Planned Communities segment
were $16.1 million for the three months ended March 31, 2010 and $17.3
million for the three months ended March 31, 2009. The total expenditures
for additions to long-lived assets for the Retail and Other segment were $53.4
million for the three months ended March 31, 2010 and $79.6 million for
the three months ended March 31, 2009.
Such amounts for the Master Planned Communities segment and the Retail
and Other segment are included in the amounts listed as Land/residential
development and acquisitions expenditures and Acquisition/development of real
estate and property additions/improvements, respectively, in our Consolidated
Statements of Cash Flows.
The
total amount of goodwill, as presented on our Consolidated Balance Sheets, is
included in our Retail and Other segment.
36
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Segment
operating results are as follows:
|
|
Three Months Ended March 31, 2010
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
(In thousands)
|
|
Retail and Other
|
|
|
|
|
|
|
|
Property
revenues:
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
492,758
|
|
$
|
99,879
|
|
$
|
592,637
|
|
Tenant
recoveries
|
|
214,251
|
|
39,271
|
|
253,522
|
|
Overage
rents
|
|
10,346
|
|
1,239
|
|
11,585
|
|
Other,
including noncontrolling interests
|
|
16,803
|
|
10,688
|
|
27,491
|
|
Total
property revenues
|
|
734,158
|
|
151,077
|
|
885,235
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
72,095
|
|
12,585
|
|
84,680
|
|
Property
maintenance costs
|
|
35,844
|
|
5,282
|
|
41,126
|
|
Marketing
|
|
7,081
|
|
1,521
|
|
8,602
|
|
Other
property operating costs
|
|
127,071
|
|
29,722
|
|
156,793
|
|
Provision
for doubtful accounts
|
|
6,327
|
|
1,430
|
|
7,757
|
|
Total
property operating expenses
|
|
248,418
|
|
50,540
|
|
298,958
|
|
Retail
and other net operating income
|
|
485,740
|
|
100,537
|
|
586,277
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land
sales
|
|
5,070
|
|
12,635
|
|
17,705
|
|
Land
sales operations
|
|
(10,167
|
)
|
(9,971
|
)
|
(20,138
|
)
|
Master
Planned Communities net operating (loss) income
|
|
(5,097
|
)
|
2,664
|
|
(2,433
|
)
|
Real
estate property net operating income
|
|
$
|
480,643
|
|
$
|
103,201
|
|
$
|
583,844
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
(In thousands)
|
|
Retail and Other
|
|
|
|
|
|
|
|
Property
revenues:
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
499,107
|
|
$
|
97,391
|
|
$
|
596,498
|
|
Tenant
recoveries
|
|
233,019
|
|
40,819
|
|
273,838
|
|
Overage
rents
|
|
10,025
|
|
1,216
|
|
11,241
|
|
Other,
including noncontrolling interests
|
|
12,797
|
|
12,628
|
|
25,425
|
|
Total
property revenues
|
|
754,948
|
|
152,054
|
|
907,002
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
71,558
|
|
12,581
|
|
84,139
|
|
Property
maintenance costs
|
|
27,358
|
|
4,834
|
|
32,192
|
|
Marketing
|
|
7,576
|
|
1,475
|
|
9,051
|
|
Other
property operating costs
|
|
131,699
|
|
32,422
|
|
164,121
|
|
Provision
for doubtful accounts
|
|
10,332
|
|
1,247
|
|
11,579
|
|
Total
property operating expenses
|
|
248,523
|
|
52,559
|
|
301,082
|
|
Retail
and other net operating income
|
|
506,425
|
|
99,495
|
|
605,920
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land
sales
|
|
8,986
|
|
5,101
|
|
14,087
|
|
Land
sales operations
|
|
(10,614
|
)
|
(4,768
|
)
|
(15,382
|
)
|
Master
Planned Communities net operating (loss) income before provision for
impairment
|
|
(1,628
|
)
|
333
|
|
(1,295
|
)
|
Provision
for impairment
|
|
(52,769
|
)
|
|
|
(52,769
|
)
|
Master
Planned Communities net operating (loss) income
|
|
(54,397
|
)
|
333
|
|
(54,064
|
)
|
Real
estate property net operating income
|
|
$
|
452,028
|
|
$
|
99,828
|
|
$
|
551,856
|
|
37
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
The following reconciles
NOI to GAAP-basis operating income and loss from continuing operations:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Real
estate property net operating income:
|
|
|
|
|
|
Segment
basis
|
|
$
|
583,844
|
|
$
|
551,856
|
|
Unconsolidated
Properties
|
|
(103,201
|
)
|
(99,828
|
)
|
Consolidated
Properties
|
|
480,643
|
|
452,028
|
|
Management
fees and other corporate revenues
|
|
18,086
|
|
21,858
|
|
Property
management and other costs
|
|
(35,432
|
)
|
(43,408
|
)
|
General
and administrative
|
|
(7,638
|
)
|
(7,525
|
)
|
Strategic
initiatives
|
|
|
|
(38,300
|
)
|
Provisions
for impairment
|
|
(11,350
|
)
|
(278,324
|
)
|
Depreciation
and amortization
|
|
(177,302
|
)
|
(204,615
|
)
|
Noncontrolling
interest in NOI of Consolidated Properties and other
|
|
3,923
|
|
2,848
|
|
Operating
income (loss)
|
|
270,930
|
|
(95,438
|
)
|
Interest
income
|
|
676
|
|
730
|
|
Interest
expense
|
|
(335,278
|
)
|
(328,489
|
)
|
(Provision
for) benefit from income taxes
|
|
(3,650
|
)
|
11,514
|
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
33,751
|
|
7,538
|
|
Reorganization
items
|
|
89,412
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
55,841
|
|
$
|
(404,145
|
)
|
The following reconciles
segment revenues to GAAP-basis consolidated revenues:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Segment
basis total property revenues
|
|
$
|
885,235
|
|
$
|
907,002
|
|
Unconsolidated
segment revenues
|
|
(151,077
|
)
|
(152,054
|
)
|
Consolidated
land sales
|
|
5,070
|
|
8,986
|
|
Management
fees and other corporate revenues
|
|
18,086
|
|
21,858
|
|
Noncontrolling
interest in NOI of Consolidated Properties and other
|
|
3,923
|
|
2,848
|
|
GAAP-basis
consolidated total revenues
|
|
$
|
761,237
|
|
$
|
788,640
|
|
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All references to
numbered Notes are to specific footnotes to our Consolidated Financial
Statements included in this Quarterly Report and which descriptions 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
Annual Report.
