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 September 30, 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 October 25, 2010 was 317,392,132.
Table of
Contents
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
Investment
in real estate:
|
|
|
|
|
|
Land
|
|
$
|
3,326,422
|
|
$
|
3,327,447
|
|
Buildings
and equipment
|
|
22,827,890
|
|
22,851,511
|
|
Less
accumulated depreciation
|
|
(4,882,862
|
)
|
(4,494,297
|
)
|
Developments
in progress
|
|
424,616
|
|
417,969
|
|
Net
property and equipment
|
|
21,696,066
|
|
22,102,630
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates
|
|
1,915,480
|
|
1,979,313
|
|
Investment
property and property held for development and sale
|
|
1,906,163
|
|
1,753,175
|
|
Net
investment in real estate
|
|
25,517,709
|
|
25,835,118
|
|
Cash
and cash equivalents
|
|
630,014
|
|
654,396
|
|
Accounts
and notes receivable, net
|
|
373,001
|
|
404,041
|
|
Goodwill
|
|
199,664
|
|
199,664
|
|
Deferred
expenses, net
|
|
260,978
|
|
301,808
|
|
Prepaid
expenses and other assets
|
|
761,567
|
|
754,747
|
|
Total
assets
|
|
$
|
27,742,933
|
|
$
|
28,149,774
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
Liabilities
not subject to compromise:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
16,927,928
|
|
$
|
7,300,772
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates
|
|
46,099
|
|
38,289
|
|
Deferred
tax liabilities
|
|
792,170
|
|
866,400
|
|
Accounts
payable and accrued expenses
|
|
1,317,622
|
|
1,122,888
|
|
Liabilities
not subject to compromise
|
|
19,083,819
|
|
9,328,349
|
|
Liabilities
subject to compromise
|
|
7,836,856
|
|
17,767,253
|
|
Total
liabilities
|
|
26,920,675
|
|
27,095,602
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interests:
|
|
|
|
|
|
Preferred
|
|
120,756
|
|
120,756
|
|
Common
|
|
115,117
|
|
86,077
|
|
Total
redeemable noncontrolling interests
|
|
235,873
|
|
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, 318,842,071 shares
issued as of September 30, 2010 and 313,831,411 shares issued as of
December 31, 2009
|
|
3,188
|
|
3,138
|
|
Additional
paid-in capital
|
|
3,750,360
|
|
3,729,453
|
|
Retained
earnings (accumulated deficit)
|
|
(3,129,683
|
)
|
(2,832,627
|
)
|
Accumulated
other comprehensive income (loss)
|
|
15,300
|
|
(249
|
)
|
Less
common stock in treasury, at cost, 1,449,939 shares as of September 30,
2010 and December 31, 2009
|
|
(76,752
|
)
|
(76,752
|
)
|
Total
stockholders equity
|
|
562,413
|
|
822,963
|
|
Noncontrolling
interests in consolidated real estate affiliates
|
|
23,972
|
|
24,376
|
|
Total
equity
|
|
586,385
|
|
847,339
|
|
Total
liabilities and equity
|
|
$
|
27,742,933
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(Dollars in thousands, except for per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
487,433
|
|
$
|
489,472
|
|
$
|
1,464,650
|
|
$
|
1,487,288
|
|
Tenant
recoveries
|
|
217,906
|
|
217,040
|
|
647,744
|
|
674,750
|
|
Overage
rents
|
|
10,333
|
|
10,408
|
|
28,126
|
|
26,214
|
|
Land
and condominium sales
|
|
20,290
|
|
7,409
|
|
85,325
|
|
38,844
|
|
Management
fees and other corporate revenues
|
|
14,075
|
|
16,851
|
|
48,063
|
|
57,569
|
|
Other
|
|
19,655
|
|
19,781
|
|
62,337
|
|
57,031
|
|
Total
revenues
|
|
769,692
|
|
760,961
|
|
2,336,245
|
|
2,341,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
71,339
|
|
69,925
|
|
214,496
|
|
210,443
|
|
Property
maintenance costs
|
|
27,176
|
|
28,246
|
|
89,207
|
|
77,704
|
|
Marketing
|
|
9,043
|
|
7,358
|
|
22,374
|
|
21,840
|
|
Other
property operating costs
|
|
132,441
|
|
136,235
|
|
387,713
|
|
394,414
|
|
Land
and condominium sales operations
|
|
19,770
|
|
9,582
|
|
89,001
|
|
42,046
|
|
Provision
for doubtful accounts
|
|
5,628
|
|
5,925
|
|
15,575
|
|
25,104
|
|
Property
management and other costs
|
|
41,057
|
|
44,876
|
|
125,007
|
|
130,485
|
|
General
and administrative
|
|
9,401
|
|
8,324
|
|
22,707
|
|
22,436
|
|
Strategic
initiatives
|
|
|
|
3,328
|
|
|
|
67,341
|
|
Provisions
for impairment
|
|
4,620
|
|
60,940
|
|
35,893
|
|
474,420
|
|
Depreciation
and amortization
|
|
175,336
|
|
185,016
|
|
527,956
|
|
576,103
|
|
Total
expenses
|
|
495,811
|
|
559,755
|
|
1,529,929
|
|
2,042,336
|
|
Operating
income
|
|
273,881
|
|
201,206
|
|
806,316
|
|
299,360
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
274
|
|
523
|
|
1,087
|
|
1,754
|
|
Interest
expense
|
|
(413,237
|
)
|
(326,357
|
)
|
(1,050,241
|
)
|
(983,198
|
)
|
Loss
before income taxes, noncontrolling interests, equity in income of
Unconsolidated Real Estate Affiliates and reorganization items
|
|
(139,082
|
)
|
(124,628
|
)
|
(242,838
|
)
|
(682,084
|
)
|
(Provision
for) benefit from income taxes
|
|
(1,913
|
)
|
14,430
|
|
(19,797
|
)
|
10,202
|
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
9,789
|
|
15,341
|
|
60,441
|
|
39,218
|
|
Reorganization
items
|
|
(102,517
|
)
|
(22,597
|
)
|
(93,216
|
)
|
(47,515
|
)
|
Loss
from continuing operations
|
|
(233,723
|
)
|
(117,454
|
)
|
(295,410
|
)
|
(680,179
|
)
|
Discontinued
operations - gain (loss) on dispositions
|
|
|
|
29
|
|
|
|
(26
|
)
|
Net
loss
|
|
(233,723
|
)
|
(117,425
|
)
|
(295,410
|
)
|
(680,205
|
)
|
Allocation
to noncontrolling interests
|
|
2,538
|
|
(422
|
)
|
(1,646
|
)
|
7,876
|
|
Net
loss attributable to common stockholders
|
|
$
|
(231,185
|
)
|
$
|
(117,847
|
)
|
$
|
(297,056
|
)
|
$
|
(672,329
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.73
|
)
|
$
|
(0.38
|
)
|
$
|
(0.94
|
)
|
$
|
(2.16
|
)
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
Total
basic and diluted loss per share
|
|
$
|
(0.73
|
)
|
$
|
(0.38
|
)
|
$
|
(0.94
|
)
|
$
|
(2.16
|
)
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss, Net:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(233,723
|
)
|
$
|
(117,425
|
)
|
$
|
(295,410
|
)
|
$
|
(680,205
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net
unrealized (losses) gains on financial instruments
|
|
(227
|
)
|
6,055
|
|
7,952
|
|
13,679
|
|
Accrued
pension adjustment
|
|
88
|
|
162
|
|
188
|
|
486
|
|
Foreign
currency translation
|
|
16,291
|
|
17,448
|
|
7,751
|
|
43,132
|
|
Unrealized
gains on available-for-sale securities
|
|
5
|
|
6
|
|
6
|
|
117
|
|
Other
comprehensive income
|
|
16,157
|
|
23,671
|
|
15,897
|
|
57,414
|
|
Comprehensive
loss
|
|
(217,566
|
)
|
(93,754
|
)
|
(279,513
|
)
|
(622,791
|
)
|
Other
comprehensive loss allocated to noncontrolling interests
|
|
(354
|
)
|
(537
|
)
|
(348
|
)
|
(1,304
|
)
|
Adjustment
for noncontrolling interests
|
|
|
|
|
|
|
|
(9,065
|
)
|
Comprehensive
loss, net, attributable to common stockholders
|
|
$
|
(217,920
|
)
|
$
|
(94,291
|
)
|
$
|
(279,861
|
)
|
$
|
(633,160
|
)
|
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)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
|
Treasury
Stock
|
|
Noncontrolling
Interests in
Consolidated Real
Estate Affiliates
|
|
Total
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
|
|
|
|
|
|
(672,329
|
)
|
|
|
|
|
1,814
|
|
(670,515
|
)
|
Distributions to
noncontrolling interests in consolidated Real Estate Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
(1,270
|
)
|
(1,270
|
)
|
Conversion of operating
partnership units to common stock (43,408,053 common shares)
|
|
434
|
|
324,055
|
|
|
|
|
|
|
|
|
|
324,489
|
|
Issuance of common stock
(69,309 common shares)
|
|
1
|
|
42
|
|
|
|
|
|
|
|
|
|
43
|
|
Restricted stock grant,
net of forfeitures and compensation expense (1,617 common shares)
|
|
(1
|
)
|
1,927
|
|
|
|
|
|
|
|
|
|
1,926
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
47,046
|
|
|
|
|
|
47,046
|
|
Adjustment for
noncontrolling interest in operating partnership
|
|
|
|
12,313
|
|
|
|
|
|
|
|
|
|
12,313
|
|
Balance
at September 30, 2009
|
|
$
|
3,138
|
|
$
|
3,793,240
|
|
$
|
(2,160,915
|
)
|
$
|
(9,082
|
)
|
$
|
(76,752
|
)
|
$
|
24,810
|
|
$
|
1,574,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2010
|
|
$
|
3,138
|
|
$
|
3,729,453
|
|
$
|
(2,832,627
|
)
|
$
|
(249
|
)
|
$
|
(76,752
|
)
|
$
|
24,376
|
|
$
|
847,339
|
|
Net (loss) income
|
|
|
|
|
|
(297,056
|
)
|
|
|
|
|
1,475
|
|
(295,581
|
)
|
Distributions to
noncontrolling interests in consolidated Real Estate Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
(1,879
|
)
|
(1,879
|
)
|
Issuance of common stock
- payment of dividend (4,923,287 common shares)
|
|
50
|
|
53,346
|
|
|
|
|
|
|
|
|
|
53,396
|
|
Restricted stock grants,
net of forfeitures and compensation expense (87,373 common shares)
|
|
|
|
3,069
|
|
|
|
|
|
|
|
|
|
3,069
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
15,549
|
|
|
|
|
|
15,549
|
|
Adjustment for
noncontrolling interest in operating partnership
|
|
|
|
(35,508
|
)
|
|
|
|
|
|
|
|
|
(35,508
|
)
|
Balance
at September 30, 2010
|
|
$
|
3,188
|
|
$
|
3,750,360
|
|
$
|
(3,129,683
|
)
|
$
|
15,300
|
|
$
|
(76,752
|
)
|
$
|
23,972
|
|
$
|
586,385
|
|
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)
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(295,410
|
)
|
$
|
(680,205
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
(60,441
|
)
|
(39,218
|
)
|
Provision
for doubtful accounts
|
|
15,575
|
|
25,104
|
|
Distributions
received from Unconsolidated Real Estate Affiliates
|
|
40,427
|
|
31,065
|
|
Depreciation
|
|
494,475
|
|
539,091
|
|
Amortization
|
|
33,481
|
|
37,012
|
|
Amortization/write-off
of deferred finance costs
|
|
26,753
|
|
37,042
|
|
Amortization
(accretion) of debt market rate adjustments
|
|
43,330
|
|
(9,357
|
)
|
(Accretion)
amortization of intangibles other than in-place leases
|
|
(352
|
)
|
901
|
|
Straight-line
rent amortization
|
|
(27,153
|
)
|
(27,173
|
)
|
Non-cash
interest expense on Exchangeable Senior Notes
|
|
21,618
|
|
20,347
|
|
Non-cash
interest expense resulting from termination of interest rate swaps
|
|
9,636
|
|
(14,156
|
)
|
Non-cash
interest expense related to Special Consideration Properties
|
|
(33,417
|
)
|
|
|
Provisions
for impairment
|
|
35,893
|
|
474,420
|
|
Participation
expense pursuant to Contingent Stock Agreement
|
|
|
|
(3,572
|
)
|
Land/residential
development and acquisitions expenditures
|
|
(53,540
|
)
|
(46,781
|
)
|
Cost
of land and condominium sales
|
|
62,528
|
|
20,147
|
|
Revenue
recognition of deferred condominium sales
|
|
(36,443
|
)
|
|
|
Reorganization
items - finance costs related to emerged entities
|
|
138,548
|
|
|
|
Accrued
interest expense related to the Plan
|
|
83,739
|
|
|
|
Non-cash
reorganization items
|
|
(127,401
|
)
|
24,114
|
|
(Increase)
decrease in restricted cash
|
|
(48,739
|
)
|
1,221
|
|
Glendale
Matter deposit
|
|
|
|
67,054
|
|
Net
changes:
|
|
|
|
|
|
Accounts
and notes receivable
|
|
43,155
|
|
(1,140
|
)
|
Prepaid
expenses and other assets
|
|
26,134
|
|
(11,954
|
)
|
Deferred
expenses
|
|
(24,238
|
)
|
(25,667
|
)
|
Accounts
payable and accrued expenses and deferred tax liabilities
|
|
177,845
|
|
238,009
|
|
Other,
net
|
|
(170
|
)
|
15,063
|
|
Net
cash provided by operating activities
|
|
545,833
|
|
671,367
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Acquisition/development
of real estate and property additions/improvements
|
|
(204,599
|
)
|
(158,237
|
)
|
Proceeds
from sales of investment properties
|
|
94
|
|
6,418
|
|
Proceeds
from sales of investment in Unconsolidated Real Estate Affiliates
|
|
7,450
|
|
|
|
Increase
in investments in Unconsolidated Real Estate Affiliates
|
|
(17,229
|
)
|
(144,293
|
)
|
Distributions
received from Unconsolidated Real Estate Affiliates in excess of income
|
|
107,431
|
|
62,335
|
|
Loans
to Unconsolidated Real Estate Affiliates, net
|
|
|
|
(9,666
|
)
|
(Increase)
decrease in restricted cash
|
|
(8,849
|
)
|
8,900
|
|
Other,
net
|
|
(4,144
|
)
|
(3,381
|
)
|
Net
cash used in investing activities
|
|
(119,846
|
)
|
(237,924
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds
from refinance/issuance of the DIP facility
|
|
400,000
|
|
400,000
|
|
Principal
payments on mortgages, notes and loans payable
|
|
(704,155
|
)
|
(309,350
|
)
|
Deferred
finance costs
|
|
|
|
(2,595
|
)
|
Finance
costs related to emerged entities
|
|
(138,548
|
)
|
|
|
Cash
distributions paid to common stockholders
|
|
(5,957
|
)
|
|
|
Cash
distributions paid to holders of Common Units
|
|
|
|
(982
|
)
|
Proceeds
from issuance of common stock, including from common stock plans
|
|
|
|
43
|
|
Other,
net
|
|
(1,709
|
)
|
2,213
|
|
Net
cash (used in) provided by financing activities
|
|
(450,369
|
)
|
89,329
|
|
Net
change in cash and cash equivalents
|
|
(24,382
|
)
|
522,772
|
|
Cash
and cash equivalents at beginning of period
|
|
654,396
|
|
168,993
|
|
Cash
and cash equivalents at end of period
|
|
$
|
630,014
|
|
$
|
691,765
|
|
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)
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
Interest
paid
|
|
$
|
734,684
|
|
$
|
792,543
|
|
Interest
capitalized
|
|
31,526
|
|
43,198
|
|
Income
taxes paid
|
|
5,247
|
|
18,068
|
|
Reorganization
items paid
|
|
220,617
|
|
23,401
|
|
|
|
|
|
|
|
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
|
|
(83,524
|
)
|
(75,123
|
)
|
Change
in deferred contingent property acquisition liabilities
|
|
161,622
|
|
(147,616
|
)
|
Deferred
financing costs payable in conjunction with the DIP Facility
|
|
|
|
19,000
|
|
Recognition
of note payable in conjunction with land held for development and sale
|
|
|
|
6,520
|
|
Mortgage
debt market rate adjustments related to emerged entities
|
|
323,318
|
|
|
|
Gain
on Aliansce IPO
|
|
9,652
|
|
|
|
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 or the Company),
a Delaware corporation, is a self-administered and self-managed real estate
investment trust, referred to as a REIT which, together with certain of the
Companys subsidiaries, filed for voluntary 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. On April 22, 2009 (together with April 16,
2009, as applicable, the Petition Date) certain additional domestic
subsidiaries (collectively with GGP and the subsidiaries filing on April 16,
2009, the Debtors) of the Company also filed voluntary petitions for relief
in the Bankruptcy Court (collectively, the Chapter 11 Cases), which the
Bankruptcy Court ruled may be jointly administered.
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 (Note 3). In July 2010,
we sold our third party management business for nominal consideration and
participation in the future earnings of the assigned management contracts. 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
(Las Vegas), 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 September 30,
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.
On August 17, 2010, GGP filed with the Bankruptcy Court
its third amended and restated disclosure statement and the plan of
reorganization, as supplemented by the plan of reorganization supplement filed September 30,
2010 and as modified on October 21, 2010 (the Plan) for the 126 Debtors
currently remaining in the Chapter 11 Cases (the TopCo Debtors). On October 21, 2010, the Bankruptcy
Court entered an order confirming the Plan.