Forward-looking
information
We may make
forward-looking statements in this Quarterly Report and in other reports that
we file with the SEC or the Bankruptcy Court. In addition, our senior
management may make forward-looking statements orally to analysts, investors,
creditors, the media and others.
Forward-looking
statements include:
·
Descriptions of plans or objectives for
debt extensions or our plan of reorganization in Bankruptcy Court, strategic
alternatives, and future operations
·
Projections of our revenues, net
operating income, earnings per share, Funds From Operations (FFO), capital
expenditures, income tax and other contingent liabilities, dividends, leverage,
capital structure or other financial items
·
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:
38
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
·
Bankruptcy, reorganization and liquidity
·
Future financings, repayment of debt and
interest rates
·
Expected sales in our Master Planned
Communities segment
·
Future cash needed to meet federal income
tax requirements
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 might not update them
to reflect changes that occur after the date they are made.
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
Annual Report, which factors are incorporated herein by reference. 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
Annual Report that could cause results to differ from our expectations.
Overview
The Company is currently
operating as a Debtor in Possession under Chapter 11.
We are the owner or
manager of over 200 regional shopping malls in 43 states and the owner of five
master planned communities. We operate in two reportable business segments:
Retail and Other and Master Planned Communities.
The Chapter 11 Cases
created the protections necessary for the Debtors to develop and execute plans
of reorganization to restructure the Debtors and extend mortgage maturities,
reduce corporate debt and overall leverage and establish a sustainable
long-term capital structure. We have a long-term business plan necessary to
effect the objectives we sought to achieve through the Chapter 11 process. The business plan contemplates the continued
operation of retail shopping centers, divestiture of non-core assets and
businesses and certain non-performing retail assets, and select development
projects. We have pursued a deliberate
two-stage strategy. The first stage
entails the restructuring of our property-level secured mortgage debt. The
second stage is the restructuring of the debt of the TopCo Debtors and our
public equity.
In regard to the Track 1
Plans, a total of 215 Debtors owning 111 properties with $11.54 billion of
secured mortgage debt emerged from bankruptcy as of March 31, 2010. Of the Emerged Debtors, 102 Debtors owning 61
properties with $6.88 billion of secured mortgage debt emerged from bankruptcy
during the three months ended March 31, 2010, while 113 Debtors owning 50
properties with $4.66 billion secured debt had emerged from bankruptcy as of December 31,
2009. The Track 1 Plans for such Emerged
Debtors provided for, in exchange for payment of certain extension fees and
cure of previously unpaid amounts due on the applicable mortgage loans
(primarily, principal amortization otherwise scheduled to have been paid since
the Petition Date), the extension of the secured mortgage loans at previously
existing non-default interest rates. As a result of the extensions, none of
these loans will have a maturity prior to January 1, 2014. In addition,
the Track 1 Plans provide for the payment in full of all undisputed claims of
creditors of the Track 1 Debtors.
We have identified 13
Special Consideration Properties of the Track 1 Debtors with $749.8 million of
secured mortgage debt at March 31, 2010 as underperforming retail
assets. Pursuant to the terms of the
agreements with the lenders for these properties, the Debtors have until two
days following emergence of the TopCo Debtors to determine whether the
collateral property for these loans should be deeded to the respective lender in
full satisfaction of the related debt or the property should be retained with
further modified loan terms. Prior to
emergence of the TopCo Debtors, all cash produced by the property is under the
control of respective lenders and we are required to pay any operating expense
shortfall. In addition, prior to emergence
of the TopCo Debtors, the respective lender can change the manager of the
property or put the property in receivership and GGP has the right to deed the
property to the lender, but no such actions have yet occurred.
We have also identified
two properties (Silver City and Montclair) owned by our Unconsolidated Real
Estate Affiliates with approximately $393.5 million of non-recourse secured
mortgage debt, of which our share is $198.1 million, as
39
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
underperforming assets.