Pursuant to the Plan, GGP will reorganize into a new company (New GGP)
at the date of GGPs emergence from bankruptcy (the Effective Date), which is
currently expected to be on or about November 8, 2010. The Plan (as described in more detail in the Debtors
in Possession section below) provides that prepetition creditors will be
satisfied in full and equity holders will receive current equity in New GGP and
a distribution of equity in The Howard Hughes Corporation (THHC), a newly
formed real estate company. After such
distribution, THHC will be a publicly-held company, majority-owned by our
existing stockholders. Its assets are
expected to consist of the following:
·
four master
planned communities with an aggregate of approximately 14,700 remaining
saleable acres;
·
nine
mixed-use development opportunities comprised of 1,129 acres;
·
four mall
developmental projects comprised of 647 acres;
·
seven
redevelopment-opportunity retail malls with approximately 1 million square feet
of existing gross leasable space; and
·
interests
in eleven other real estate assets or projects.
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.
8
Table
of Contents
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 September 30, 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, we reclassified $2.4 million and $8.0 million,
respectively, of joint venture asset management fees and other corporate
revenues (such as sponsorship income, photo income and vending income) for the
three and nine months ended September 30, 2009 from other revenue to
management fees and other corporate revenues.
In addition, we reclassified $28.2 million and $84.2 million,
respectively, of cleaning, landscaping and refuse removal expenses for the
three and nine months ended September 30, 2009 from property maintenance
costs to other property operating costs.
Debtors
in Possession
As
we had significant past due, or imminently due debt, and certain
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 in April 2009. However, neither
GGMI, certain of our wholly-owned subsidiaries, nor any of our joint ventures,
(collectively, the Non-Debtors) either consolidated or unconsolidated, sought
such protection.
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. These pre-petition liabilities
will be settled under the Plan.
Through
September 30, 2010, of the total 388 Debtors with approximately $21.83
billion of debt that filed in 2009 for Chapter 11 protection, 262 Debtors
owning 146 properties with $14.89 billion of secured mortgage loans filed
consensual plans of reorganization and emerged from bankruptcy (the Emerged
Debtors). During the nine months ended
September 30, 2010, 149 Debtors owning 96 properties with $10.23 billion
of secured mortgage debt emerged from bankruptcy, while 113 Debtors owning 50
properties with $4.66 billion secured debt had emerged from bankruptcy as of December 31,
2009. In addition,
as the result of a consensual agreement reached in the third
quarter of 2010 with lenders of certain of our corporate debt,
we
recognized $83.7 million of additional interest expense for
the three and nine months ended September 30, 2010.
The
Plan is based on the agreements (collectively, as amended and restated, the Investment
Agreements) with REP Investments LLC, an affiliate of Brookfield Asset
Management Inc. (the Brookfield Investor) , an affiliate of Fairholme
Funds, Inc. (Fairholme) and an affiliate of Pershing Square Capital
Management, L.P. (Pershing Square and together with the Brookfield Investor
and Fairholme, the Plan Sponsors), pursuant to which GGP would be divided
into two companies, New GGP and THHC, and the Plan Sponsors would invest in the
Companys standalone emergence plan. As a result of the Investment Agreements,
the Company has equity commitments for $6.55 billion subject to the conditions
set forth in such agreements. Pursuant to the Investment Agreements, the
Plan Sponsors are expected to purchase on the Effective Date up to $6.3 billion
of New GGP common stock at $10.00 per share and $250.0 million of THHC stock at
$47.61904 per share. In addition, pursuant to our agreement with
the Teachers Retirement System of Texas (Texas Teachers), Texas
9
Table of
Contents
Teachers
will purchase $500.0 million of New GGP common stock at $10.25 per share,
subject to the conditions set forth in such agreement. Finally, the Plan Sponsors have entered into
an agreement with The Blackstone Group (Blackstone) whereby Blackstone has
been given the option to subscribe for approximately 7.6% of the New GGP and
THHC shares to be issued to the Plan Sponsors and receive a pro rata portion of
each Plan Sponsors Permanent Warrants (as defined below). On September 21, 2010, we entered into a
financing commitment agreement for a $300.0 million senior secured revolving
facility which commences on the Effective Date and is not expected to be drawn
upon.
The
Investment Agreements and our agreement with Texas Teachers permit us to reduce
the equity commitments of Pershing, Fairholme and Texas Teachers up to 50% with
alternative equity sources at more favorable pricing at any time prior to the
Effective Date or up to 45 days after the Effective Date.
On
October 11, 2010, we gave notice to Pershing, Fairholme and Texas Teachers
that we reserved the right to repurchase within 45 days after the Effective
Date up to $1.55 billion of Fairholmes and Pershing Squares shares and up to
$250.0 million of Texas Teachers shares of New GGP common stock issued on
the Effective Date with the proceeds of an offering of New GGP common stock if
the common stock in that offering is valued at $10.50 per share or more (net of
all underwriting and other discounts, fees and related consideration). In
connection with our reserving shares for repurchase after the Effective Date,
we must pay to Fairholme and/or Pershing Square, as applicable, in cash on the
Effective Date, an amount equal to approximately $38.75 million. No fee
is required to be paid to Texas Teachers.
In such regard, New GGP, a wholly-owned subsidiary of GGP until the
Effective Date, has filed a registration statement with the Securities and
Exchange Commission to raise up to $2.25 billion through the sale of common
stock to repurchase the applicable shares held by Fairholme, Pershing Square
and Texas Teachers.
In
connection with our election to reserve shares for repurchase as described
above, $350.0 million of Pershing Squares equity capital commitment will be
fulfilled by the payment of cash to New GGP at closing in exchange for
unsecured note(s) issued by New GGP to Pershing Square which would be
payable or exchangeable into New GGP common stock six months from closing (the Pershing
Square Bridge Notes) at the election of New GGP. The Pershing Square
Bridge Notes will bear interest at a rate of 6% per annum and will be
pre-payable by New GGP (from the proceeds of equity offerings or other sources
of cash) at any time without premium or penalty. New GGP has a put right
to sell up to 35 million shares, subject to reduction as provided in the
investment agreement, to Pershing Square at $10.00 per share (adjusted for
dividends) six months following the Effective Date to fund the repayment of the
Pershing Square Bridge Notes to the extent that they have not already been
repaid.
In
lieu of the receipt of fees that would be customary in similar transactions,
pursuant to the Investment Agreements, interim warrants were issued to the
Brookfield Investor and Fairholme to purchase approximately 103 million shares
of GGP at $15.00 per share (the Interim Warrants) on May 10, 2010. 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 the Brookfield Investor or Fairholmes Investment Agreement, as
the case may be, will not vest and will be cancelled. The Interim Warrants may
only be exercised if the Investment Agreements are not consummated.
Accordingly, no expense has been recognized for the issuance of the Interim
Warrants. Upon consummation of the Plan,
the Interim Warrants will be cancelled and warrants to purchase equity of THHC
and New GGP will be issued to the Plan Sponsors (the Permanent Warrants).
Specifically, eight million warrants to purchase equity of THHC at an exercise
price of $50.00 per share and 120 million warrants to purchase equity of New
GGP at an exercise price of $10.75 per share, in the case of the Brookfield
Investor, and an exercise price of $10.50 in the case of Fairholme and Pershing
Square, will be issued. Recognition of
the estimated $338.5 million value of the Permanent Warrants will occur when,
and if, such Permanent Warrants are issued as an adjustment to the equity
contribution of the Plan Sponsors.
Even
if the Pershing Square, Fairholme and Texas Teachers equity commitments are
replaced, to the maximum extent permitted by the Investment Agreements and the
Texas Teachers agreement, the Plan Sponsors are expected to own, in the
aggregate, a majority of the equity in New GGP. As a result, consummation
of the Plan will require the application of acquisition accounting to the
assets and liabilities of New GGP (after the distribution of certain assets and
liabilities to THHC). The assets and liabilities of New GGP will be recorded at
10
Table of
Contents
Fair
Value (Note 2) as of the Effective Date and are expected to have a carrying
value substantially different than the historical cost, carrying values
included in the accompanying consolidated financial statements. The
consolidated financial statements and related notes contained herein do not
give effect to the Plan and related restructuring transactions, including the
distribution of THHC, or acquisition accounting. Following our emergence from bankruptcy, it
will be difficult to compare certain information reflecting our results of
operations and financial condition to those for historical periods prior to
emergence from bankruptcy.
Until
the Effective Date, there will continue to be substantial doubt as to our
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
generally accepted accounting principles related to financial reporting by
entities in reorganization under the Bankruptcy Code 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 accompanying
unaudited combined condensed financial statements of the TopCo Debtors
presented below have been prepared in accordance with generally accepted
accounting principles, and on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business.
The
unaudited combined condensed balance sheets of the TopCo 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
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Net
investment in real estate
|
|
$
|
2,986,702
|
|
$
|
2,873,317
|
|
Cash
and cash equivalents
|
|
567,975
|
|
584,592
|
|
Accounts
and notes receivable, net
|
|
18,964
|
|
27,431
|
|
Other
|
|
4,587,072
|
|
4,422,713
|
|
Total
assets
|
|
$
|
8,160,713
|
|
$
|
7,908,053
|
|
|
|
|
|
|
|
Liabilities
not subject to compromise:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
404,591
|
|
$
|
400,000
|
|
Deferred
tax liabilities
|
|
835,965
|
|
910,847
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates
|
|
33,303
|
|
33,005
|
|
Accounts
payable and accrued expenses
|
|
677,360
|
|
559,005
|
|
Liabilities
subject to compromise
|
|
7,836,856
|
|
7,426,085
|
|
Total
redeemable noncontrolling interests
|
|
235,873
|
|
206,833
|
|
Deficit
|
|
(1,863,235
|
)
|
(1,627,722
|
)
|
Total
liabilities and deficit
|
|
$
|
8,160,713
|
|
$
|
7,908,053
|
|
As
described above, substantially all of the subsidiary mortgage borrower Debtors
have emerged from bankruptcy protection as of September 30, 2010. The
unaudited combined condensed statements of operations and the unaudited
combined condensed statements of cash flows presented below includes only the
TopCo Debtors, and excludes Emerged Debtors, for the three and nine months
ended September 30, 2010. Since the
Debtors commenced their respective Chapter 11 Cases on two different dates in April 2009,
the unaudited combined condensed statements of operations have been prepared
for the three months ended September 30,
11
Table of
Contents
2009
and for the period from May 1, 2009 to September 30, 2009 and the
combined condensed statement of cash flows have been prepared for the period
from May 1, 2009 to September 30, 2009.
Unaudited Combined Condensed Statements of Operations
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
May 1, 2009 to
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
(In thousands)
|
|
Operating revenues
|
|
$
|
51,344
|
|
$
|
42,798
|
|
$
|
184,406
|
|
$
|
69,313
|
|
Operating expenses
|
|
54,729
|
|
53,877
|
|
194,118
|
|
158,303
|
|
Provision for impairment
|
|
4,608
|
|
52,546
|
|
16,151
|
|
72,325
|
|
Operating loss
|
|
(7,993
|
)
|
(63,625
|
)
|
(25,863
|
)
|
(161,315
|
)
|
Interest expense, net
|
|
(167,949
|
)
|
(91,099
|
)
|
(349,086
|
)
|
(163,911
|
)
|
(Provision for) benefit from income taxes
|
|
(6,284
|
)
|
4,764
|
|
(20,929
|
)
|
5,780
|
|
Equity in income of Real Estate Affiliates
|
|
25,430
|
|
29,933
|
|
90,645
|
|
52,091
|
|
Reorganization items
|
|
(93,030
|
)
|
(24,185
|
)
|
(239,886
|
)
|
(47,308
|
)
|
Net loss
|
|
(249,826
|
)
|
(144,212
|
)
|
(545,119
|
)
|
(314,663
|
)
|
Allocation to noncontrolling interests
|
|
901
|
|
(471
|
)
|
(4,259
|
)
|
(149
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(248,925
|
)
|
$
|
(144,683
|
)
|
$
|
(549,378
|
)
|
$
|
(314,812
|
)
|
Unaudited
Combined Condensed Statements of Cash Flows
|
|
Nine Months Ended
|
|
May 1, 2009 to
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
(In thousands)
|
|
Net cash used in (provided by):
|
|
|
|
|
|
Operating activities
|
|
$
|
(12,370
|
)
|
$
|
330,451
|
|
Investing activities
|
|
1,710
|
|
55,617
|
|
Financing activities
|
|
(5,957
|
)
|
188,225
|
|
Net (decrease) increase in cash and cash equivalents
|
|
(16,617
|
)
|
574,293
|
|
Cash and cash equivalents, beginning of period
|
|
584,592
|
|
52,971
|
|
Cash and cash equivalents, end of period
|
|
$
|
567,975
|
|
$
|
627,264
|
|
|
|
|
|
|
|
Cash paid for reorganization items
|
|
$
|
(79,702
|
)
|
$
|
(22,524
|
)
|
Classification
of Liabilities Not Subject to Compromise
Liabilities
not subject to compromise include: (1) liabilities held by Non-Debtor
entities and Debtors that have emerged from bankruptcy; (2) liabilities
incurred after the Petition Date; (3) certain pre-Petition Date
liabilities the TopCo Debtors expect to pay in full, even though certain of
these amounts may not be paid until the Plan 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:
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Mortgages and secured notes
|
|
$
|
403,292
|
|
$
|
11,148,467
|
|
Unsecured notes
|
|
6,528,843
|
|
6,006,778
|
|
Accounts payable and accrued liabilities
|
|
904,721
|
|
612,008
|
|
Total liabilities subject to compromise
|
|
$
|
7,836,856
|
|
$
|
17,767,253
|
|
12
Table
of Contents
The
classification of liabilities not subject to compromise versus liabilities subject
to compromise is based on currently available information and analysis.
Although Debtors subject to the remaining Chapter 11 Cases had their plans of
reorganization confirmed as of October 21, 2010, additional analysis
remains to be completed and the Bankruptcy Court may be requested to rule on
pre-petition liabilities to be allowed and paid pursuant to the Plan. Certain creditors have claimed that they are
contractually entitled to approximately $117.9 million of default rate interest
and other related fees. Accordingly, the
amounts in these two categories ultimately paid may change. The amount of any such changes could be
significant. In addition, the Plan
provides that certain pre-petition liabilities related to the assets
distributed to THHC will remain an obligation of New GGP.
Reorganization
Items
Reorganization
items 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 Debtors that have not
emerged from bankruptcy at September 30, 2010 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 $48.6 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. We accrued a liability
for such fees in Accounts payable and accrued expense on the Consolidated
Balance Sheets of $43.1 million as of September 30, 2010 and $7.2 million
as of December 31, 2009. In
addition, we recognized $13.4 million of expense in Reorganization items in the
Consolidated Statements of Income and Comprehensive Income for the three months
ended September 30, 2010, $35.9 million for the nine months ended September 30,
2010 and $2.4 million for the three and nine months ended September 30, 2009.
In
addition, the key employee incentive program (the KEIP) provides for payment
to certain key employees upon successful emergence from bankruptcy. Although the amount of the potential KEIP
payment is uncapped, a portion of the KEIP, currently estimated for financial
statement purposes based on the trading value of the GGP common stock on September 30,
2010 at approximately $155.1 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. We accrued a liability for the KEIP in
Accounts payable and accrued expense on the Consolidated Balance Sheets of
$140.0 million as of September 30, 2010 and $27.5 million as of December 31,
2009. In addition, we recognized expense
in Reorganization items in the Consolidated Statements of Income and
Comprehensive Income of $43.0 million for the three months ended September 30,
2010 and $112.5 million for the nine months ended September 30, 2010. We did not recognize any expense related to
the KEIP for the three and nine months ended September 30, 2009 as the
KEIP was not approved by the Bankruptcy Court until October 2009.
13
Table
of Contents
Reorganization
items are as follows:
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
Reorganization Items
|
|
September 30, 2010
|
|
September 30, 2009
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
(In thousands)
|
|
Losses
(Gains) on liabilities subject to compromise - vendors (1)
|
|
$
|
188
|
|
$
|
(2,670
|
)
|
$
|
(6,688
|
)
|
$
|
(5,049
|
)
|
Gains
on liabilities subject to compromise - mortgage debt (2)
|
|
(4,309
|
)
|
|
|
(323,318
|
)
|
|
|
Interest
income (3)
|
|
(73
|
)
|
(15
|
)
|
(163
|
)
|
(23
|
)
|
U.S.
Trustee fees (4)
|
|
1,423
|
|
1,419
|
|
4,260
|
|
2,516
|
|
Restructuring
costs (5)
|
|
105,288
|
|
23,863
|
|
419,125
|
|
50,071
|
|
Total
reorganization items
|
|
$
|
102,517
|
|
$
|
22,597
|
|
$
|
93,216
|
|
$
|
47,515
|
|
(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. Also included is a $3.4 million gain
related to the accrued interest associated with the forgiveness of debt as a
result of the the paydown of debt for Stonestown Galleria in June 2010.
(2)
Such net gains include the
Fair Value adjustments of mortgage debt, as well as a $38.3 million recorded
for the nine months ended September 30, 2010 resulting from the write off
of existing Fair Value of debt adjustments for the entities that emerged from
bankruptcy and a $33.9 million gain recorded in June 2010 as the result of
the forgiveness of debt associated with the paydown of debt for Stonestown
Galleria.
(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 and land held for development and redevelopment, including assets to
be sold after such development or redevelopment
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, developments in progress, and
land held for development and redevelopment are assessed by project and
include, but are not limited to, significant changes the Companys plans with
respect to the project, 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 flows. 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
determined to be necessary, the excess of the carrying amount of the asset 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 $4.6 million for the
three months ended September 30, 2010, $54.7 million for
14
Table of
Contents
the
three months ended September 30, 2009, $35.9 million for the nine months
ended September 30, 2010 and $339.4 million for the nine months ended September 30,
2009, as presented in the table below.