With respect to each of the properties owned by such Unconsolidated Real Estate
Affiliates, all cash produced by such properties are under the control of the
applicable lender. In the event we are
unable to satisfactorily modify the terms of each of the loans associated with
these properties, the collateral property for any such loan may be deeded to
the respective lender in full satisfaction of the related debt. On May 3, 2010, the property owned by
the Highland joint venture was transferred to the lender, yielding a nominal net
gain on our investment in such joint venture (Note 3).
We have achieved substantial progress with respect to
the first phase of our restructuring strategy, as we have confirmed plans of
reorganization for all of the Debtors secured mortgage loans as of April 30,
2010, with the exception of Oakwood. We
are now in the midst of the second phase resolving the TopCo Debtors capital
structure. Resolution of the TopCo
capital structure involves reducing corporate debt and overall leverage and
establishing a long-term capital structure.
Our long-term business plan currently projects that we will need
approximately $1.5 billion of new capital to emerge from bankruptcy and
restructure on a stand alone basis. Since
early 2010, we have been exploring all potential alternatives for emergence,
including an evaluation of the financing sources for a stand alone
restructuring, as well as potential merger and acquisition or other change of
control transactions with financial and strategic investors and have engaged in
a competitive process to obtain an initial sponsor to ensure our emergence from
bankruptcy.
In
this regard, we have entered into agreements (collectively, the Investment
Agreements) with REP Investments LC (REP), an affiliate of Brookfield Asset
Management Inc. (Brookfield),
Fairholme Funds, Inc. (Fairholme) and Pershing Square Capital
Management, L.P. (Pershing and together with REP and Fairholme, the
Investors), pursuant to which GGP would be divided into two companies, GGP
and a second new company, General Growth Opportunities (GGO), and the Investors
would invest in the Companys standalone emergence plan. As a result of the
Investment Agreements, as amended, the Company has equity commitments for $6.55
billion ($6.3 billion of new equity capital at a value of $10.00 per share of
the restructured GGP and $250 million to backstop a rights offering for GGO at
$5.00 per share) and a $2 billion capital backstop which we believe provides us
with all of the financing necessary for us to emerge from Chapter 11.
In
addition, under the Investment Agreements,
as amended, in lieu of the receipt of any fees that would be customary in
similar transactions, the Investment
Agreements provide for the issuance of interim warrants to REP and Fairholme to
purchase approximately 103 million shares of GGP at $15.00 per share (the
Interim Warrants). The Interim Warrants vest:
40% upon issuance, 20% on July 12, 2010, and the remaining Interim
Warrants vest in equal daily installments from July 13, 2010 to December 31,
2010, except that any Interim Warrants that have not vested on or prior to
termination of REPs or Fairholmes Investment Agreement, as the case may be,
will not vest and will be cancelled. Upon consummation of the plan of
reorganization contemplated by the Investment Agreements, the Interim Warrants
will be cancelled and warrants to purchase equity of GGO and the restructured
GGP will be issued to the Investors. Specifically, 80 million warrants to
purchase equity of GGO at an exercise price of $5.00 per share and 120 million
warrants to purchase equity of the
restructured GGP at an exercise price of $10.75 per share, in the case of REP,
and an exercise price of $10.50 in the case of Fairholme and Pershing, will be
issued.
On May 7, 2010, the Bankruptcy Court
approved the issuance of the warrants and the Companys bidding procedures. The
Company issued the Interim Warrants on May 10, 2010. Consummation of the
transactions contemplated by the Investment Agreements is subject to higher and
better offers pursuant to the bidding. There is no assurance that the
transactions contemplated by the Investment Agreements will be consummated.
However, if such transactions are consummated, the Investors are likely to
hold, in the aggregate, a controlling equity ownership in the restructured GGP
and are expected to hold a minor noncontrolling interest in GGO. The Company is
focused on continued progress in the Chapter 11 Cases and a comprehensive
capital raise process, and is continuing to consider all alternatives to
maximize value for all of the Companys stakeholders. The Company expects to
select its plan for emergence in early July.
40
Table
of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
On March 3, 2010,
the Bankruptcy Court entered an order extending the exclusivity period for us
to file a plan of reorganization until July 15, 2010 and the period for us
to solicit acceptances of such a plan to September 15, 2010. If we do not file a plan of reorganization
for the Remaining Debtors prior to the lapse of the exclusivity period, any
party in interest would be able to file a plan of reorganization for any of the
Remaining Debtors.
As a result of the
automatic stay of most actions against a debtors estate, the resulting
suspension of our obligation to pay certain pre-petition liabilities and
proceeds from the DIP Facility, as of March 31, 2010, we had approximately
$573.1 million of cash. Our liquidity is dependent upon cash flow from
operations, which were affected by the severe weakening of the economy in
2009. Retail sales hit their low point
in the first quarter of 2009 and have gradually improved. However, retail market conditions have not
returned to the levels of 2007 and, while we believe that they have stabilized
and begun to show improvement, they continue to impact our ability to generate
and increase Retail and Other revenues.
In addition, the continued weak housing market has negatively affected
our ability to generate income through the sale of residential land in our
master planned communities.