All of these impairment charges are included in Provisions for
impairment in our Consolidated Statements of Income and Comprehensive Income.
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 an other-than-temporary decrease in
value of our investment in the Unconsolidated Real Estate Affiliates has
occurred. 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 and nine months ended September 30,
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 September 30, 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 September 30, 2009, we performed
interim impairment tests of goodwill as changes in market and economic
conditions for the three and nine months ended September 30, 2009
indicated an impairment of the asset might have occurred. As a result of the procedures performed, we
recorded provisions for impairment of goodwill of $6.3 million for the three
months ended September 30, 2009 and $135.0 million for the nine months
ended September 30, 2009, as presented in the table below.
General
Certain
of our properties had estimated Fair Values less than their carrying
amounts. However, based on the Companys
plans with respect to the New GGP properties, we believe that the carrying
amounts are recoverable and therefore, under applicable generally accepted
accounting principles, no additional impairments were taken. Additional impairment charges could be taken
in the future if economic conditions change or if our plans regarding the New
GGP assets change. Therefore, we can
provide no assurance that material impairment charges with respect to the New
GGP assets, including operating properties, Unconsolidated Real Estate
Affiliates, developments in progress, 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.
With
respect to a distribution of long-lived assets to owners in a spinoff,
generally accepted accounting principles require an impairment loss be
recognized at the date of disposal to the extent that the carrying amount of
the disposal group exceeds its Fair Value. The distribution of certain assets
and liabilities of THHC to existing GGP stockholders constitutes a distribution
to the owners in a spinoff, and as such, is required to be accounted for at the
lower of carrying value or Fair Value.
Accordingly, GGP will likely incur a significant impairment charge in
the fourth quarter of 2010 in conjunction with the distribution of assets to
THHC as the Fair Value of such assets is estimated to be lower than the
carrying value. Further, the assets
distributed to THHC will be under the control of a new Board of Directors and
new management who may change existing plans for these assets, which could
result in future impairment charges being recorded by THHC.
15
Table of
Contents
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Impaired Asset
|
|
Location
|
|
Method of Determining Fair Value
|
|
September 30, 2010
|
|
September 30, 2010
|
|
|
|
|
|
|
|
(In thousands)
|
|
Retail
and other:
|
|
|
|
|
|
|
|
|
|
Operating properties:
|
|
|
|
|
|
|
|
|
|
Bay City Mall
|
|
Bay City, MI
|
|
Discounted cash flow analysis (1)
|
|
$
|
|
|
$
|
2,309
|
|
Chico Mall
|
|
Chico, CA
|
|
Discounted cash flow analysis (1)
|
|
|
|
895
|
|
Eagle Ridge Mall
|
|
Lake Wales, FL
|
|
Discounted cash flow analysis (1)
|
|
|
|
266
|
|
Lakeview Square
|
|
Battle Creek, MI
|
|
Discounted cash flow analysis (1)
|
|
|
|
7,057
|
|
Moreno Valley Mall
|
|
Moreno Valley, CA
|
|
Discounted cash flow analysis (1)
|
|
|
|
6,608
|
|
Northgate Mall
|
|
Chattanooga, TN
|
|
Discounted cash flow analysis (1)
|
|
|
|
1,398
|
|
Oviedo Marketplace
|
|
Oviedo, FL
|
|
Discounted cash flow analysis (1)
|
|
|
|
1,184
|
|
The Pines
|
|
Pine Bluff, AR
|
|
Direct Capitalization method (2)
|
|
|
|
11,057
|
|
Plaza 800
|
|
Sparks, NV
|
|
Projected sales price analysis (2)
|
|
4,516
|
|
4,516
|
|
Total operating properties
|
|
|
|
|
|
$
|
4,516
|
|
$
|
35,290
|
|
|
|
|
|
|
|
|
|
|
|
Various pre-development
costs
|
|
|
|
(3)
|
|
104
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
Total
Provisions for impairment
|
|
|
|
|
|
$
|
4,620
|
|
$
|
35,893
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Impaired Asset
|
|
Location
|
|
Method of Determining Fair Value
|
|
September 30, 2009
|
|
September 30, 2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
Retail
and other:
|
|
|
|
|
|
|
|
|
|
Operating properties:
|
|
|
|
|
|
|
|
|
|
Owings Mills Mall
|
|
Owings Mills, MD
|
|
Discounted cash flow analysis (4)
|
|
$
|
|
|
$
|
40,308
|
|
River Falls Mall
|
|
Clarksville, IN
|
|
Discounted cash flow analysis (4)
|
|
|
|
81,114
|
|
The Village at Redlands
|
|
Redlands, CA
|
|
Projected sales price analysis (2)
|
|
5,492
|
|
5,492
|
|
Plaza 9400
|
|
Sandy, UT
|
|
Projected sales price analysis (2)
|
|
5,191
|
|
5,191
|
|
Owings Mills-Two
Corporate Center
|
|
Owings Mills, MD
|
|
Projected sales price analysis (2)
|
|
7,478
|
|
7,478
|
|
Total operating
properties
|
|
|
|
|
|
$
|
18,161
|
|
$
|
139,583
|
|
|
|
|
|
|
|
|
|
|
|
Development:
|
|
|
|
|
|
|
|
|
|
Allen Towne Mall
|
|
Allen, TX
|
|
Projected sales price analysis (2)
|
|
|
|
24,166
|
|
Redlands Promenade
|
|
Redlands, CA
|
|
Projected sales price analysis (2)
|
|
|
|
6,747
|
|
West Kendall development
|
|
Miami, FL
|
|
Projected sales price analysis (2)
|
|
35,518
|
|
35,518
|
|
Total development
|
|
|
|
|
|
$
|
35,518
|
|
$
|
66,431
|
|
|
|
|
|
|
|
|
|
|
|
Various pre-development
costs
|
|
|
|
(3)
|
|
978
|
|
24,680
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
(4)
|
|
6,283
|
|
135,034
|
|
Total
Retail and other
|
|
|
|
|
|
$
|
60,940
|
|
$
|
365,728
|
|
|
|
|
|
|
|
|
|
|
|
Master
Planned Communities:
|
|
|
|
|
|
|
|
|
|
Fairwood Master Planned
Community
|
|
Columbia, MD
|
|
Projected sales price analysis (5)
|
|
|
|
52,769
|
|
Nouvelle at Natick
|
|
Natick, MA
|
|
Discounted cash flow analysis (5)
|
|
|
|
55,923
|
|
Total
Master Planned Communities
|
|
|
|
|
|
$
|
|
|
$
|
108,692
|
|
|
|
|
|
|
|
|
|
|
|
Total
Provisions for impairment
|
|
|
|
|
|
$
|
60,940
|
|
$
|
474,420
|
|
(1)
These impairments were
primarily driven by managements intent to deed these properties to lenders in
satisfaction of secured debt upon emergence from bankruptcy.
(2)
These impairments were
primarily driven by managements changes in current plans with respect to the
property and measured based on the value of the underlying land, which is based
on comparable property market analysis or a projected sales price analysis that
incorporates available market information and other management assumptions as
these properties are either no longer operational or operating with no or nominal
income.
(3)
Related to the write down of
various pre-development costs that were determined to be non-recoverable due to
managements decision to terminate the related projects.
(4)
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.
(5)
These impairments were
driven by a recoverable value based on a per lot or unit sales price analysis incorporating
market absorption and other management assumptions that is below carrying
value.
Noncontrolling
Interests
The
TopCo Plan, as approved by the Bankruptcy Court on October 21, 2010,
provided that holders of the Common Units could elect to redeem or convert
their units. Three holders of the Common Units elected to redeem their 159,760
Common Units in the aggregate on the Effective Date. All remaining Common Units
will be reinstated in the Operating Partnership on the Effective Date.
16
Table
of Contents
Generally,
the holders of the Common Units shared equally with our common stockholders on
a per share basis in any distributions by the Operating Partnership. However, the Operating Partnership agreement
permitted distributions solely to GGP if such distributions were required to
allow GGP to comply with the REIT distribution requirements or to avoid the
imposition of excise tax. Under certain
circumstances, the conversion rate for each Common Unit would be adjusted to
give effect to stock distributions.
Also, 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) could 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, had 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) had 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 September 30,
2010 if such holders had requested redemption of the Common Units as of September 30,
2010, and all such Common Units were redeemed (or purchased in the case of the
Rights Agreement) for cash, would have been $115.1 million. During the pendency of the Chapter 11 Cases,
we were precluded from redeeming 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 were not
currently satisfied.
Generally
accepted accounting principles provide 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 $15.60 at September 30, 2010 and $11.56 at December 31,
2009. Accordingly, the redeemable
noncontrolling interests have been presented at Fair Value at September 30,
2010 and December 31, 2009.
The
following table reflects the activity of the redeemable noncontrolling
interests for the nine months ended September 30, 2010 and 2009.
|
|
(In thousands)
|
|
Balance
at January 1, 2009
|
|
$
|
499,925
|
|
Net
loss
|
|
(9,690
|
)
|
Distributions
|
|
(7,008
|
)
|
Conversion
of Operating Partnership units into common shares
|
|
(324,489
|
)
|
Other
comprehensive income
|
|
10,369
|
|
Adjustment
for noncontrolling interests in Operating Partnership
|
|
(12,313
|
)
|
Balance
at September 30, 2009
|
|
$
|
156,794
|
|
|
|
|
|
Balance
at January 1, 2010
|
|
$
|
206,833
|
|
Net
income
|
|
171
|
|
Distributions
|
|
(6,987
|
)
|
Other
comprehensive loss
|
|
348
|
|
Adjustment
for noncontrolling interests in Operating Partnership
|
|
35,508
|
|
Balance
at September 30, 2010
|
|
$
|
235,873
|
|
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 had also issued Convertible Preferred Units, which were
convertible, with certain restrictions, at any time by the holder into Common
Units of the Operating Partnership at the following rates (subject to
adjustment):
17
Table of Contents
|
|
Number of Common Units for each
Preferred Unit
|
|
Series B
|
|
3.000
|
|
Series D
|
|
1.508
|
|
Series E
|
|
1.298
|
|
The
Plan provides that holders of the preferred units will receive their previously
accrued and unpaid dividends net of the applicable taxes, reinstatement of
their preferred units in the Operating Partnership and a number of shares of
the THHC common stock equal to the number of shares such holder would have
received had its respective preferred units below converted into GGP Common
Stock immediately prior to the THHC distribution.
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
of 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 September 30, 2010 and 2009, 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:
|
|
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
September
30, 2010
|
|
Total (Loss)
Gain Three
Months Ended
September
30, 2009
|
|
Total (Loss)
Gain Nine
Months Ended
September
30, 2010
|
|
Total (Loss)
Gain Nine
Months Ended
September
30, 2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay
City Mall
|
|
$
|
23,950
|
|
$
|
|
|
$
|
|
|
$
|
23,950
|
|
$
|
|
|
$
|
|
|
$
|
(2,309
|
)
|
$
|
|
|
Chico
Mall
|
|
54,000
|
|
|
|
|
|
54,000
|
|
|
|
|
|
(895
|
)
|
|
|
Eagle
Ridge Mall
|
|
26,600
|
|
|
|
|
|
26,600
|
|
|
|
|
|
(266
|
)
|
|
|
Lakeview
Square
|
|
25,900
|
|
|
|
|
|
25,900
|
|
|
|
|
|
(7,057
|
)
|
|
|
Moreno
Valley Mall
|
|
71,000
|
|
|
|
|
|
71,000
|
|
|
|
|
|
(6,608
|
)
|
|
|
Northgate
Mall
|
|
24,000
|
|
|
|
|
|
24,000
|
|
|
|
|
|
(1,398
|
)
|
|
|
Oviedo
Marketplace
|
|
32,840
|
|
|
|
|
|
32,840
|
|
|
|
|
|
(1,184
|
)
|
|
|
The
Pines Mall
|
|
4,100
|
|
|
|
|
|
4,100
|
|
|
|
|
|
(11,057
|
)
|
|
|
Plaza
800
|
|
600
|
|
|
|
|
|
600
|
|
(4,516
|
)
|
|
|
(4,516
|
)
|
|
|
Owings
Mills Mall
|
|
38,068
|
|
|
|
|
|
38,068
|
|
|
|
|
|
|
|
(40,308
|
)
|
River
Falls Mall
|
|
22,003
|
|
|
|
|
|
22,003
|
|
|
|
|
|
|
|
(81,114
|
)
|
The
Village at Redlands
|
|
7,500
|
|
|
|
|
|
7,500
|
|
|
|
(5,492
|
)
|
|
|
(5,492
|
)
|
Plaza
9400
|
|
2,400
|
|
|
|
|
|
2,400
|
|
|
|
(5,191
|
)
|
|
|
(5,191
|
)
|
Owings
Mills-Two Corporate Center
|
|
15,360
|
|
|
|
|
|
15,360
|
|
|
|
(7,478
|
)
|
|
|
(7,478
|
)
|
Allen
Towne Mall
|
|
29,511
|
|
|
|
29,511
|
|
|
|
|
|
|
|
|
|
(24,166
|
)
|
Redlands
Promenade
|
|
6,727
|
|
|
|
|
|
6,727
|
|
|
|
|
|
|
|
(6,747
|
)
|
West
Kendall development
|
|
13,931
|
|
|
|
|
|
13,931
|
|
|
|
(35,518
|
)
|
|
|
(35,518
|
)
|
Fairwood
Master Planned Community
|
|
12,629
|
|
|
|
12,629
|
|
|
|
|
|
|
|
|
|
(52,769
|
)
|
Nouvelle
at Natick
|
|
64,661
|
|
|
|
|
|
64,661
|
|
|
|
|
|
|
|
(55,923
|
)
|
Total
investments in real estate
|
|
$
|
475,780
|
|
$
|
|
|
$
|
42,140
|
|
$
|
433,640
|
|
$
|
(4,516
|
)
|
$
|
(53,679
|
)
|
$
|
(35,290
|
)
|
$
|
(314,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of emerged entity mortgage debt (1)
|
|
$
|
9,512,579
|
|
$
|
|
|
$
|
|
|
$
|
9,512,579
|
|
$
|
4,103
|
|
$
|
|
|
$
|
181,819
|
|
$
|
|
|
(1)
The Fair Value of debt
relates to the 96 properties that emerged from bankruptcy during the nine
months ended September 30, 2010.
18
Table
of Contents
Of
the Emerged Debtors, as of September 30, 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. We have entered into Deed in
Lieu agreements dated September 9, 2010 with respect to Eagle Ridge Mall
and Oviedo Marketplace which provide that the respective deed transfers will
occur by November 1, 2010. However,
such transfers are subject to a number of conditions and therefore, there can
be no assurance that such transfer will occur, and the dates of deed transfer
for the remaining properties cannot be currently estimated. We also agree to cooperate with the
respective lenders of five of the Special Consideration Properties to jointly
market such properties for sale.
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 and land held
for development and redevelopment, including assets to be sold after such
development or redevelopment for more detail regarding the methodology used in
determining the Fair Value of these properties.
The
following is a summary of the components of our debt that was eligible for the
Fair Value option, and similar items that were not eligible for the Fair Value
option at September 30, 2010 and December 31, 2009.
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
Debt
related to Special Consideration Properties (elected for Fair Value option)
|
|
$
|
587,590
|
|
$
|
316,966
|
|
Similar
eligible debt (not elected for Fair Value option)
|
|
184,670
|
|
4,233,747
|
|
Debt
not eligible for Fair Value option
|
|
16,582,446
|
|
3,010,301
|
|
Market
rate adjustments
|
|
(426,778
|
)
|
(260,242
|
)
|
Total
Mortgages, notes and loans payable, not subject to compromise
|
|
$
|
16,927,928
|
|
$
|
7,300,772
|
|
Of
the Special Consideration Properties, five of the properties had emerged from
bankruptcy 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. The remaining eight properties emerged in 2010, resulting in a gain in
reorganization items of $69.3 million for the nine months ended September 30,
2010. Subsequent to the emergence from
bankruptcy, we are required to determine the Fair Value of the mortgage loans
related to the Special Consideration Properties quarterly, so long as we hold
the Special Consideration Properties.
Any change in the Fair Value of the mortgages related to the Special
Consideration Properties will be recorded in interest expense in the quarter in
which such change occurs. When the
transfers of Eagle Ridge Mall and Oviedo Marketplace occur, no significant gain
or loss is expected to result because we have recorded the Fair Value of the
mortgages related to these properties.
The
unpaid debt balance, Fair Value estimates, Fair Value measurements, gain (in
reorganization items) and interest expense for the three months ended and nine
months ended September 30, 2010, with respect to the Special Consideration
Properties, are as follows:
|
|
Unpaid Debt
Balance of
Special
Consideration
Properties
|
|
Fair Value
Estimate of
Special
Consideration
Properties
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total Gain
for the
Three Months
Ended
September
30, 2010
|
|
Total Gain
for the
Nine Months
Ended
September
30, 2010
|
|
Interest
Expense for the
Three Months Ended
September
30, 2010
|
|
Interest
Expense for the
Nine Months Ended
September
30, 2010
|
|
|
|
(In thousands)
|
|
Mortgages,
notes and loans payable, not subject to compromise
|
|
$
|
744,535
|
|
$
|
587,590
|
|
$
|
587,590
|
|
$
|
|
|
$
|
69,346
|
|
$
|
12,646
|
|
$
|
(2,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table
of Contents
A
summary of the changes to the carrying value of the debt relate to the Special
Consideration Properties reflected the Fair Value measurements discussed above,
are as follows:
|
|
September 30, 2010
|
|
|
|
(In thousands)
|
|
Balance
at January 1, 2010
|
|
$
|
316,966
|
|
Additions
during the period - Emerged Special Consideration Properties debt
|
|
309,307
|
|
Balance
at March 31, 2010
|
|
626,273
|
|
Changes
in Fair Value - Special Consideration Properties
|
|
(36,124
|
)
|
Principal
payments
|
|
(2,559
|
)
|
Balance
at June 30, 2010
|
|
587,590
|
|
Changes
in Fair Value - Special Consideration Properties
|
|
2,700
|
|
Principal
payments
|
|
(2,700
|
)
|
Balance
at September 30, 2010
|
|
$
|
587,590
|
|
Fair
Value of Financial Instruments
The
Fair Values of our financial instruments approximate their carrying amount in
our financial statements except for debt.