As part of our business
planning process we reviewed our development and redevelopment projects. At this time we currently plan to complete
projects that are already substantially complete and joint venture
projects. We also intend to fulfill our
other contractual obligations related to our development and redevelopment
projects. As a result, we currently
expect to complete our expansion and redevelopment projects at Christiana Mall,
Fashion Place and Saint Louis Galleria.
For the three months
ended March 31, 2010, we generated NOI of $586.3 million in our retail and
other segment. Included in this amount is income from our Unconsolidated
Properties at our ownership share. Comparatively, in the three months ended March 31,
2009, we reported NOI of $605.9 million. Based on the results of our
evaluations for impairment (Note 1), we recognized total impairment charges for
our retail and other segment and our master planned community segment of $11.4
million for the three months ended March 31, 2010 and $331.1 million for
the three months ended March 31, 2009.
The decrease in NOI for the quarter was consistent with our expectations
and reflects the temporary impact of our restructuring and the difficult market
conditions of 2009, when many of our newer leases were executed.
For
the three months ended March 31, 2010, total revenues declined $21.8
million, or 2.4%, to $885.2 million, primarily due to declines in minimum rents,
tenant recoveries and overage rents as a result of declines in overall
occupancy and specialty leasing occupancy and sales volumes. Included in this amount is revenues from
Unconsolidated Properties at our ownership share of $151.1 million for the
three months ended March 31, 2010,
which are roughly comparable to the $152.1 million for the three months ended March 31,
2009, reflecting continued steady performance.
Our ability to continue
as a going concern is dependent upon our ability to successfully implement a
plan of reorganization for the Remaining Debtors, and there can be no assurance
that we will be able to do so. We have
41
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
described such concerns
in Note 1 and our independent registered public accounting firm has included an
explanatory paragraph in its report on the audit of our consolidated financial
statements as of December 31, 2009 and for the year then ended expressing
substantial doubt as to our ability to continue as a going concern.
Results of Operations
W
e
have presented the following discussion of our results of operations on a
segment basis under the proportionate share method.
Under the proportionate share method, our share of the
revenues and expenses of
the Unconsolidated Properties
are combined with the revenues and expenses of the Consolidated Properties.
Other revenues are reduced by the NOI attributable to our noncontrolling
interests in consolidated joint ventures.
See Note 10 for
additional information including reconciliations of our segment basis results
to GAAP basis results.
42
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Three Months Ended March 31, 2010 and 2009
Retail
and Other Segment
|
|
Three Months Ended March 31,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Property revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
592,637
|
|
$
|
596,498
|
|
$
|
(3,861
|
)
|
(0.6
|
)%
|
Tenant
recoveries
|
|
253,522
|
|
273,838
|
|
(20,316
|
)
|
(7.4
|
)
|
Overage
rents
|
|
11,585
|
|
11,241
|
|
344
|
|
3.1
|
|
Other,
including non controlling interest
|
|
27,491
|
|
25,425
|
|
2,066
|
|
8.1
|
|
Total
property revenues
|
|
885,235
|
|
907,002
|
|
(21,767
|
)
|
(2.4
|
)
|
Property operating expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
84,680
|
|
84,139
|
|
541
|
|
0.6
|
|
Property
maintenance costs
|
|
41,126
|
|
32,192
|
|
8,934
|
|
27.8
|
|
Marketing
|
|
8,602
|
|
9,051
|
|
(449
|
)
|
(5.0
|
)
|
Other
property operating costs
|
|
156,793
|
|
164,121
|
|
(7,328
|
)
|
(4.5
|
)
|
Provision
for doubtful accounts
|
|
7,757
|
|
11,579
|
|
(3,822
|
)
|
(33.0
|
)
|
Total
property operating expenses
|
|
298,958
|
|
301,082
|
|
(2,124
|
)
|
(0.7
|
)
|
Retail and other net operating income
|
|
$
|
586,277
|
|
$
|
605,920
|
|
$
|
(19,643
|
)
|
(3.2
|
)%
|
Minimum rents decreased for the three months ended March 31,
2010 primarily due to a $7.5 million decrease in base rents resulting from the
decrease in occupancy, rent relief and rental revenue associated with
co-tenancy clauses that have been triggered.
In addition, there was a $4.1 million decrease in temporary rental
revenues resulting from a decrease in temporary tenant occupancy and sales
volume for the three months ended March 31, 2010. Partially offsetting these decreases was an
increase of $3.5 million in termination income, which was $12.8 million for the
three months ended March 31, 2010 compared to $9.3 million for the three
months ended March 31, 2009.
Certain of our leases include both a base rent component and
a component which requires tenants to pay amounts related to all, or
substantially all, of their share of real estate taxes and certain property
operating expenses, including common area maintenance and insurance. The
portion of the tenant rent from these leases attributable to real estate tax
and operating expense recoveries are recorded as tenant recoveries. The
decrease in tenant recoveries for the three months ended March 31, 2010 is
primarily attributable to the decrease in current year occupancy and the
conversion of tenants to gross leases resulting in a decline of $8.9
million. The decrease for the three
months ended March 31, 2010 also includes decreases in recoveries related
to common area maintenance of $3.5 million, real estate taxes of $2.8 million
and electric utility expenses of $2.6 million as a result of tenant settlements
for 2008 and 2009 that were delayed due to the Track 1 Debtors bankruptcy.
Other revenues include all other property revenues which
consist of vending, parking, gains or losses on dispositions of certain
property transactions, sponsorship and advertising revenues, less NOI of
noncontrolling interests in consolidated joint ventures. The increase in other
revenues for the three months ended March 31, 2010 compared to the same
period of 2009 is primarily due to the $3.9 million loss resulting from the
disposition of land at Kendall Town Center during the three months ended March 31,
2009. Such increase was partially offset
by reduced sponsorship and advertising revenues across the Company Portfolio
during the three months ended March 31, 2010.
Property maintenance costs increased in the three months
ended March 31, 2010 primarily due to increased seasonal maintenance costs
of $3.6 million, miscellaneous building repairs of $1.9 million, higher
contract services costs of $0.8 million and increased compensation costs of
$0.6 million in 2010.
Marketing expenses decreased in the three months ended March 31,
2010 across the Company Portfolio as the result of continued Company-wide
efforts to consolidate marketing functions and reduce advertising
spending. The largest savings were the
result of reductions in advertising costs, contracted services and payroll.
Other property operating costs decreased in the three months
ended March 31, 2010 primarily due to decreased utility costs related to
lower fuel costs of $3.1 million, a decrease in cleaning costs of $1.8 million,
a decrease in ground rent of $2.4 million and a decrease in various
miscellaneous expenses of $2.8 million.
These decreases were partially offset by increased compensation costs of
$4.9 million.
43
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
The provision for doubtful accounts decreased in the three
months ended March 31, 2010 compared to the three months ended March 31,
2009 primarily due to a provision for bad debt expense of $2.5 million in the
first quarter of 2009 for two major tenants at Town East Mall. Also
contributing to the decrease recorded was improved collections of outstanding
accounts receivable in the first quarter of 2010.
Master Planned Communities
Segment
|
|
Three
Months Ended March 31,
|
|
$ Increase
|
|
%
Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Land
sales
|
|
$
|
17,705
|
|
$
|
14,087
|
|
$
|
3,618
|
|
25.7
|
%
|
Land
sales operations
|
|
(20,138
|
)
|
(15,382
|
)
|
4,756
|
|
30.9
|
|
Master
Planned Communities net operating income before provision for impairment
|
|
(2,433
|
)
|
(1,295
|
)
|
(1,138
|
)
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for impairment
|
|
|
|
(52,769
|
)
|
(52,769
|
)
|
(100.0
|
)
|
Master
Planned Communities net operating loss
|
|
$
|
(2,433
|
)
|
$
|
(54,064
|
)
|
$
|
51,631
|
|
95.5
|
%
|
The increase in land sales was primarily the result of an
increase in sales volume in the Woodlands community residential and commercial
lots and an increase in sales volume in the Bridgeland residential community in
the three months ended March 31, 2010.
There were no land sales for the three months ended March 31, 2010
and 2009 in our Fairwood and Columbia communities in Maryland, as well as in
our Summerlin community in Las Vegas, Nevada.
In addition, during the three months ended March 31, 2009, we
recorded a $52.8 million provision for impairment at our Fairwood community in
Maryland based on the estimated loss resulting from the execution of a contract
to sell the remaining single family lots in a single bulk sale that closed in July 2009.
For the three months ended March 31, 2010, we sold 68.7
residential acres compared to 23.4 acres for the three months ended March 31,
2009. We sold 14.7 acres of commercial lots for the three months ended March 31,
2010 compared to 19.2 acres for the three months ended March 31,
2009. As of March 31, 2010, the
master planned communities have approximately 17,180 remaining saleable acres.
Certain Significant Consolidated
Revenues and Expenses
|
|
Three Months Ended March 31,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Tenant
rents
|
|
$
|
717,355
|
|
$
|
742,151
|
|
$
|
(24,796
|
)
|
(3.3
|
)%
|
Land
sales
|
|
5,070
|
|
8,986
|
|
(3,916
|
)
|
(43.6
|
)
|
Property
operating expense
|
|
248,418
|
|
248,523
|
|
(105
|
)
|
(0.0
|
)
|
Land
sales operations
|
|
10,167
|
|
10,614
|
|
(447
|
)
|
(4.2
|
)
|
Management
fees and other corporate revenues
|
|
18,086
|
|
21,858
|
|
(3,772
|
)
|
(17.3
|
)
|
Property
management and other costs
|
|
35,432
|
|
43,408
|
|
(7,976
|
)
|
(18.4
|
)
|
General
and administrative
|
|
7,638
|
|
7,525
|
|
113
|
|
1.5
|
|
Strategic
initiatives
|
|
|
|
38,300
|
|
(38,300
|
)
|
(100.0
|
)
|
Provisions
for impairment
|
|
11,350
|
|
331,093
|
|
(319,743
|
)
|
(96.6
|
)
|
Depreciation
and amortization
|
|
177,302
|
|
204,615
|
|
(27,313
|
)
|
(13.3
|
)
|
Interest
expense
|
|
335,278
|
|
328,489
|
|
6,789
|
|
2.1
|
|
Provision
for (benefit from) income taxes
|
|
3,650
|
|
(11,514
|
)
|
15,164
|
|
(131.7
|
)
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
33,751
|
|
7,538
|
|
26,213
|
|
347.7
|
|
Reorganization
items
|
|
89,412
|
|
|
|
89,412
|
|
(100.0
|
)
|
Discontinued
operations - loss on dispositions
|
|
|
|
(55
|
)
|
55
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in consolidated tenant rents (which includes minimum
rents, tenant recoveries and overage rents), land sales, property operating
expenses (which includes real estate taxes, repairs and maintenance, marketing,
other property operating costs and provision for doubtful accounts) and land
sales operations were attributable to the same items discussed above in our
segment basis results, excluding those items related to our Unconsolidated
Properties. Management fees and other
corporate revenues, property management and other costs and general and
administrative in the aggregate represent our costs of doing business and are
generally not direct property-related costs.