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 September 30,
2010 as the timing and amounts to be paid are subject to confirmation by the
Bankruptcy Court. For the $16.93 billion
of mortgages, notes and loans payable that are outstanding and not subject to
compromise at September 30, 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 purposes, including estimating the value of
any of the Companys securities. 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, U.S. treasury obligation interest rates and on the
discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our
judgment as to what the approximate current lending rates for loans or groups
of loans with similar maturities and credit quality would be if credit markets
were operating efficiently and assume that the debt is outstanding through
maturity. We have utilized market information as available or present value
techniques to estimate the amounts required to be disclosed, 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.
|
|
September 30, 2010
|
|
|
|
Carrying
|
|
Estimated
|
|
|
|
Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
Fixed-rate
debt
|
|
$
|
14,469,996
|
|
$
|
15,017,201
|
|
Variable-rate
debt
|
|
2,457,932
|
|
2,522,783
|
|
|
|
$
|
16,927,928
|
|
$
|
17,539,984
|
|
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
20
Table of
Contents
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 nine months ended September 30, 2009
resulted in a reduction in interest expense of $27.7 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 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
$0.6 million and $9.6 million for the three and nine months ended September 30,
2010 and $4.5 million and $13.6 million for the three and nine months ended September 30,
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 September 30,
2010 while as of September 30, 2009, we had one outstanding interest rate
cap derivative that was designated as a cash flow hedge of interest rate risk
with a notional value of $67.5 million.
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 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 the three and nine months ended September 30,
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 $2.5 million for the
three months ended September 30, 2010, $3.6 million for the three months
ended September 30, 2009, $18.6 million for the nine months ended September 30,
2010 and $20.2 million for the nine months ended September 30, 2009. Net
accretion related to above and below-market tenant leases was $1.3 million for
the three months ended September 30, 2010, $2.7 million for the three
months ended September 30, 2009, $4.4 million for the nine months ended September 30,
2010, and $6.1 million for the nine months ended September 30, 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 $288.3 million as of September 30, 2010 and $255.3 million as of December 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 $16.0 million for
the three months ended September 30, 2010, $16.4 million for the three
months ended September 30, 2009, $47.8 million for the nine months ended September 30,
2010 and $41.2 million for the nine months ended September 30, 2009, and
is included in Minimum Rents in our consolidated financial statements.
Condominium
sales and associated costs of sales are recognized on the percentage of
completion method. As of September 30,
2010, there have been 152 unit closings of sales at our 215 unit Nouvelle at
Natick residential condominium project.
We
recognized $63.2 million of
revenue and $58.2 million of associated costs of sales
for
the nine months ended September 30, 2010
within our
Master Planned Community segment
related
to condominium unit sales at the Nouvelle at Natick. All revenue from condominium sales prior to
the three and six months ended June 30, 2010 were deferred as the
threshold of sold units required to recognize revenue had not been met. As such, $52.9 million of
previously
deferred revenue from condominium sales and $48.6 million of
associated costs of sales were recorded during the three months ended June 30,
2010 as the result of the recognition of all deferred unit sales through June 30,
2010. For the three months ended September 30,
2010, Nouvelle at Natick recognized $10.3 million of revenue and $9.6 million
of associated costs of sales related to 24 condominium sales during the third
quarter of 2010.
21
Table of Contents
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:
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
|
|
(In thousands)
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(233,723
|
)
|
$
|
(233,723
|
)
|
$
|
(117,454
|
)
|
$
|
(117,454
|
)
|
Allocation
to noncontrolling interests
|
|
2,538
|
|
2,538
|
|
(421
|
)
|
(421
|
)
|
Loss
from continuing operations - net of noncontrolling interests
|
|
(231,185
|
)
|
(231,185
|
)
|
(117,875
|
)
|
(117,875
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - gain on dispositions
|
|
|
|
|
|
29
|
|
29
|
|
Allocation
to noncontrolling interests
|
|
|
|
|
|
(1
|
)
|
(1
|
)
|
Discontinued
operations - net of noncontrolling interests
|
|
|
|
|
|
28
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
(233,723
|
)
|
(233,723
|
)
|
(117,425
|
)
|
(117,425
|
)
|
Allocation
to noncontrolling interests
|
|
2,538
|
|
2,538
|
|
(422
|
)
|
(422
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(231,185
|
)
|
$
|
(231,185
|
)
|
$
|
(117,847
|
)
|
$
|
(117,847
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
317,393
|
|
317,393
|
|
312,363
|
|
312,363
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
|
|
(In thousands)
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(295,410
|
)
|
$
|
(295,410
|
)
|
$
|
(680,179
|
)
|
$
|
(680,179
|
)
|
Allocation
to noncontrolling interests
|
|
(1,646
|
)
|
(1,646
|
)
|
7,875
|
|
7,875
|
|
Loss
from continuing operations - net of noncontrolling interests
|
|
(297,056
|
)
|
(297,056
|
)
|
(672,304
|
)
|
(672,304
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - loss on dispositions
|
|
|
|
|
|
(26
|
)
|
(26
|
)
|
Allocation
to noncontrolling interests
|
|
|
|
|
|
1
|
|
1
|
|
Discontinued
operations - net of noncontrolling interests
|
|
|
|
|
|
(25
|
)
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
(295,410
|
)
|
(295,410
|
)
|
(680,205
|
)
|
(680,205
|
)
|
Allocation
to noncontrolling interests
|
|
(1,646
|
)
|
(1,646
|
)
|
7,876
|
|
7,876
|
|
Net
loss attributable to common stockholders
|
|
$
|
(297,056
|
)
|
$
|
(297,056
|
)
|
$
|
(672,329
|
)
|
$
|
(672,329
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
316,849
|
|
316,849
|
|
311,861
|
|
311,861
|
|
All
options were anti-dilutive for all periods presented because of net losses,
and, as such, their effect has not been included in the calculation of diluted
net loss per share. In addition,
potentially dilutive shares of 1,365,440 for the three months ended September
30, 2010, and 1,351,001 for the nine months ended September 30, 2010, have
been excluded from the denominator in the computation of diluted EPS because
they are anti-dilutive. 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. In addition, the impact of the exchange feature
of the
22
Table of
Contents
Exchangeable
Notes that were issued in April 2007 is also excluded from EPS for all
periods presented because, while the conditions for exchange were met, 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. The Exchangeable Notes are currently expected
to be paid in connection with the Emergence.
Finally, the effect of the Interim Warrants (Note 1) has been excluded
as the conditions for exercise of such warrants were not satisfied at September 30,
2010 and we expect that such Interim Warrants will be terminated upon
effectiveness of the Plan.
Debt Market Rate Adjustments
We
record market rate adjustments related to our mortgages, notes and loans
payable primarily for debt of 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 $13.8 million for the three months ended September 30,
2010, $14.5 million for the three months ended September 30, 2009, $43.1
million for the nine months ended September 30, 2010, and $47.7 million
for the nine months ended September 30, 2009. Such fees are recognized as
revenue when earned.
NOTE 2 INTANGIBLE ASSETS AND LIABILITIES
The following table
summarizes our intangible assets and liabilities:
|
|
|
|
Accumulated
|
|
|
|
|
|
Gross Asset
|
|
(Amortization)/
|
|
Net Carrying
|
|
|
|
(Liability)
|
|
Accretion
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
|
|
As of September 30, 2010
|
|
|
|
|
|
|
|
Tenant
leases:
|
|
|
|
|
|
|
|
In-place
value
|
|
$
|
472,031
|
|
$
|
(302,965
|
)
|
$
|
169,066
|
|
Above-market
|
|
62,489
|
|
(35,906
|
)
|
26,583
|
|
Below-market
|
|
(124,151
|
)
|
73,018
|
|
(51,133
|
)
|
Ground
leases:
|
|
|
|
|
|
|
|
Above-market
|
|
(16,968
|
)
|
2,778
|
|
(14,190
|
)
|
Below-market
|
|
271,602
|
|
(34,334
|
)
|
237,268
|
|
Real
estate tax stabilization agreement
|
|
91,879
|
|
(23,215
|
)
|
68,664
|
|
|
|
|
|
|
|
|
|
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 September 30, 2010
compared to December 31, 2009 is primarily due to the write-off of fully
amortized assets and liabilities for the nine months ended September 30,
2010.
23
Table
of Contents
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 $13.4 million for the three months ended September 30,
2010; $44.5 million for the nine months ended September 30, 2010; $16.2
million for the three months ended September 30, 2009 and $45.4 million
for the nine months ended September 30, 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 as well as excluding the impact of acquisition accounting to
New GGP upon consummation of the Plan) by approximately $57.8 million in 2010,
$43.3 million in 2011, $36.0 million in 2012, $30.2 million in 2013 and $31.0
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 September 30,
2010, we have two joint venture investments located outside the U.S. These investments, with an aggregate carrying
amount of $245.5 million at September 30, 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. However, we have 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 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 October 6, 2010, Silver City entered into a Forbearance
Agreement with the lender which provides for the joint marketing of the
property with the lender for sale in lieu of foreclosure.
On
May 3, 2010, the Unconsolidated Real Estate Affiliate 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
gain was approximately $27 million, with such gain 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 net 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 September 30, 2010, $6.49 billion
of indebtedness was secured by our Unconsolidated Properties, our proportionate
share of which was $3.02 billion, including Retained Debt (as defined
below). 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.
24
Table of
Contents
Such
Retained Debt totaled $156.2 million as of September 30, 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 of 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 September 30,
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 September 30, 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.
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 $9.7 million for the nine months ended September 30, 2010, which
is reflected in equity in income of Unconsolidated Real Estate Affiliates.
On
August 4, 2010, we agreed to sell our entire interest in our joint venture
in Turkey to our venture partner. Such transaction was completed on October 14,
2010 resulting in an estimated gain of $10.5 million which will be recorded in
the fourth quarter 2010.
The
significant accounting policies used by the Unconsolidated Real Estate
Affiliates are the same as ours.
Condensed
Combined Financial Information of Unconsolidated Real Estate Affiliates
Following
is summarized financial information for our Unconsolidated Real Estate
Affiliates as of September 30, 2010 and December 31, 2009 and for the
three and nine months ended September 30, 2010 and 2009. Certain amounts in the 2009 condensed
combined financial information have been reclassified to conform to the current
period presentation.
25
Table
of Contents
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Condensed Combined Balance Sheets - Unconsolidated Real
Estate Affiliates
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
926,596
|
|
$
|
901,387
|
|
Buildings
and equipment
|
|
7,974,564
|
|
7,924,577
|
|
Less
accumulated depreciation
|
|
(1,836,077
|
)
|
(1,691,362
|
)
|
Developments
in progress
|
|
313,867
|
|
333,537
|
|
Net
property and equipment
|
|
7,378,950
|
|
7,468,139
|
|
Investment
in unconsolidated joint ventures
|
|
584,181
|
|
452,291
|
|
Investment
property and property held for development and sale
|
|
242,746
|
|
266,253
|
|
Net
investment in real estate
|
|
8,205,877
|
|
8,186,683
|
|
Cash
and cash equivalents
|
|
550,800
|
|
275,018
|
|
Accounts
and notes receivable, net
|
|
210,648
|
|
226,385
|
|
Deferred
expenses, net
|
|
196,596
|
|
197,663
|
|
Prepaid
expenses and other assets
|
|
199,240
|
|
209,568
|
|
Total
assets
|
|
$
|
9,363,161
|
|
$
|
9,095,317
|
|
|
|
|
|
|
|
Liabilities and Owners Equity:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
6,488,820
|
|
$
|
6,358,718
|
|
Accounts
payable, accrued expenses and other liabilities
|
|
502,112
|
|
490,814
|
|
Owners
equity
|
|
2,372,229
|
|
2,245,785
|
|
Total
liabilities and owners equity
|
|
$
|
9,363,161
|
|
$
|
9,095,317
|
|
|
|
|
|
|
|
Investment In and Loans To/From Unconsolidated Real Estate
Affiliates, Net:
|
|
|
|
|
|
Owners
equity
|
|
$
|
2,372,229
|
|
$
|
2,245,785
|
|
Less
joint venture partners equity
|
|
(2,169,769
|
)
|
(1,935,689
|
)
|
Capital
or basis differences and loans
|
|
1,666,921
|
|
1,630,928
|
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates, net
|
|
$
|
1,869,381
|
|
$
|
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
|
|
$
|
1,915,480
|
|
$
|
1,979,313
|
|
Liability
- Investment in and loans to/from Unconsolidated Real Estate Affiliates
|
|
(46,099
|
)
|
(38,289
|
)
|
Investment
in and loans to/from Unconsolidated Real Estate Affiliates, net
|
|
$
|
1,869,381
|
|
$
|
1,941,024
|
|
26
Table
of Contents
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Condensed Combined Statements of Income - Unconsolidated
Real Estate Affiliates
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
191,270
|
|
$
|
184,701
|
|
$
|
570,567
|
|
$
|
564,497
|
|
Tenant
recoveries
|
|
81,236
|
|
84,262
|
|
244,116
|
|
253,109
|
|
Overage
rents
|
|
2,218
|
|
2,416
|
|
7,049
|
|
5,475
|
|
Land
sales
|
|
20,617
|
|
14,858
|
|
70,088
|
|
50,134
|
|
Management
and other fees
|
|
10,895
|
|
8,845
|
|
32,525
|
|
25,267
|
|
Other
|
|
22,338
|
|
19,634
|
|
66,315
|
|
66,383
|
|
Total
revenues
|
|
328,574
|
|
314,716
|
|
990,660
|
|
964,865
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
23,309
|
|
24,642
|
|
74,602
|
|
76,506
|
|
Property
maintenance costs
|
|
10,304
|
|
10,623
|
|
31,622
|
|
29,949
|
|
Marketing
|
|
4,310
|
|
3,133
|
|
9,925
|
|
8,857
|
|
Other
property operating costs
|
|
61,129
|
|
61,090
|
|
175,196
|
|
186,376
|
|
Land
sales operations
|
|
17,376
|
|
11,838
|
|
55,042
|
|
39,404
|
|
Provision
for doubtful accounts
|
|
2,064
|
|
3,224
|
|
6,503
|
|
9,531
|
|
Property
management and other costs
|
|
17,067
|
|
20,469
|
|
56,349
|
|
58,491
|
|
General
and administrative *
|
|
12,259
|
|
755
|
|
12,610
|
|
13,879
|
|
Provisions
for impairment
|
|
39
|
|
|
|
881
|
|
6,459
|
|
Depreciation
and amortization
|
|
69,600
|
|
66,253
|
|
203,200
|
|
199,830
|
|
Total
expenses
|
|
217,457
|
|
202,027
|
|
625,930
|
|
629,282
|
|
Operating
income
|
|
111,117
|
|
112,689
|
|
364,730
|
|
335,583
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
6,340
|
|
1,745
|
|
14,611
|
|
5,141
|
|
Interest
expense
|
|
(95,902
|
)
|
(74,900
|
)
|
(277,689
|
)
|
(246,255
|
)
|
Benefit
(provision) for income taxes
|
|
239
|
|
(81
|
)
|
(551
|
)
|
(1,050
|
)
|
Equity
in income of unconsolidated joint ventures
|
|
8,376
|
|
14,472
|
|
37,236
|
|
31,699
|
|
Income
from continuing operations
|
|
30,170
|
|
53,925
|
|
138,337
|
|
125,118
|
|
Discontinued
operations - (loss) gain on dispositions
|
|
(22
|
)
|
|
|
55,077
|
|
|
|
Allocation
to noncontrolling interests
|
|
67
|
|
(1,119
|
)
|
106
|
|
(2,044
|
)
|
Net
income attributable to joint venture partners
|
|
$
|
30,215
|
|
$
|
52,806
|
|
$
|
193,520
|
|
$
|
123,074
|
|
Equity In Income of Unconsolidated Real Estate Affiliates:
|
|
|
|
|
|
|
|
|
|
Net
income attributable to joint venture partners
|
|
$
|
30,215
|
|
$
|
52,806
|
|
$
|
193,520
|
|
$
|
123,074
|
|
Joint
venture partners share of income
|
|
(10,634
|
)
|
(26,632
|
)
|
(79,997
|
)
|
(63,423
|
)
|
Amortization
of capital or basis differences
|
|
(10,072
|
)
|
(10,536
|
)
|
(33,066
|
)
|
(19,543
|
)
|
Gain
on Aliansce IPO
|
|
269
|
|
|
|
9,652
|
|
|
|
Gain
(loss) on Highland Mall conveyence
|
|
11
|
|
|
|
(29,668
|
)
|
|
|
Elimination
of Unconsolidated Real Estate Affiliates loan interest
|
|
|
|
(297
|
)
|
|
|
(890
|
)
|
Equity
in income of Unconsolidated Real Estate Affiliates
|
|
$
|
9,789
|
|
$
|
15,341
|
|
$
|
60,441
|
|
$
|
39,218
|
|
* Includes losses (gains) on
foreign currency
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.