The decrease in management fees and other corporate revenues
for the three months ended March 31, 2010 is primarily due to a $1.7
million decrease in development fee income resulting from a significant decline
in development activity for our managed properties. In addition, third party management fee
income decreased approximately $1.0 million due to certain contract terminations
in 2009.
44
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
The decrease in property management and other costs for the
three months ended March 31, 2010 is primarily due to a $5.1 million
decrease in compensation expense and a $2.0 million decrease in conference
fees, professional fees, and office costs related to staffing reductions and
other cost reduction efforts.
Strategic initiatives for the three months ended March 31,
2009 is primarily due to professional fees for restructuring that were incurred
prior to filing for Chapter 11. Similar
fees incurred after filing for Chapter 11 are recorded as reorganization items.
Based on the results of our evaluations for impairment (Note
1), we recognized impairment charges of $11.4 million for the three months
ended March 31, 2010 and $331.1 million for the three months ended March 31,
2009. The impairment charges recognized
were as follows:
2010
·
$11.1
million related to The Pines Mall in Pines Bluff, Arkansas
·
$0.3
million related to the write down of various pre-development costs that were
determined to be non-recoverable due to the termination of associated projects
2009
·
$81.1
million related to our River Falls Mall located in Clarksville, Indiana
·
$40.3
million related to our Owings Mills Mall located in Owings Mills, Maryland
·
$16.6
million related to the write down of various pre-development costs that were
determined to be non-recoverable due to the termination of associated projects
·
$24.2
million related to our development project in Allen, Texas
·
$6.7
million related to our development project in Redlands, California
·
$52.8
million related to our Fairwood master planned community
·
$109.4
million related to Goodwill
The decrease in depreciation and amortization for the three
months ended March 31, 2010 primarily results from the decrease in the
carrying amount of buildings and equipment due to the impairment charges
recorded in 2009 as well as write-offs of tenant allowances and assets becoming
fully amortized in 2009.
Interest expense for the three months ended March 31,
2010 increased $6.8 million primarily due to the amortization of the market
rate adjustments related to the Fair Value of debt upon the emergence of
certain subsidiary Debtors from Chapter 11.
In addition, the amount of interest that was capitalized during the
three months ended March 31, 2010 decreased compared to the same period of
2009.
The increase in the provision for income taxes for the three
months ended March 31, 2010 was primarily attributable to a tax benefit
related to the $52.8 million provision for impairment that we recorded for our
Fairwood master planned community in the three months ended March 31,
2009.
The increase in equity in
income of Unconsolidated Real Estate Affiliates for the three months ended March 31,
2010 was primarily due to our investments in our international joint
ventures. We recorded a $15.3 million
gain related to our investment in Aliansce as a result of the Aliansce IPO
(Note 3). In addition, our investment in
our international joint ventures increased $2.6 million resulting from foreign
currency translation adjustments and $2.5 million as the result of entries to
true-up our 2009 recorded equity in earnings from our Brazil joint venture. Lastly, we sold our investment in Costa Rica,
which resulted in a gain of $0.9 million.
Reorganization items
under the bankruptcy filings are expense or income items that were incurred or
realized by the Debtors as a result of the Chapter 11 Cases. These items
include professional fees and similar types of expenses incurred directly
related to the bankruptcy filings, gains or losses resulting from activities of
the reorganization process, including gains related to recording the mortgage
debt at Fair Value upon emergence from bankruptcy and interest earned on cash
accumulated by the Debtors.
See Note 1 Reorganization items for
additional detail.
45
Table of Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Liquidity
and Capital Resources
As of March 31, 2010
our consolidated debt ($24.06 billion) and our share of the debt of our
Unconsolidated Real Estate Affiliates ($2.94 billion) aggregated $27.00
billion. The Chapter 11 cases triggered
defaults on substantially all of the debt obligations of the Debtors, approximately
$21.83 billion of our consolidated debt, which defaults were stayed under
section 362 of Chapter 11. These debt
obligations and substantially all other pre-petition obligations of the Debtors
are subject to settlement under a plan of reorganization which must be
confirmed by the Bankruptcy Court.
As of April 30,
2010, $12.06 billion of our consolidated debt associated with the Track 1
Debtors emerged and does not mature until dates after January 1, 2014,
with the exception of the Special Consideration Properties (Note 1). We expect to be able to refinance or extend
such debt on the applicable maturity dates.
However, we have $9.77 billion of consolidated debt still subject to the
stay under section 362 of Chapter 11 which consists of the following:
·
$2.58 billion under our Second Amended
and Restated Credit Agreement (the 2006 Credit Facility)
·
$1.55 billion of 3.98% Exchangeable
Senior Notes due 2027 issued by GGPLP (the Exchangeable Notes)
·
$2.25 billion of Unsecured bonds issued
by TRCLP
·
$206.2 million of trust preferred
securities issued by GGP Capital Trust I, a subsidiary of GGPLP
·
$95.0 million of secured debt related to
our Oakwood operating property
·
$2.75 billion of remaining Track 1
Debtors
·
$338.8 million of secured debt related to
the TopCo Debtors
With respect to our share
of the debt of our Unconsolidated Real Estate Affiliates (excluding the Woodlands
master planned community and Aliansce), $511.3 million matures in 2010 and
$1.13 billion matures in 2011. We
currently believe that we will be able to extend the maturity date or refinance
the debts of our Unconsolidated Real Estates Affiliates, except for Silver City
and Montclair. If we are unable to
extend or refinance such loans, or are unable to do so on satisfactory terms,
we may not have sufficient liquidity to pay these debts.
The cash required for the
Track 1 Debtors to emerge from bankruptcy and restructure their associated
secured mortgage loans is currently estimated to be $731.0 million,
approximately $142.5 million of which is not payable until the earlier of the
emergence of the TopCo Debtors or December 31, 2010. Through April 30, 2010, we have paid
$350.8 million of the amount to emerge and restructure the Track 1 Debtors
secured mortgage debt and currently anticipate that we will have sufficient
liquidity to pay the amounts due prior to the emergence of the TopCo
Debtors. Such payments include payment
of $10.0 million in escrow to fund required insurance, tax, ground rent,
capital expenditure, anchor and other escrows.
In addition, principal amortization on the restructured loans of the
Track 1 Debtors resumes or commences on emergence and is estimated to be
approximately $228.9 million in 2010 and approximately $1.68 billion over the
next five years. These restructured loans also have financial covenants,
primarily debt service coverage ratios, which will restrict our cash and
operations.
We are continuing to
pursue a consensual restructuring of our remaining secured mortgage debt to
extend the maturity date and are prepared to pursue a non-consensual solution
if necessary. We have commenced a
process to explore all potential alternatives for emergence of the TopCo
Debtors. A stand alone restructuring of
the TopCo Debtors is currently estimated to require approximately $1.5 billion
of new capital. This new capital
requirement is a current estimate, subject to change, and is based upon a
number of assumptions that are also subject to change. Such assumptions include, but are not limited
to, repayment of the DIP Facility in cash, conversion of amounts outstanding
under the 2006 Credit Facility, the GGPLP Exchangeable Notes and the TRCLP
bonds to GGP equity, sale or give back of the Special Consideration Properties
and payment of the dividends required for REIT compliance to GGP stockholders
in a combination of 90% stock and 10% cash through 2011.
The equity commitment
from Brookfield, Pershing and Fairholme and related plan of reorganization, if
consummated in accordance with the terms of the agreements, would enable GGP to
emerge from bankruptcy on a stand alone basis.
However, the plan is subject to higher and better offers, and there can
be no assurance that such equity investment or related plan will be
consummated.
46
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
Our ability to continue
as a going concern, as described in Note 1, is dependent upon our ability to
restructure our debt and complete plans of reorganization for the Remaining
Debtors.
Summary of Cash Flows
Cash
Flows from Operating Activities
Net cash provided by
operating activities was $198.3 million for the three months ended March 31,
2010 and $159.5 million for the three months ended March 31, 2009.
Cash used for
Land/residential development and acquisitions expenditures was $16.1 million
for the three months ended March 31, 2010, a decrease from $17.3 million
for the three months ended March 31, 2009 as we have slowed the pace of
residential land development to conform to sales pace declines.
Net cash provided by
(used in) certain assets and liabilities, including accounts and notes
receivable, prepaid expense and other assets, deferred expenses, and accounts
payable and accrued expenses and deferred tax liabilities totaled $90.0 million
in 2010 and $(34.6) million in 2009.
Accounts payable and accrued expenses and deferred tax liabilities
increased $53.2 million primarily as a result of an increase in accrued interest
for unsecured debt. Although liabilities not subject to compromise and certain
liabilities subject to compromise have been approved for payment by the
Bankruptcy Court, a significant portion of our liabilities subject to
compromise are subject to settlement under a plan of reorganization and have
not been paid. In addition, accounts and
notes receivable decreased $14.9 million from December 31, 2009 to March 31,
2010, whereas, such accounts increased $2.3 million from December 31, 2008
to March 31, 2009. Also included, during the three months ended March 31,
2010 are the impact of reorganization items of $111.8 million, net.
Cash
Flows from Investing Activities
Net cash used in
investing activities was $47.2 million for the three months ended March 31,
2010 and $73.8 million for the three months ended March 31, 2009.