27
Table
of Contents
|
|
GGP/Homart II
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
232,164
|
|
$
|
238,164
|
|
Buildings
and equipment
|
|
2,783,385
|
|
2,783,869
|
|
Less
accumulated depreciation
|
|
(590,181
|
)
|
(526,985
|
)
|
Developments
in progress
|
|
17,114
|
|
5,129
|
|
Net
investment in real estate
|
|
2,442,482
|
|
2,500,177
|
|
Cash
and cash equivalents
|
|
95,326
|
|
70,417
|
|
Accounts
and notes receivable, net
|
|
49,196
|
|
47,843
|
|
Deferred
expenses, net
|
|
92,367
|
|
92,439
|
|
Prepaid
expenses and other assets
|
|
29,607
|
|
20,425
|
|
Total
assets
|
|
$
|
2,708,978
|
|
$
|
2,731,301
|
|
|
|
|
|
|
|
Liabilities and Capital:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
2,207,225
|
|
$
|
2,245,582
|
|
Accounts
payable, accrued expenses and other liabilities
|
|
71,330
|
|
63,923
|
|
Capital
|
|
430,423
|
|
421,796
|
|
Total
liabilities and capital
|
|
$
|
2,708,978
|
|
$
|
2,731,301
|
|
|
|
GGP/Homart II
|
|
GGP/Homart II
|
|
|
|
Three Months End September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
62,016
|
|
$
|
59,298
|
|
$
|
183,546
|
|
$
|
181,405
|
|
Tenant
recoveries
|
|
26,176
|
|
26,854
|
|
79,278
|
|
82,596
|
|
Overage
rents
|
|
622
|
|
475
|
|
1,674
|
|
1,359
|
|
Other
|
|
1,836
|
|
1,572
|
|
5,311
|
|
5,048
|
|
Total
revenues
|
|
90,650
|
|
88,199
|
|
269,809
|
|
270,408
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
5,481
|
|
7,615
|
|
22,350
|
|
24,383
|
|
Property
maintenance costs
|
|
3,092
|
|
3,125
|
|
9,272
|
|
8,309
|
|
Marketing
|
|
1,339
|
|
1,135
|
|
3,223
|
|
3,385
|
|
Other
property operating costs
|
|
13,139
|
|
12,933
|
|
37,782
|
|
38,057
|
|
Provision
for doubtful accounts
|
|
893
|
|
109
|
|
2,163
|
|
2,110
|
|
Property
management and other costs
|
|
5,340
|
|
5,302
|
|
16,538
|
|
16,562
|
|
General
and administrative
|
|
27
|
|
84
|
|
91
|
|
294
|
|
Provisions
for impairment
|
|
|
|
(1
|
)
|
725
|
|
3,693
|
|
Depreciation
and amortization
|
|
24,663
|
|
24,231
|
|
72,971
|
|
72,282
|
|
Total
expenses
|
|
53,974
|
|
54,533
|
|
165,115
|
|
169,075
|
|
Operating
income
|
|
36,676
|
|
33,666
|
|
104,694
|
|
101,333
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
58
|
|
1,294
|
|
202
|
|
3,914
|
|
Interest
expense
|
|
(35,420
|
)
|
(31,117
|
)
|
(95,763
|
)
|
(92,575
|
)
|
Provision
for income taxes
|
|
(157
|
)
|
(234
|
)
|
(505
|
)
|
(783
|
)
|
Net
income
|
|
1,157
|
|
3,609
|
|
8,628
|
|
11,889
|
|
Allocation
to noncontrolling interests
|
|
14
|
|
2
|
|
75
|
|
(2
|
)
|
Net
income attributable to joint venture partners
|
|
$
|
1,171
|
|
$
|
3,611
|
|
$
|
8,703
|
|
$
|
11,887
|
|
28
Table
of Contents
|
|
GGP/Teachers
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
195,832
|
|
$
|
195,832
|
|
Buildings
and equipment
|
|
1,073,588
|
|
1,071,748
|
|
Less
accumulated depreciation
|
|
(177,349
|
)
|
(153,778
|
)
|
Developments
in progress
|
|
2,460
|
|
3,586
|
|
Net
investment in real estate
|
|
1,094,531
|
|
1,117,388
|
|
Cash
and cash equivalents
|
|
10,939
|
|
6,663
|
|
Accounts
and notes receivable, net
|
|
16,104
|
|
17,622
|
|
Deferred
expenses, net
|
|
40,963
|
|
42,941
|
|
Prepaid
expenses and other assets
|
|
10,990
|
|
7,216
|
|
Total
assets
|
|
$
|
1,173,527
|
|
$
|
1,191,830
|
|
|
|
|
|
|
|
Liabilities and Members Capital:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
1,006,112
|
|
$
|
1,011,700
|
|
Accounts
payable, accrued expenses and other liabilities
|
|
37,258
|
|
32,914
|
|
Members
Capital
|
|
130,157
|
|
147,216
|
|
Total
liabilities and members capital
|
|
$
|
1,173,527
|
|
$
|
1,191,830
|
|
|
|
GGP/Teachers
|
|
GGP/Teachers
|
|
|
|
Three Months End September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
23,993
|
|
$
|
24,648
|
|
$
|
73,996
|
|
$
|
76,752
|
|
Tenant
recoveries
|
|
12,236
|
|
14,226
|
|
36,791
|
|
39,237
|
|
Overage
rents
|
|
488
|
|
451
|
|
1,117
|
|
816
|
|
Other
|
|
650
|
|
390
|
|
2,061
|
|
1,453
|
|
Total
revenues
|
|
37,367
|
|
39,715
|
|
113,965
|
|
118,258
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
3,794
|
|
3,740
|
|
11,249
|
|
11,152
|
|
Property
maintenance costs
|
|
1,107
|
|
1,116
|
|
3,525
|
|
3,454
|
|
Marketing
|
|
614
|
|
550
|
|
1,437
|
|
1,662
|
|
Other
property operating costs
|
|
6,464
|
|
6,165
|
|
18,722
|
|
18,023
|
|
Provision
for doubtful accounts
|
|
215
|
|
441
|
|
730
|
|
1,392
|
|
Property
management and other costs
|
|
2,172
|
|
2,112
|
|
6,602
|
|
6,681
|
|
General
and administrative
|
|
|
|
44
|
|
|
|
178
|
|
Provisions
for impairment
|
|
|
|
|
|
|
|
17
|
|
Depreciation
and amortization
|
|
8,866
|
|
9,359
|
|
27,502
|
|
28,950
|
|
Total
expenses
|
|
23,232
|
|
23,527
|
|
69,767
|
|
71,509
|
|
Operating
income
|
|
14,135
|
|
16,188
|
|
44,198
|
|
46,749
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
2
|
|
2
|
|
5
|
|
Interest
expense
|
|
(17,830
|
)
|
(13,866
|
)
|
(46,105
|
)
|
(41,197
|
)
|
(Provision
for) benefit from income taxes
|
|
(4
|
)
|
(25
|
)
|
753
|
|
(67
|
)
|
Net
(loss) income attributable to joint venture partners
|
|
$
|
(3,699
|
)
|
$
|
2,299
|
|
$
|
(1,152
|
)
|
$
|
5,490
|
|
29
Table of Contents
|
|
The Woodlands Partnership
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
Land
|
|
$
|
19,841
|
|
$
|
19,841
|
|
Buildings
and equipment
|
|
133,250
|
|
101,119
|
|
Less
accumulated depreciation
|
|
(16,812
|
)
|
(14,105
|
)
|
Developments
in progress
|
|
2,272
|
|
31,897
|
|
Investment
property and property held for development and sale
|
|
242,746
|
|
266,253
|
|
Net
investment in real estate
|
|
381,297
|
|
405,005
|
|
Cash
and cash equivalents
|
|
35,799
|
|
30,373
|
|
Accounts
and notes receivable, net
|
|
5,128
|
|
4,660
|
|
Deferred
expenses, net
|
|
920
|
|
593
|
|
Prepaid
expenses and other assets
|
|
53,620
|
|
30,275
|
|
Total
assets
|
|
$
|
476,764
|
|
$
|
470,906
|
|
|
|
|
|
|
|
Liabilities and Owners Equity:
|
|
|
|
|
|
Mortgages,
notes and loans payable
|
|
$
|
276,385
|
|
$
|
281,964
|
|
Accounts
payable, accrued expenses and other liabilities
|
|
4,361
|
|
629
|
|
Owners
equity
|
|
196,018
|
|
188,313
|
|
Total
liabilities and owners equity
|
|
$
|
476,764
|
|
$
|
470,906
|
|
|
|
The Woodlands Partnership
|
|
The Woodlands Partnership
|
|
|
|
Three Months End September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
1,744
|
|
$
|
1,820
|
|
$
|
4,096
|
|
$
|
4,738
|
|
Land
sales
|
|
20,617
|
|
14,858
|
|
70,088
|
|
50,134
|
|
Other
|
|
1,349
|
|
2,319
|
|
6,154
|
|
7,144
|
|
Total
revenues
|
|
23,710
|
|
18,997
|
|
80,338
|
|
62,016
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
498
|
|
131
|
|
1,479
|
|
392
|
|
Property
maintenance costs
|
|
299
|
|
356
|
|
391
|
|
804
|
|
Other
property operating costs
|
|
2,425
|
|
3,865
|
|
8,280
|
|
11,988
|
|
Land
sales operations
|
|
17,376
|
|
11,838
|
|
55,042
|
|
39,404
|
|
Depreciation
and amortization
|
|
973
|
|
799
|
|
2,644
|
|
2,233
|
|
Total
expenses
|
|
21,571
|
|
16,989
|
|
67,836
|
|
54,821
|
|
Operating
income
|
|
2,139
|
|
2,008
|
|
12,502
|
|
7,195
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
81
|
|
116
|
|
313
|
|
474
|
|
Interest
expense
|
|
(1,446
|
)
|
(978
|
)
|
(3,378
|
)
|
(2,870
|
)
|
Provision
for income taxes
|
|
(58
|
)
|
(158
|
)
|
(457
|
)
|
(426
|
)
|
Net
income attributable to joint venture partners
|
|
$
|
716
|
|
$
|
988
|
|
$
|
8,980
|
|
$
|
4,373
|
|
30
Table of Contents
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages,
notes and loans payable are summarized as follows:
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Fixed-rate debt:
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable
|
|
$
|
14,885,658
|
|
$
|
15,446,962
|
|
Corporate and other unsecured term loans
|
|
3,750,982
|
|
3,724,463
|
|
Total fixed-rate debt
|
|
18,636,640
|
|
19,171,425
|
|
|
|
|
|
|
|
Variable-rate debt:
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable
|
|
2,439,723
|
|
2,500,892
|
|
Corporate and other unsecured term loans
|
|
2,783,700
|
|
2,783,700
|
|
Total variable-rate debt
|
|
5,223,423
|
|
5,284,592
|
|
|
|
|
|
|
|
Total Mortgages, notes and loans payable
|
|
23,860,063
|
|
24,456,017
|
|
|
|
|
|
|
|
Less: Mortgages, notes and loans payable subject to
compromise
|
|
(6,932,135
|
)
|
(17,155,245
|
)
|
Total mortgages, notes and loans payable not subject
to compromise
|
|
$
|
16,927,928
|
|
$
|
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 $16.93
billion that is not subject to compromise as of September 30, 2010
consists primarily of the collateralized mortgages of the Non-Debtors, the
Emerged Debtors and the DIP Facility (defined below).
A
total of 262 Debtors owning 146 properties with $14.89 billion of secured
mortgage debt emerged from bankruptcy as of September 30, 2010. Of the Emerged Debtors, 149 Debtors owning 96
properties with $10.23 billion of secured mortgage debt emerged from bankruptcy
during the nine months ended September 30, 2010, while 113 Debtors owning 50
properties with $4.66 billion secured debt had emerged from bankruptcy as of December 31,
2009. The plans of reorganization 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 September 30, 2010 is 5.33 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
TopCo Debtors.
As
of September 30, 2010, the 13 Special Consideration Properties with $744.5
million in secured debt have emerged from bankruptcy. As described in Note 1, we have entered into
agreements to deed two of the Special Consideration Properties to the lenders
in the fourth quarter of 2010.
The
weighted-average interest rate (including the effects of interest rate swaps
for December 31, 2009), 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 5.23% at September 30,
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 3.78% at September 30,
2010 and 4.24% at December 31, 2009. With respect to those loans and
Debtors that remain in bankruptcy at September 30, 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. In addition,
as the result of a consensual agreement reached in the third
quarter of 2010 with lenders of certain of our corporate debt,
we
recognized $83.7 million of additional interest expense for
the three months ended September 30, 2010.
31
Table
of Contents
Collateralized Mortgages, Notes and Loans Payable
As
of September 30, 2010, $24.46 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 $3.29 billion of debt, are cross-collateralized with other
properties. Although substantially all
of the $17.33 billion of fixed and variable rate collateralized mortgages, notes
and loans payable are non-recourse, $2.65 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 September 30,
2010 contain other credit enhancement provisions (primarily master leases for
all or a portion of the property) which have been provided by TopCo
Debtors. 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, the terms of which are
described below. Plan treatment for each
of these obligations is also described below.
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 Plan provides that
the holders of the Exchangeable Notes will be reinstated unless they elect to
be paid in full in cash at par plus accrued interest at the stated non-default
rate. Pursuant to the Plan, all of the
holders of the Exchangeable Notes have elected to be paid in full in cash at
par plus accrued interest.
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 September 30,
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 September 30, 2010, was LIBOR plus 1.25 %. The Plan provides for payment in full of 2006
Credit Facility principal and accrued interest.
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 $200.0 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
32
Table of
Contents
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 September 30, 2010 and December 31, 2009. The Plan provides for reinstatement of the
TRUPS.
In
conjunction with the TRC Merger, we assumed certain publicly-traded unsecured
bonds with varying maturities. In
addition, in May 2006 TRCLP sold $800.0 million of senior unsecured bonds
which have a scheduled maturity of May 1, 2013. The balance of such bonds was $2.25 billion
at September 30, 2010 and December 31, 2009. The Plan provides for repayment in full,
including accrued interest of the $595.0 million of bonds that have matured as
of the Effective Date. Of the remaining amount of unmatured debt, approximately
$1.04 billion will be reinstated and $608.7 million will be exchanged for new
6.75% TRCLP bonds due 2015.
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, provided 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 provided that principal
outstanding on the DIP Term Loan bear interest at an annual rate equal to LIBOR
(subject to a minimum LIBOR floor of 1.5%) plus 12%.
Subject
to certain conditions being present, the Company had 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 The DIP Credit
Agreement contained customary non-financial covenants, representations and
warranties, and events of default.
On
June 22, 2010, the Bankruptcy Court issued an order authorizing certain of
the Debtors to enter into a new 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,
Barclays Capital, as the sole arranger, Barclay and Bank, PLC, as the
Administrative Agent and Collateral Agent and the lenders party thereto (the New
DIP Facility).
The
New DIP Facility, which closed on July 23, 2010, provides for an aggregate
commitment of $400.0 million (the New DIP Term Loan), which was used to
refinance the DIP Term Loan. The New DIP Facility provides that principal
outstanding on the New DIP Term Loan bears interest at an annual rate equal to
5.5% and matures at the earlier of May 16, 2011 or the effective date of a
plan of reorganization of the Remaining Debtors.
The
New DIP Credit Agreement contains customary covenants, representations and
warranties, and events of default. The
Plan provides for the repayment of the New DIP Term Loan in full in cash,
including accrued interest.
Letters
of Credit and Surety Bonds
We
had outstanding letters of credit and surety bonds of $93.3 million as of September 30,
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 to
our
33
Table of
Contents
stockholders
(paid on January 28, 2010) to satisfy such REIT distribution requirements
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).
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 $176.1 million
and $107.6 million as of September 30, 2010 and December 31, 2009,
respectively, excluding interest, of which $36.3 million as of September 30,
2010 and December 31, 2009, respectively, would impact our effective tax
rate. Accrued interest related to these unrecognized tax benefits amounted to
$42.4 million as of September 30, 2010 and $21.8 million as of December 31,
2009. We recognized an increase of interest expense related to the unrecognized
tax benefits of $3.3 million for the three months ended September 30, 2010
and $20.6 million for the nine months ended September 30, 2010. We recognized a reduction of interest expense
related to the unrecognized tax benefits of $3.9 million for the three months
ended September 30, 2009 and $0.9 million for the nine months ended September 30,
2009.
We
increased previously unrecognized tax benefits related to tax positions taken
in prior years, excluding accrued interest, of $68.5 million for the nine
months ended September 30, 2010, of which $66.3 million decreased our
deferred tax liability and $2.2 million increased expense related to uncertain
tax positions.
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.
Two
of our taxable REIT subsidiaries are subject to IRS audit for the years ended December 31,
2007 and December 31, 2008, and in connection with such audits, the IRS
has proposed changes resulting in $148.2 million of additional tax. We have
disputed the proposed changes and it is the Companys position that the tax law
in question has been properly applied and reflected in the 2007 and 2008
returns for these two taxable REIT subsidiaries. We rejected a settlement
offer from the IRS and cannot predict when these audits will be resolved. We have previously provided for the
additional taxes sought by the IRS, through our uncertain tax position
liability or deferred tax liabilities.
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 the years subject to
examination.
Based
on our assessment of the expected outcome of these examinations or examinations
that may commence, or as a result of the expiration of the statute of
limitations for specific jurisdictions, we do not expect 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 September 30, 2010 during the next twelve months. A material change in unrecognized tax
benefits could have a material effect on our statements of income and
comprehensive income. As of September 30, 2010, there are not any
unrecognized tax benefits, excluding accrued interest, which due to the reasons
above, that we believe 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 valuation allowances placed on deferred tax assets that do not have
valuation allowances as of September 30, 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 General Growth Properties, Inc. 2003 Incentive Stock Plan (the
2003 Incentive Plan). The 2003 Incentive Plan provides for the issuance of
9,000,000 shares, of which 5,873,359 shares (5,036,627 stock options and
836,732 restricted shares) have been granted as of
34
Table of
Contents
September 30,
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 in January 2010. 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.
The
following tables summarize stock option activity for the 2003 Incentive Plan as
of and for the nine months ended September 30, 2010 and 2009.
|
|
2010
|
|
2009
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
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
|
|
(55,870
|
)
|
64.79
|
|
(290,000
|
)
|
54.66
|
|
Expired
|
|
(929,840
|
)
|
44.28
|
|
(197,900
|
)
|
30.84
|
|
Stock options outstanding at September 30,
|
|
3,413,917
|
|
$
|
26.67
|
|
4,242,100
|
|
$
|
31.63
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
Contractual Term
|
|
Weighted Average
|
|
|
|
Contractual Term
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
Shares
|
|
(in years)
|
|
Exercise Price
|
|
Shares
|
|
(in years)
|
|
Exercise Price
|
|
$ 0 - $ 6.5810
|
|
1,828,369
|
|
3.1
|
|
$
|
3.67
|
|
1,828,369
|
|
3.1
|
|
$
|
3.67
|
|
$ 13.1621 - $ 19.7430
|
|
150,788
|
|
3.2
|
|
16.25
|
|
50,788
|
|
0.7
|
|
15.25
|
|
$ 39.4861 - $ 46.0670
|
|
25,394
|
|
0.2
|
|
45.91
|
|
25,394
|
|
0.2
|
|
45.91
|
|
$ 46.0671 - $ 52.6480
|
|
698,333
|
|
0.4
|
|
49.63
|
|
698,333
|
|
0.4
|
|
49.63
|
|
$ 59.2291 - $ 65.8100
|
|
711,033
|
|
1.2
|
|
64.79
|
|
633,511
|
|
1.2
|
|
64.79
|
|
Total
|
|
3,413,917
|
|
2.1
|
|
$
|
26.67
|
|
3,236,395
|
|
2.1
|
|
$
|
26.06
|
|
Intrinsic value (in thousands)
|
|
$
|
21,812
|
|
|
|
|
|
$
|
21,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2010 represents the excess of our closing
stock price of $15.60 on that date 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 for the three and nine month
periods ended September 30, 2010.
No options were exercised or granted during the nine months ended September 30,
2009. The total grant date Fair Value of
the stock options granted during the nine months ended September 30, 2010
was $0.5 million.
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.
35
Table of Contents
The
following table summarizes restricted stock activity for the respective grant
years as of and for the nine months ended September 30, 2010 and 2009.
|
|
2010
|
|
2009
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
Date Fair Value
|
|
Shares
|
|
Date Fair Value
|
|
Nonvested restricted stock grants outstanding as of
January 1,
|
|
275,433
|
|
$
|
33.04
|
|
410,767
|
|
$
|
41.29
|
|
Granted
|
|
90,000
|
|
15.14
|
|
70,000
|
|
2.10
|
|
Canceled
|
|
(7,783
|
)
|
35.57
|
|
(68,383
|
)
|
46.23
|
|
Vested
|
|
(150,246
|
)
|
29.29
|
|
(135,706
|
)
|
35.38
|
|
Nonvested restricted stock grants outstanding as of
September 30,
|
|
207,404
|
|
$
|
27.90
|
|
276,678
|
|
$
|
33.05
|
|
The weighted average remaining contractual term (in
years) of nonvested awards as of September 30, 2010 was 1.3 years.
The
total Fair Value of restricted stock grants vested during the nine months ended
September 30, 2010 was $2.1 million while the total Fair Value of restricted
stock grants which vested during the nine months ended September 30, 2009
was $0.1 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 September 30, 2010, a total of 1,708,073 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 nine months ended September 30, 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 90,000 restricted
shares were issued to certain non-employee directors. No TSOs were granted during the nine months
ended September 30, 2010. No stock
options or TSOs were granted during the nine months ended September 30,
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
$2.6 million for the three months ended September 30, 2010, $9.7 million
for the nine months ended September 30, 2010, $3.6 million for the three
months ended September 30, 2009 and $9.6 million for the nine months ended
September 30, 2009.
As
of September 30, 2010, total compensation expense which had not yet been
recognized related to nonvested options, TSOs and restricted stock grants was
$6.8 million. The provisions of all of
our Incentive Stock Plans provide for vesting of all such outstanding unvested
restricted stock and options under certain conditions, with such conditions
expected to occur on the Effective Date, pursuant to the Plan. Accordingly, all such previously unrecognized
expense is expected to be recognized in 2010.
Additionally, the Plan provides that all outstanding options to purchase
our stock will be converted into vested options to purchase THHC common stock and
New
36
Table of
Contents
GGP
common stock, with appropriate adjustments to the exercise price and the
relative amounts of such options determined by the relative common stock
trading prices of THHC and New GGP in the ten day period after the Effective
Date.
Effect
of the Plan on Stock-Based Compensation Plans
On
the Effective Date, all outstanding options and restricted stock will vest in
full. Accordingly, holders of previously
restricted stock will have the same treatment under the Plan as other holders
of our common stock. In conjunction with
consummation of the Plan, the Outstanding GGP Options will be converted into (i) an
option to acquire the same number of shares of New GGP Common Stock and (ii) a
separate option to acquire .0983 shares of THHC Common Stock for each existing
option for one share of GGP Common Stock with an exercise price for each such
New GGP option and THHC option based upon the relative market values post
emergence.
Notwithstanding
the foregoing, pursuant to the terms of GGPs 1998 Incentive Stock Plan, holders
of any outstanding TSOs issued thereunder shall have the right to elect, within
sixty days after the Effective Date, to surrender such option as of the
Effective Date for a cash payment equal to the amount by which the highest
reported sales price, regular way, of a share of New GGP Common Stock in any
transaction reported on the NYSE Composite Tape during the sixty-day period
ending on the Effective Date exceeds the exercise price per share under such
option, multiplied by the number of shares of New GGP Common Stock under such
option, as converted.
NOTE 7 OTHER ASSETS AND LIABILITIES
The
following table summarizes the significant components of prepaid expenses and
other assets.
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Below-market ground leases (Note 2)
|
|
$
|
237,268
|
|
$
|
241,676
|
|
Security and escrow deposits
|
|
159,694
|
|
99,685
|
|
Prepaid expenses
|
|
106,705
|
|
88,651
|
|
Receivables - finance leases and bonds
|
|
85,796
|
|
119,506
|
|
Real estate tax stabilization agreement (Note 2)
|
|
68,664
|
|
71,607
|
|
Special Improvement District receivable
|
|
48,584
|
|
48,713
|
|
Above-market tenant leases (Note 2)
|
|
26,583
|
|
34,339
|
|
Deferred tax, net of valuation allowances
|
|
12,520
|
|
28,615
|
|
Other
|
|
15,753
|
|
21,955
|
|
|
|
$
|
761,567
|
|
$
|
754,747
|
|
The
following table summarizes the significant components of accounts payable,
accrued expenses and other liabilities.
37
Table
of Contents
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued interest*
|
|
$
|
655,135
|
|
$
|
366,398
|
|
Accounts payable and accrued expenses
|
|
382,141
|
|
434,912
|
|
Contingent purchase price liability
|
|
230,000
|
|
68,378
|
|
Accrued payroll and other employee liabilities
|
|
220,231
|
|
104,926
|
|
Uncertain tax position liability
|
|
218,499
|
|
129,413
|
|
Accrued real estate taxes
|
|
116,600
|
|
88,511
|
|
Deferred gains/income
|
|
82,870
|
|
67,611
|
|
Below-market tenant leases (Note 2)
|
|
51,133
|
|
63,290
|
|
Construction payable
|
|
50,836
|
|
150,746
|
|
Conditional asset retirement
obligation liability
|
|
24,959
|
|
24,601
|
|
Tenant and other deposits
|
|
23,723
|
|
23,250
|
|
Other
|
|
166,216
|
|
212,860
|
|
Total accounts payable and accrued expenses
|
|
2,222,343
|
|
1,734,896
|
|
Less: amounts subject to compromise (Note 1)
|
|
(904,721
|
)
|
(612,008
|
)
|
Accounts payable and accrued expenses not subject to
compromise
|
|
$
|
1,317,622
|
|
$
|
1,122,888
|
|
*Includes $83.7
million of additional interest expense accrued at September 30, 2010 as the
result of a consensual
agreement
reached in the third quarter with lenders of certain of our corporate
debt
(Note 1).
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 $4.5 million for the three months
ended
September 30, 2010,
$4.7 million for the three months ended September 30, 2009, $13.2 million
for the nine months ended September 30, 2010, and $14.2 million for the
nine months ended September 30, 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 $3.2 million for the
three months ended September 30, 2010, $3.1 million for the three months ended September 30,
2009, $9.1 million for the nine months ended September 30, 2010, and $9.4
million for the nine months ended September 30, 2009.
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 on the later of (i) during the 30 months after closing with the
final payment being subject to re-adjustment 48 months after closing or (ii) as
agreed by the parties. Although we have currently estimated that no additional
consideration will be paid or exchanged pursuant to the Phase II Agreement and
the final payment date has currently been extended to November 11, 2010 by
agreement of the parties, the total final purchase price of the Phase II
Acquisition could be different than the current estimate.
38
Table
of Contents
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 Contingent Stock Agreement, (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 our Master Planned Communities segment. GGPs
obligations to the former Hughes owners or their successors (the Beneficiaries)
under the CSA are 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 has been
accounted for in our consolidated financial statements as a land sales
operations expense, with the difference between such share of operations and
the share of cash flows paid remaining as a contingent obligation. 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. During 2008, 356,661 shares of GGP common stock (from
treasury shares) were delivered to the Beneficiaries pursuant to the CSA.
The
Plan provides that the final payment and settlement of all other claims under
the CSA will be a total of $230.0 million, and such amount will be distributed
after the Effective Date. Accordingly,
as of September 30, 2010, we adjusted the previous estimated liability in
accounts payable and accrued expenses net of the accrued contingent obligation
related to the share of previous earnings of the CSA assets, with such amount
reflected as additional investment of $161.6 million in the CSA Assets which is
included in investment property and property held for development and sale.
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.
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.
39
Table
of Contents
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 $53.5 million for the nine months ended September 30,
2010 and $46.8 million for the nine months ended September 30, 2009. The
total expenditures for additions to long-lived assets for the Retail and Other
segment were $204.6 million for the nine months ended September 30, 2010
and $158.2 million for the nine months ended September 30, 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.
40
Table of
Contents
Segment
operating results are as follows:
|
|
Three Months Ended September 30, 2010
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
(In thousands)
|
|
Retail
and Other
|
|
|
|
|
|
|
|
Property revenues:
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
487,433
|
|
$
|
94,000
|
|
$
|
581,433
|
|
Tenant recoveries
|
|
217,906
|
|
38,364
|
|
256,270
|
|
Overage rents
|
|
10,333
|
|
1,065
|
|
11,398
|
|
Other, including noncontrolling interests
|
|
16,505
|
|
10,802
|
|
27,307
|
|
Total property revenues
|
|
732,177
|
|
144,231
|
|
876,408
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
Real estate taxes
|
|
71,339
|
|
11,047
|
|
82,386
|
|
Property maintenance costs
|
|
27,176
|
|
4,840
|
|
32,016
|
|
Marketing
|
|
9,043
|
|
2,009
|
|
11,052
|
|
Other property operating costs
|
|
132,441
|
|
30,118
|
|
162,559
|
|
Provision for doubtful accounts
|
|
5,628
|
|
938
|
|
6,566
|
|
Total property operating expenses
|
|
245,627
|
|
48,952
|
|
294,579
|
|
Retail and other net operating income
|
|
486,550
|
|
95,279
|
|
581,829
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land and condominium sales
|
|
20,290
|
|
10,824
|
|
31,114
|
|
Land and condominium sales operations
|
|
(19,770
|
)
|
(8,080
|
)
|
(27,850
|
)
|
Master Planned Communities net operating income
|
|
520
|
|
2,744
|
|
3,264
|
|
Real estate property net operating income
|
|
$
|
487,070
|
|
$
|
98,023
|
|
$
|
585,093
|
|
|
|
Three
Months Ended September 30, 2009
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
(In thousands)
|
|
Retail and Other
|
|
|
|
|
|
|
|
Property revenues:
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
489,472
|
|
$
|
94,264
|
|
$
|
583,736
|
|
Tenant recoveries
|
|
217,040
|
|
39,718
|
|
256,758
|
|
Overage rents
|
|
10,408
|
|
1,442
|
|
11,850
|
|
Other, including noncontrolling interests
|
|
17,125
|
|
12,172
|
|
29,297
|
|
Total property revenues
|
|
734,045
|
|
147,596
|
|
881,641
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
Real estate taxes
|
|
69,925
|
|
11,775
|
|
81,700
|
|
Property maintenance costs
|
|
28,246
|
|
5,024
|
|
33,270
|
|
Marketing
|
|
7,358
|
|
1,484
|
|
8,842
|
|
Other property operating costs
|
|
136,235
|
|
31,278
|
|
167,513
|
|
Provision for doubtful accounts
|
|
5,925
|
|
1,539
|
|
7,464
|
|
Total property operating expenses
|
|
247,689
|
|
51,100
|
|
298,789
|
|
Retail and other net operating income
|
|
486,356
|
|
96,496
|
|
582,852
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land and condominium sales
|
|
7,409
|
|
7,800
|
|
15,209
|
|
Land and condominium sales operations
|
|
(9,582
|
)
|
(8,647
|
)
|
(18,229
|
)
|
Master Planned Communities net operating loss
|
|
(2,173
|
)
|
(847
|
)
|
(3,020
|
)
|
Real estate property net operating income
|
|
$
|
484,183
|
|
$
|
95,649
|
|
$
|
579,832
|
|
41
Table
of Contents
|
|
Nine Months Ended September 30, 2010
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
|
|
(In thousands)
|
|
|
|
Retail and Other
|
|
|
|
|
|
|
|
Property revenues:
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
1,464,650
|
|
$
|
288,606
|
|
$
|
1,753,256
|
|
Tenant recoveries
|
|
647,744
|
|
115,135
|
|
762,879
|
|
Overage rents
|
|
28,126
|
|
3,251
|
|
31,377
|
|
Other, including noncontrolling interests
|
|
53,055
|
|
33,143
|
|
86,198
|
|
Total property revenues
|
|
2,193,575
|
|
440,135
|
|
2,633,710
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
Real estate taxes
|
|
214,496
|
|
35,711
|
|
250,207
|
|
Property maintenance costs
|
|
89,207
|
|
14,721
|
|
103,928
|
|
Marketing
|
|
22,374
|
|
4,637
|
|
27,011
|
|
Other property operating costs
|
|
387,713
|
|
87,198
|
|
474,911
|
|
Provision for doubtful accounts
|
|
15,575
|
|
3,065
|
|
18,640
|
|
Total property operating expenses
|
|
729,365
|
|
145,332
|
|
874,697
|
|
Retail and other net operating income
|
|
1,464,210
|
|
294,803
|
|
1,759,013
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land and condominium sales
|
|
85,325
|
|
36,796
|
|
122,121
|
|
Land and condominium sales operations
|
|
(89,001
|
)
|
(26,821
|
)
|
(115,822
|
)
|
Master Planned Communities net operating (loss)
income
|
|
(3,676
|
)
|
9,975
|
|
6,299
|
|
Real estate property net operating income
|
|
$
|
1,460,534
|
|
$
|
304,778
|
|
$
|
1,765,312
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
Segment
|
|
|
|
Properties
|
|
Properties
|
|
Basis
|
|
|
|
|
|
(In thousands)
|
|
|
|
Retail and Other
|
|
|
|
|
|
|
|
Property revenues:
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
1,487,288
|
|
$
|
288,698
|
|
$
|
1,775,986
|
|
Tenant recoveries
|
|
674,750
|
|
119,259
|
|
794,009
|
|
Overage rents
|
|
26,214
|
|
3,632
|
|
29,846
|
|
Other, including minority interest
|
|
48,733
|
|
37,813
|
|
86,546
|
|
Total property revenues
|
|
2,236,985
|
|
449,402
|
|
2,686,387
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
Real estate taxes
|
|
210,443
|
|
36,620
|
|
247,063
|
|
Property maintenance costs
|
|
77,705
|
|
14,023
|
|
91,728
|
|
Marketing
|
|
21,840
|
|
4,234
|
|
26,074
|
|
Other property operating costs
|
|
394,413
|
|
95,768
|
|
490,181
|
|
Provision for doubtful accounts
|
|
25,104
|
|
4,592
|
|
29,696
|
|
Total property operating expenses
|
|
729,505
|
|
155,237
|
|
884,742
|
|
Retail and other net operating income
|
|
1,507,480
|
|
294,165
|
|
1,801,645
|
|
|
|
|
|
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
Land and condominium sales
|
|
38,844
|
|
26,320
|
|
65,164
|
|
Land and condominium sales operations
|
|
(42,046
|
)
|
(22,148
|
)
|
(64,194
|
)
|
Master Planned Communities net operating (loss)
income before provision for impairment
|
|
(3,202
|
)
|
4,172
|
|
970
|
|
Provision for impairment
|
|
(108,691
|
)
|
|
|
(108,691
|
)
|
Master Planned Communities net operating (loss)
income
|
|
(111,893
|
)
|
4,172
|
|
(107,721
|
)
|
Real estate property net operating income
|
|
$
|
1,395,587
|
|
$
|
298,337
|
|
$
|
1,693,924
|
|
42
Table of
Contents
The
following reconciles NOI to GAAP-basis operating income and loss from
continuing operations:
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Real estate property net operating income:
|
|
|
|
|
|
|
|
|
|
Segment basis
|
|
$
|
585,093
|
|
$
|
579,832
|
|
$
|
1,765,312
|
|
$
|
1,693,924
|
|
Unconsolidated Properties
|
|
(98,023
|
)
|
(95,649
|
)
|
(304,778
|
)
|
(298,337
|
)
|
Consolidated Properties
|
|
487,070
|
|
484,183
|
|
1,460,534
|
|
1,395,587
|
|
Management fees and other corporate revenues
|
|
14,075
|
|
16,851
|
|
48,063
|
|
57,569
|
|
Property management and other costs
|
|
(41,057
|
)
|
(44,876
|
)
|
(125,007
|
)
|
(130,485
|
)
|
General and administrative
|
|
(9,401
|
)
|
(8,324
|
)
|
(22,707
|
)
|
(22,436
|
)
|
Strategic initiatives
|
|
|
|
(3,328
|
)
|
|
|
(67,341
|
)
|
Provisions for impairment
|
|
(4,620
|
)
|
(60,940
|
)
|
(35,893
|
)
|
(365,729
|
)
|
Depreciation and amortization
|
|
(175,336
|
)
|
(185,016
|
)
|
(527,956
|
)
|
(576,103
|
)
|
Noncontrolling interest in NOI of Consolidated
Properties and other
|
|
3,150
|
|
2,656
|
|
9,282
|
|
8,298
|
|
Operating income
|
|
273,881
|
|
201,206
|
|
806,316
|
|
299,360
|
|
Interest income
|
|
274
|
|
523
|
|
1,087
|
|
1,754
|
|
Interest expense
|
|
(413,237
|
)
|
(326,357
|
)
|
(1,050,241
|
)
|
(983,198
|
)
|
(Provision for) benefit from income taxes
|
|
(1,913
|
)
|
14,430
|
|
(19,797
|
)
|
10,202
|
|
Equity in income of Unconsolidated Real Estate
Affiliates
|
|
9,789
|
|
15,341
|
|
60,441
|
|
39,218
|
|
Reorganization items
|
|
(102,517
|
)
|
(22,597
|
)
|
(93,216
|
)
|
(47,515
|
)
|
Loss from continuing operations
|
|
$
|
(233,723
|
)
|
$
|
(117,454
|
)
|
$
|
(295,410
|
)
|
$
|
(680,179
|
)
|
The
following reconciles segment revenues to GAAP-basis consolidated revenues:
|
|
Three Months Ended September, 30
|
|
Nine Months Ended September, 30
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands)
|
|
Segment basis total property revenues
|
|
$
|
876,408
|
|
$
|
881,641
|
|
$
|
2,633,710
|
|
$
|
2,686,387
|
|
Unconsolidated segment revenues
|
|
(144,231
|
)
|
(147,596
|
)
|
(440,135
|
)
|
(449,402
|
)
|
Consolidated Land and condominium sales
|
|
20,290
|
|
7,409
|
|
85,325
|
|
38,844
|
|
Management fees and other corporate revenues
|
|
14,075
|
|
16,851
|
|
48,063
|
|
57,569
|
|
Noncontrolling interest in NOI of Consolidated
Properties and other
|
|
3,150
|
|
2,656
|
|
9,282
|
|
8,298
|
|
GAAP-basis consolidated total revenues
|
|
$
|
769,692
|
|
$
|
760,961
|
|
$
|
2,336,245
|
|
$
|
2,341,696
|
|
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 the Plan, 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:
43
Table
of Contents
·
Emergence from bankruptcy,
reorganization and liquidity
·
Future financings, repayment
of debt and interest rates
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 which are described below
under Risk Factors. 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
As
of September 30, 2010, we are the owner of over 185 regional shopping
malls in 43 states and the owner of four master planned communities. We operate
in two reportable business segments: Retail and Other and Master Planned
Communities.