Cash used for
acquisition/development of real estate and property additions/improvements was
$53.4 million for the three months ended March 31, 2010, a decline from
$79.6 million for the three months ended March 31, 2009 primarily due to
the completion, suspension or termination of a number of development projects.
Net investing cash
provided by (used in) our Unconsolidated Real Estate Affiliates was $9.4
million in 2010 and $(3.0) million in 2009. This increase is primarily
due to the proceeds from the sale of our investment in Costa Rica (Note 3) in
the first quarter of 2010, as well as, loans to Unconsolidated Real Estate
Affiliates during the first quarter of 2009.
Cash
Flows from Financing Activities
Net cash used in
financing activities was $232.4 million for the three months ended March 31,
2010 and $58.9 million for the three months ended March 31, 2009.
Principal payments on
mortgages, notes and loan payable were $134.2 million for the three months
ended March 31, 2010 and $58.0 million for the three months ended March 31,
2009. In addition, we paid $91.7 million of finance costs related to the
Debtors that emerged from bankruptcy in the first quarter of 2010.
In the fourth quarter of
2009, we declared a dividend of $0.19 per share of common stock (to satisfy
REIT distribution requirements for 2009) payable in a combination of cash and
common stock, provided that the cash component of the dividend could not exceed
10% in the aggregate. As a result of
stockholder elections, on January 28, 2010, we paid approximately $6.0
million in cash. No dividends were paid
during the three months ended March 31, 2009. There were no distributions
to holders of common units during the three months ended March 31, 2010
while $0.1 million was paid during the three months ended March 31, 2009.
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.
47
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
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. Our critical
accounting policies as discussed in our 2009 Annual Report have not changed
during 2010, and such policies, and the discussion of such policies, are
incorporated herein by reference.
REIT
Requirements
In order to remain
qualified as a REIT for federal income tax purposes, we must distribute or pay
tax on 100% of our capital gains and distribute at least 90% of our ordinary
taxable income to stockholders. See Note
5 for more detail on our ability to remain qualified as a REIT.
Recently
Issued Accounting Pronouncements
As described in Note 9,
new accounting pronouncements have been issued which impact or could impact the
prior, current, or subsequent years.
ITEM 3 QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no
significant changes in the market risks described in our Annual Report.
ITEM 4 CONTROLS
AND PROCEDURES
Disclosure Controls and
Procedures
As of the end of the
period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under
the Securities Exchange Act of 1934, as amended, (the Exchange Act)). Based on that evaluation, the CEO and the CFO
have concluded that our disclosure controls and procedures are effective.
Internal Controls over Financial
Reporting
There have been no
changes in our internal controls during our most recently completed fiscal
quarter that have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
PART II OTHER
INFORMATION
ITEM 1 LEGAL
PROCEEDINGS
Other than the Chapter 11
Cases, 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 are no material
changes to the risk factors previously disclosed in our Annual Report or in our
Form 10-Q for the quarter ended March 31, 2010.
ITEM 2 UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Previously reported in
our Form 10-K for the year ended December 31, 2009.
48
Table of
Contents
GENERAL
GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS
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.
99.1
Consolidated Financial Statements of The
Rouse Company LP, a subsidiary of General Growth Properties, Inc.
101
The following financial information from
General Growth Properties, Incs. Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, filed with the SEC on May 10, 2010,
formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated
Balance Sheets, (2) Consolidated Statement of Income and Comprehensive
Income, (3) Consolidated Statements of Equity, (4) Consolidated
Statements of Cash Flows and (5) Notes to Consolidated Financial
Statements, tagged as blocks of text.
Pursuant to Rule 406T of Regulation S-T, this information is deemed
not filed or part of a registration statement or prospectus for purposes of
sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934, and is not otherwise
subject to liability under these sections.
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 March 31,
2010. The registrant agrees to furnish a
copy of such agreements to the SEC upon request.
49
Table of
Contents
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: May 11, 2010
|
by:
|
/s/ Edmund Hoyt
|
|
|
Edmund Hoyt
|
|
|
Senior Vice President
and Chief Financial Officer
|
|
|
(On behalf of the
Registrant and as Principal Accounting Officer)
|
50
Table of
Contents
EXHIBIT INDEX
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.
|
|
|
|
99.1
|
|
Consolidated Financial
Statements of The Rouse Company LP, a subsidiary of General Growth
Properties, Inc.
|
|
|
|
101
|
|
The following financial
information from General Growth Properties, Incs. Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010, filed with the SEC
on May 10, 2010, formatted in XBRL (Extensible Business Reporting
Language): (1) Consolidated Balance Sheets, (2) Consolidated
Statement of Income and Comprehensive Income, (3) Consolidated
Statements of Equity, (4) Consolidated Statements of Cash Flows and
(5) Notes to Consolidated Financial Statements, tagged as blocks of
text. Pursuant to Rule 406T of Regulation S-T, this information is
deemed not filed or part of a registration statement or prospectus for
purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not
filed for purposes of section 18 of the Securities Exchange Act of 1934, and
is not otherwise subject to liability under these sections.
|
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 March 31,
2010. The registrant agrees to furnish a
copy of such agreements to the SEC upon request.
51
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