The
Company is currently operating as a Debtor in Possession under Chapter 11 and,
pursuant to the Plan approved by the Bankruptcy Court on October 21, 2010,
is currently scheduled to emerge from Chapter 11 on or about November 8,
2010. 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 created a long-term business plan necessary to accomplish
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. To fulfill this business plan,
we have pursued a deliberate two-stage strategy. The first stage entailed the restructuring of
our property-level secured mortgage debt. The second stage is the restructuring
of the debt and third party equity of the TopCo Debtors including our public
equity that will be accomplished pursuant to the Plan.
As
of September 30, 2010, a total of 262 Debtors owning 146 properties with
$14.89 billion of secured mortgage debt have emerged from bankruptcy. The plans of reorganization for all of these
Debtors provide for payment in full of undisputed claims of creditors.
We
have identified 13 Special Consideration Properties with $744.5 million of
secured mortgage debt at September 30, 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. As described in Note 1, we have entered into
agreements to deed two of the Special Consideration Properties (Eagle Ridge
Mall and Oviedo Marketplace) to the lenders in the fourth quarter of 2010.
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
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 October 6, 2010, Silver City entered into a Forbearance
Agreement with the
44
Table of
Contents
lender
which provides for the joint marketing of the property for sale in lieu of
foreclosure. On May 3, 2010, the
property owned by our Highland Unconsolidated Real Estate Affiliate was
transferred to the lender, yielding a nominal net gain on our investment in
such Unconsolidated Real Estate Affiliate (Note 3).
The
Plan provides for the TopCo Debtors emergence from bankruptcy. Under the Plan, we will satisfy our debt and
other claims in full, provide for substantial recovery to the third party
equity holders of the TopCo Debtors, including our stockholders, and create New
GGP as discussed below. The Plan also contemplates that we will distribute
equity ownership in THHC to our stockholders.
As a result, THHC that will own a diverse portfolio of real estate
assets currently owned by us. THHCs assets are expected to consist of all of
our master planned communities, nine mixed-use development opportunities, four
potential mall development projects, seven redevelopment properties and other
miscellaneous real estate interests. Upon consummation of the Plan, THHC will
have $250.0 million of new equity capital from the Plan Sponsors.
The
Topco Debtors emergence from bankruptcy is expected to be funded with the
proceeds from the following transactions:
·
$6.3 billion of investments in New GGPs
common stock, comprised of investments by REP Investments, LLC, an affiliate of
Brookfield Asset Management, Inc. (Brookfield Investor) in the amount
of $2.31 billion, affiliates of Fairholme Funds, Inc. (Fairholme) in
the amount of approximately $2.51 billion and affiliates of Pershing Square
Capital Management (Pershing Square, and together with Brookfield Investor
and Fairholme, the Plan Sponsors) in the amount of approximately $1.00
billion and affiliates of Blackstone Real Estate Partners LLP (Blackstone) in
the amount of approximately $481 million;
·
$500 million investment in New GGPs common
stock by Teacher Retirement System of Texas (Texas Teachers); and
·
$2.2 billion of reinstated
indebtedness and replacement indebtedness.
On
October 11, 2010, we gave notice to Pershing, Fairholme and Texas
Teachers, that we reserved the right to repurchase within 45 days after the
Effective Date up to $1.80 billion of the New GGP common stock issued to
Fairholme, Pershing Square and Texas Teachers on the Effective Date and to
prepay the $350.0 million Pershing Square bridge note described below. The investment agreements with Fairholme,
Pershing Square and Texas Teachers permit New GGP to use the proceeds of a sale
of common stock for not less than $10.50 per share or more (net of all
underwriting and other discounts, fees and related consideration) to repurchase
the amount of New GGP common stock to be sold to Fairholme, Pershing Square and
Texas Teachers, pro rata as between Fairholme and Pershing Square only, by up
to 50% (or approximately $2.15 billion in the aggregate) within 45 days after
the effective date of the Plan. In
connection with our election to reserve Pershing Squares shares for repurchase
as described above, 35 million shares (representing $350 million of Pershing
Squares equity capital commitment) were designated as put shares in
accordance with the Investment Agreement for Pershing Square. The payment for these 35 million shares will
be fulfilled on the effective date of the Plan by the payment of cash to New
GGP at closing in exchange for unsecured notes issued by New GGP to Pershing
Square which will be payable six months from closing (the Pershing Square
Bridge Notes). The Pershing Square
Bridge Notes are pre-payable at any time without premium or penalty. In addition, we have the right (the put
right) to sell up to 35 million shares of New GGP common stock, subject to
reduction as provided in the Investment Agreement, to Pershing Square at $10.00
per share (adjusted for dividends) within six months following the effective
date of the Plan to fund the repayment of the Pershing Square Bridge Notes to
the extent that they have not already been repaid. In connection with our
reserving shares for repurchase after the Effective Date, we must pay to
Fairholme and/or Pershing Square, as applicable, in cash on the Effective Date,
an amount equal to approximately $38.75 million. No fee is required to be
paid to Texas Teachers.
On
October 21, 2010, the Bankruptcy Court entered an order confirming the
Plan. We currently expect to emerge from
bankruptcy on or about November 8, 2010.
For
the three months ended September 30, 2010, we generated NOI of $581.8
million in our retail and other segment. Included in this amount is income from
our Unconsolidated Properties at our ownership share. Comparatively, for the
three months ended September 30, 2009, we reported NOI of $582.9 million.
Based on the results of our evaluations for impairment (Note 1), we recognized
total impairment charges of $4.6 million
45
Table of
Contents
for
the three months ended September 30, 2010 and $60.9 million for the three
months ended September 30, 2009.
For
the three months ended September 30, 2010, total property revenues
declined $5.2 million, or 0.6%, to $876.4 million, primarily due to declines in
specialty leasing occupancy and sales volumes.
Included in this amount are revenues from Unconsolidated Properties at
our ownership share of $144.2 million for the three months ended September 30,
2010, which was slightly less than the $147.6 million for the three months
ended September 30, 2009.
Land and condominium sales, as well
as land and condominium sales operations, increased for the three months ended September 30,
2010 primarily resulting from $10.3 million of revenue and $9.6 million of
associated costs of sales related to 24 condominium sales at Nouvelle at Natick
during the period. Comparable unit sales
were deferred until the three months ended June 30, 2010 since we had not
surpassed the threshold of sold units required for recognition of revenue on
the project as a whole. In addition, The
Woodlands community experienced greater sales volumes of commercial land sales
for the three months ended September 30, 2010 compared to the three months
ended September 30, 2009.
Our
ability to continue as a going concern is dependent upon our ability to
successfully consummate the Plan, and emerge from bankruptcy protection and
there can be no assurance that we will be able to do so. We have 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 11 for additional
information including reconciliations of our segment basis results to GAAP
basis results.
46
Table of
Contents
Three
months ended September 30, 2010 and 2009
Retail and Other Segment
|
|
Three Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Property revenues:
|
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$
|
581,433
|
|
$
|
583,736
|
|
$
|
(2,303
|
)
|
(0.4
|
)%
|
Tenant
recoveries
|
|
256,270
|
|
256,758
|
|
(488
|
)
|
(0.2
|
)
|
Overage
rents
|
|
11,398
|
|
11,850
|
|
(452
|
)
|
(3.8
|
)
|
Other,
including non controlling interests
|
|
27,307
|
|
29,297
|
|
(1,990
|
)
|
(6.8
|
)
|
Total
property revenues
|
|
876,408
|
|
881,641
|
|
(5,233
|
)
|
(0.6
|
)
|
Property operating expenses:
|
|
|
|
|
|
|
|
|
|
Real
estate taxes
|
|
82,386
|
|
81,700
|
|
686
|
|
0.8
|
|
Property
maintenance costs
|
|
32,016
|
|
33,270
|
|
(1,254
|
)
|
(3.8
|
)
|
Marketing
|
|
11,052
|
|
8,842
|
|
2,210
|
|
25.0
|
|
Other
property operating costs
|
|
162,559
|
|
167,513
|
|
(4,954
|
)
|
(3.0
|
)
|
Provision
for doubtful accounts
|
|
6,566
|
|
7,464
|
|
(898
|
)
|
(12.0
|
)
|
Total
property operating expenses
|
|
294,579
|
|
298,789
|
|
(4,210
|
)
|
(1.4
|
)
|
Retail and other net operating income
|
|
$
|
581,829
|
|
$
|
582,852
|
|
$
|
(1,023
|
)
|
(0.2
|
)%
|
Minimum rents decreased $2.3 million
for the three months ended September 30, 2010 primarily due to a $2.2
million decrease in temporary rental revenues resulting from a decrease in
temporary tenant occupancy and sales volume for the three months ended September 30,
2010. Partially offsetting these
decreases, termination income increased $0.4 million to $4.3 million for the
three months ended September 30, 2010 compared to $3.9 million for the
three months ended September 30, 2009.
As a result of deteriorating economic conditions, we have entered into
percent in lieu leases with tenants who may have difficulty in making their
fixed rent payments. We generally prefer
to enter into percent in lieu leases rather than agreeing to reductions in or
abatements of fixed rent amounts because by temporarily accepting a reduced
rent calculated based on a percentage of a tenants sales, our rental revenues
will increase as the tenants business improves. In addition, we believe that these
concessions help to prevent tenants from vacating a lease, thereby maintaining
occupancy levels and avoiding triggering co-tenancy clauses in our leases for
the applicable mall. As the economy and
retail sales improve, we expect to enter into fewer percent in lieu leases and
other rent relief agreements.
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. There were no significant variances in tenant recoveries for the
three months ended September 30, 2010 as compared to the three months
ended September 30, 2009.
Other revenue, including non
controlling interest, decreased $2.0 million for the three months ended September 30,
2010 primarily due to a decrease in operating results from Aliansce, our
Unconsolidated Real Estate Affiliate located in Brazil, as a result of the
Aliansce IPO in January 2010 (Note 3), compared to the three months ended September 30,
2009.
Marketing expenses increased $2.2
million for the three months ended September 30, 2010 primarily due to
increases in national projects such as our Shop til You Rock, Emarketing and
Shopper Rewards programs.
Other property operating costs
decreased for the three months ended September 30, 2010 by $5.0 million
primarily due to the final settlements in 2010 related to the termination of
utility contracts that were subject to compromise and therefore such
settlements were classified as reorganization items in the current period. Partially offsetting this decrease is
increased electric expense due to comparatively warmer weather conditions, and
increases in landscaping and cleaning contracts.
47
Table of Contents
Master
Planned Communities Segment
|
|
Three Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Land and condominium sales
|
|
$
|
31,114
|
|
$
|
15,209
|
|
$
|
15,905
|
|
104.6
|
%
|
Land and condominium sales operations
|
|
(27,850
|
)
|
(18,229
|
)
|
9,621
|
|
52.8
|
|
Master Planned Communities net operating income
(loss)
|
|
$
|
3,264
|
|
$
|
(3,020
|
)
|
$
|
6,284
|
|
(208.1
|
)
|
Land and condominium sales, as well
as land and condominium sales operations, increased for the three months ended September 30,
2010 primarily resulting from $10.3 million of revenue and $9.6 million of
associated costs of sales related to 24 unit condominium sales at Nouvelle at
Natick during the period. Comparable
unit sales through September 30, 2009 were deferred since we had not
surpassed the threshold of sold units required for recognition of revenue on
the project as a whole until June 30, 2010. In addition, net operating income increased
at The Woodlands community resulting from greater sales volumes of commercial
land sales for the three months ended September 30, 2010 compared to the
three months ended September 30, 2009.
For all of our master planned
communities, we sold a total of 47.5 residential acres for the three months
ended September 30, 2010 compared to a total of 51.5 acres for the three
months ended September 30, 2009, and a total of 11.3 acres of commercial
lots for the three months ended September 30, 2010 compared to 0.6 acres
for the three months ended September 30, 2009.
As of
September
30, 2010, the master planned communities have approximately
14,700 remaining salable acres and Nouvelle at Natick has 63 available
condominium units for sale.
Certain
Significant Consolidated Revenues and Expenses
|
|
Three Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Tenant rents
|
|
$
|
715,672
|
|
$
|
716,920
|
|
$
|
(1,248
|
)
|
(0.2
|
)%
|
Land and condominium sales
|
|
20,290
|
|
7,409
|
|
12,881
|
|
173.9
|
|
Property operating expense
|
|
245,627
|
|
247,689
|
|
(2,062
|
)
|
(0.8
|
)
|
Land and condominium sales operations
|
|
19,770
|
|
9,582
|
|
10,188
|
|
106.3
|
|
Management fees and other corporate revenues
|
|
14,075
|
|
16,851
|
|
(2,776
|
)
|
(16.5
|
)
|
Property management and other costs
|
|
41,057
|
|
44,876
|
|
(3,819
|
)
|
(8.5
|
)
|
General and administrative
|
|
9,401
|
|
8,324
|
|
1,077
|
|
12.9
|
|
Strategic initiatives
|
|
|
|
3,328
|
|
(3,328
|
)
|
(100.0
|
)
|
Provisions for impairment
|
|
4,620
|
|
60,940
|
|
(56,320
|
)
|
(92.4
|
)
|
Depreciation and amortization
|
|
175,336
|
|
185,016
|
|
(9,680
|
)
|
(5.2
|
)
|
Interest expense
|
|
413,237
|
|
326,357
|
|
86,880
|
|
26.6
|
|
Provision for (benefit from) income taxes
|
|
1,913
|
|
(14,430
|
)
|
16,343
|
|
(113.3
|
)
|
Equity in income of Unconsolidated Real Estate
Affiliates
|
|
9,789
|
|
15,341
|
|
(5,552
|
)
|
(36.2
|
)
|
Reorganization items
|
|
(102,517
|
)
|
(22,597
|
)
|
(79,920
|
)
|
353.7
|
|
Discontinued operations - gain on dispositions
|
|
|
|
29
|
|
(29
|
)
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in consolidated tenant rents
(which includes minimum rents, tenant recoveries and overage rents), land and
condominium sales, property operating expenses (which includes real estate
taxes, property maintenance costs, marketing, other property operating costs
and provision for doubtful accounts) and land and condominium 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.
Management
fees and other corporate revenues decreased $2.8 million for the three months
ended September 30, 2010 primarily due to a $1.0 million decrease in lease
fees, a $0.8 million decrease in development fees and a $0.8 million decrease
in management fees. Of the total decrease, $1.3 million resulted from the
sale of our third-party management business in July 2010 (Note 1).
Property
management and other costs decreased $3.8 million for the three months ended September 30,
2010 primarily due to an $11.2 million decrease in compensation expense
primarily resulting from a reduction in
48
Table of
Contents
force
in 2009 and the sale of our third party management business in July 2010
(Note 1). Such decrease was partially
offset by a $3.7 million increase in professional services primarily due to an
increase in leasing brokerage fees and a $1.5 million increase in information
technology.
Strategic initiatives for the three
months ended September 30, 2009 is primarily due to the recognition of
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 $4.6
million for the three months ended September 30, 2010 and $60.9 million
for the three months ended September 30, 2009. Although all of the properties in our Master
Planned Communities segment and 23 of our operating properties in our Retail
and Other segment had impairment indicators and carrying values in excess of
estimated Fair Value at September 30, 2010, aggregate undiscounted cash
flows for such master planned community properties and the 23 operating
properties exceeded their respective aggregate book values by over 340.7% and
203.9%, respectively. The impairment charges
recognized were as follows:
2010
·
$4.5 million to Plaza 800 in Sparks, Nevada
·
$0.1 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
·
$5.5 million to The Village at Redlands in Redlands,
California
·
$5.2 million to Plaza 9400 in Sandy, Utah
·
$7.5 million to Owings Mills-Two Corporate Center in Owings
Mills, Maryland
·
$35.5 million to the West Kendall development in Miami,
Florida
·
$0.9 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
·
$6.3 million related to Goodwill
The decrease in depreciation and
amortization for the three months ended September 30, 2010 primarily
resulted from the decrease in the carrying amount of buildings and equipment
due to the impairment charges recorded in 2009.
Interest expense increased $86.9
million for the three months ended September 30, 2010 compared to September 30,
2009 primarily due to the following:
·
$83.7 million of additional interest expense was recognized
at September 30, 2010 as the result of a consensual agreement reached in
the third quarter with lenders of certain of our corporate debt;
·
$22.0 million related to the increase in the amortization of
debt market rate adjustments; and
·
$8.9 million of debt extinguishment costs were recorded for
the nine months ended September 30, 2010 resulting from the write-off of
deferred finance costs related to the DIP Facility, which was refinanced on July 23,
2010.
Such increases in interest expense
were partially offset by decreases in interest expense due to the following:
·
$12.6 million decrease in interest expense primarily
resulting from lower rates on our DIP Facility and the Fashion Show and The
Shoppes at The Palazzo loans which were restructured in the third quarter of
2010;
·
$7.9 million decrease in interest expense related to our
interest rate swaps; and
·
$7.3 million decrease related to amortization of deferred
finance costs, as finance costs associated with debt emergence are classified
as reorganization expenses and are therefore not capitalized as deferred
finance costs.
49
Table of Contents
The increase in the provision for
(benefit from) income taxes for the three months ended September 30, 2010
compared to the three months ended September 30, 2009 was primarily due to
the provision benefit from resulting from the provision for impairment related
to the West Kendall development property for the three months ended September 30,
2009.
The
decrease in equity in income of Unconsolidated Real Estate Affiliates for the
three months ended September 30, 2010 was primarily due to the following:
·
$6.4 million reduction in revenue related to
our investment in Aliansce;
·
$3.0 million decrease at our Teachers joint
venture which was primarily due to an increase in interest expense; and
partially offset by
·
$3.4 million increase at our Woodlands joint
venture which was primarily due to land sales revenue.
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.
Nine
months ended September 30, 2010 and 2009
Retail and Other Segment
|
|
Nine Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Property revenues:
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
1,753,256
|
|
$
|
1,775,986
|
|
$
|
(22,730
|
)
|
(1.3
|
)%
|
Tenant recoveries
|
|
762,879
|
|
794,009
|
|
(31,130
|
)
|
(3.9
|
)
|
Overage rents
|
|
31,377
|
|
29,846
|
|
1,531
|
|
5.1
|
|
Other, including non controlling interest
|
|
86,198
|
|
86,546
|
|
(348
|
)
|
(0.4
|
)
|
Total property revenues
|
|
2,633,710
|
|
2,686,387
|
|
(52,677
|
)
|
(2.0
|
)
|
Property operating expenses:
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
250,207
|
|
247,063
|
|
3,144
|
|
1.3
|
|
Property maintenance costs
|
|
103,928
|
|
91,728
|
|
12,200
|
|
13.3
|
|
Marketing
|
|
27,011
|
|
26,074
|
|
937
|
|
3.6
|
|
Other property operating costs
|
|
474,911
|
|
490,181
|
|
(15,270
|
)
|
(3.1
|
)
|
Provision for doubtful accounts
|
|
18,640
|
|
29,696
|
|
(11,056
|
)
|
(37.2
|
)
|
Total property operating expenses
|
|
874,697
|
|
884,742
|
|
(10,045
|
)
|
(1.1
|
)
|
Retail and other net operating
income
|
|
$
|
1,759,013
|
|
$
|
1,801,645
|
|
$
|
(42,632
|
)
|
(2.4
|
)%
|
Minimum rents decreased $22.7
million for the nine months ended September 30, 2010 primarily due to a
$15.1 million decrease in base rents from our permanent tenants. These decreases in minimum rents were most
significant at Fashion Show, The Woodlands properties, The Shoppes at The
Palazzo, Coastland Mall, The Boulevard Mall and Saint Louis Galleria. Temporary
rental revenues decreased $9.4 million as a result of a decrease in temporary
tenant occupancy and tenant sales volume for the nine months ended September 30,
2010 compared to the nine months ended September 30, 2009. In addition, straight line rent decreased
$6.8 million for the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009.
Partially offsetting these decreases in base rents was an increase of
$7.7 million in percent in lieu rents, which are rents based on a percentage of
a tenants sales for a period instead of being based on a fixed charge based on
the space occupied. In addition,
termination income increased $0.9 million from $25.3 million for the nine
months ended September 30, 2010 compared to $24.4 million for the nine
months ended September 30, 2009. As
a result of deteriorating economic conditions, we have entered into percent in
lieu leases with tenants who may have difficulty in making their fixed rent
payments. We generally prefer to enter
into percent in lieu of leases rather than agreeing to reductions in or
abatements of fixed rent amounts because by temporarily accepting a reduced
rent calculated based on a percentage of a tenants sales, our rental revenues
will increase as the tenants business improves. In addition, we believe that these
concessions help to prevent tenants from vacating a lease, thereby maintaining
occupancy levels and avoiding
50
Table of Contents
triggering co-tenancy clauses in our
leases for the applicable mall. As the
economy and retail sales improve, we expect to enter into fewer percent in lieu
leases and other rent relief agreements.
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 $31.1 million decrease in tenant recoveries for the nine months
ended September 30, 2010 is primarily attributable to a $16.2 million
decrease in occupancy and the conversion of tenants to gross leases compared to
the nine months ended September 30, 2009.
The decrease for the nine months ended September 30, 2010 also
includes an $8.5 million decrease in recoveries related to common area
maintenance, real estate taxes and electric utility expenses as a result of
tenant settlements for prior years that were delayed due to the Debtors
bankruptcy. In addition, recoveries
related to marketing and promotional revenue decreased $4.5 million for the
nine months ended September 30, 2010 compared to the nine months ended September 30,
2009.
Overage rents increased slightly for
the nine months ended September 30, 2010 primarily due to increased sales
volume from our temporary specialty leasing tenants.
Property maintenance costs increased
$12.2 million for the nine months ended September 30, 2010 primarily due
to increased spending across the Company Portfolio in 2010 on repairs related
to parking, contract services, lighting, building repairs, plumbing, roof and
HVAC.
Other property operating costs
decreased $15.3 million for the nine months ended September 30, 2010
primarily due to the final settlements in 2010 related to the termination of
utility contracts that were subject to compromise and such settlements were
classified in reorganization items in the current period. In addition, there was a decrease in
miscellaneous property operating expense at the Woodlands properties and a
decrease related to our Aliansce joint venture.
The provision for doubtful accounts
decreased $11.1 million for the nine months ended September 30, 2010
primarily due to higher allowances in 2009 related to tenant bankruptcies and
weak economic conditions.
Master
Planned Communities Segment
|
|
Nine Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Land and condominium sales
|
|
$
|
122,121
|
|
$
|
65,164
|
|
$
|
56,957
|
|
87.4
|
%
|
Land and condominium sales operations
|
|
(115,822
|
)
|
(64,194
|
)
|
51,628
|
|
80.4
|
|
Master Planned Communities net operating income
before provision for impairment
|
|
6,299
|
|
970
|
|
5,329
|
|
549.4
|
|
Provision for impairment
|
|
|
|
(108,691
|
)
|
108,691
|
|
100.0
|
|
Master Planned Communities net operating income
(loss)
|
|
$
|
6,299
|
|
$
|
(107,721
|
)
|
$
|
114,020
|
|
105.8
|
%
|
Land and condominium sales, as well
as land and condominium sales operations, increased primarily as a result of
the recognition of $63.2 million of revenue and $58.2 million of associated
costs of sales related to condominium unit sales at the Nouvelle at Natick in
2010. All revenue from condominium sales
through June 30, 2010 was deferred as the threshold of sold units required
to recognize revenue had not been met.
As such, $52.9 million of previously deferred revenue from condominium
sales and $48.6 million of associated costs of sales were recorded during the
three months ended June 30, 2010 as the result of the recognition of all
deferred unit sales through June 30, 2010.
For the three months ended September 30, 2010, Nouvelle at Natick
recognized $10.3 million of revenue and $9.6 million of associated costs of
sales related to 24 unit condominium sales during the third quarter of
2010. In addition, net operating income
increased at The Woodlands community resulting from increased residential and
commercial lot sales activity for the nine months ended September 30,
2010.
These increases were partially
offset by lower margins related to the bulk sale of remaining single family
lots at the Fairwood community in Maryland in 2009. There were no land sales
for the nine months ended September 30, 2010 in our Fairwood community and
there were minimal land sales in our Summerlin community in Las Vegas, Nevada,
our Columbia community in Maryland and our Bridgeland Community in Houston,
Texas. In
51
Table of Contents
addition, during the nine months
ended September 30, 2009, we recorded a $52.8 million provision for
impairment at our Fairwood community and a $55.9 million provision for
impairment at Nouvelle at Natick.
For all of our master planned
communities, we sold a total of 186.4 residential acres for the nine months
ended September 30, 2010 compared to a total of 355.2 residential acres
for the nine months ended September 30, 2009, and a total of 36.0 acres of
commercial lots for the nine months ended September 30, 2010 compared to
35.1 commercial acres for the nine months ended September 30, 2009.
As of
September
30, 2010, the master planned communities have approximately
14,700 remaining salable acres and Nouvelle at Natick has 63 available
condominium units for sale.
Certain
Significant Consolidated Revenues and Expenses
|
|
Nine Months Ended September 30,
|
|
$ Increase
|
|
% Increase
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
(Decrease)
|
|
Tenant rents
|
|
$
|
2,140,520
|
|
$
|
2,188,252
|
|
$
|
(47,732
|
)
|
(2.2
|
)%
|
Land and condominium sales
|
|
85,325
|
|
38,844
|
|
46,481
|
|
119.7
|
|
Property operating expense
|
|
729,365
|
|
729,505
|
|
(140
|
)
|
(0.0
|
)
|
Land and condominium sales operations
|
|
89,001
|
|
42,046
|
|
46,955
|
|
111.7
|
|
Management fees and other corporate revenues
|
|
48,063
|
|
57,569
|
|
(9,506
|
)
|
(16.5
|
)
|
Property management and other costs
|
|
125,007
|
|
130,485
|
|
(5,478
|
)
|
(4.2
|
)
|
General and administrative
|
|
22,707
|
|
22,436
|
|
271
|
|
1.2
|
|
Strategic initiatives
|
|
|
|
67,341
|
|
(67,341
|
)
|
(100.0
|
)
|
Provisions for impairment
|
|
35,893
|
|
474,420
|
|
(438,527
|
)
|
(92.4
|
)
|
Depreciation and amortization
|
|
527,956
|
|
576,103
|
|
(48,147
|
)
|
(8.4
|
)
|
Interest expense
|
|
1,050,241
|
|
983,198
|
|
67,043
|
|
6.8
|
|
Provision for (benefit from) income taxes
|
|
19,797
|
|
(10,202
|
)
|
29,999
|
|
(294.1
|
)
|
Equity in income of Unconsolidated Real Estate
Affiliates
|
|
60,441
|
|
39,218
|
|
21,223
|
|
54.1
|
|
Reorganization items
|
|
(93,216
|
)
|
(47,515
|
)
|
(45,701
|
)
|
96.2
|
|
Discontinued operations - loss on dispositions
|
|
|
|
(26
|
)
|
26
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in consolidated tenant rents
(which includes minimum rents, tenant recoveries and overage rents), land and
condominium sales, property operating expenses (which includes real estate
taxes, property maintenance costs, marketing, other property operating costs
and provision for doubtful accounts) and land and condominium 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.
Management
fees and other corporate revenues decreased $9.5 million for the nine months
ended September 30, 2010 primarily due to a $3.5 million decrease in
development fees, a $2.6 million decrease in lease fees and a $2.1 million
decrease in management fees. Of the total decrease, $3.7 million resulted
from the sale of our third-party management business in July 2010 (Note
1).
Property
management and other costs decreased $5.5 million for the nine months ended September 30,
2010 primarily due to a $13.9 million decrease in compensation expense
primarily resulting from a reduction in force in 2009 and the sale of our third
party management business in July 2010 (Note 1). Such decrease was partially offset by a $1.7
million decrease in conference fees, which were offset by an $8.0 million
increase in professional services and a $3.4 million increase in information
technology.
Strategic initiatives for the nine
months ended September 30, 2009 is primarily due to professional fees for
restructuring that were incurred prior to filing for Chapter 11
protection. Similar fees incurred after
filing for Chapter 11 protection are recorded as reorganization items.
Based on the results of our
evaluations for impairment (Note 1), we recognized impairment charges of $35.9
million for the nine months ended September 30, 2010 and $474.4 million
for the nine months ended September 30, 2009. Although all of the properties in our Master
Planned Communities segment and 23 of our operating properties in our Retail
and Other segment had impairment indicators and carrying values in excess of
estimated
52
Table of Contents
Fair Value at September 30,
2010, aggregate undiscounted cash flows for such master planned community
properties and the 23 operating properties exceeded their respective aggregate
book values by over 340.7% and 203.9%, respectively and therefore no impairment
charges were recognized on such communities and properties. The impairment charges that were recognized
were as follows:
2010
·
$4.5 million to Plaza 800 in Sparks, Nevada
·
$11.0 million related to The Pines Mall in Pine Bluff,
Arkansas
·
$2.3 million related to Bay City Mall in Bay City, Michigan
·
$0.9 million related to Chico Mall in Chico, California
·
$0.3 million related to Eagle Ridge Mall in Lake Wales,
Florida
·
$7.1 million related to Lakeview Square in Battle Creek,
Michigan
·
$6.6 million related to Moreno Valley Mall in Moreno Valley,
California
·
$1.4 million related to Northgate Mall in Chattanooga,
Tennessee
·
$1.2 million related to Oviedo Marketplace in Oviedo,
Florida
·
$0.6 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
2009
·
$40.3 million to Owning Mills Mall in Owning Mills, Maryland
·
$81.1 million to River Falls Mall in Clarksville, Indiana
·
$24.2 million to the Allen Towne Mall development in Allen,
Texas
·
$6.7 million to the Redlands Promenade development in
Redlands, California
·
$5.5 million to The Village at Redlands in Redlands,
California
·
$5.2 million to Plaza 9400 in Sandy, Utah
·
$7.5 million to Owings Mills-Two Corporate Center in Owings
Mills, Maryland
·
$35.5 million to the West Kendall development in Miami,
Florida
·
$24.7 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
·
$52.8 million to our Fairwood Master Planned Community in
Columbia, Maryland
·
$55.9 million related to our Nouvelle at Natick project
located in Boston, Massachusetts
·
$135.0 million related to Goodwill
The decrease in depreciation and
amortization for the nine months ended September 30, 2010 primarily
resulted 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 increased $67.0
million for the nine months ended September 30, 2010 compared to September 30,
2009 primarily due to the following:
·
$83.7 million of additional interest expense was recognized
at September 30, 2010 as the result of a consensual agreement reached in
the third quarter with lenders of certain of our corporate debt;
·
$19.3 million related to the increase in the amortization of
debt market rate adjustments;
·
$13.9 million related to the higher interest expense on DIP
Facility which had nine months of interest expense in 2010 compared to five
months of interest expense in 2009 since the DIP Facility was originally
entered into in May 2009;
·
$11.7 million due to a reduction of interest that was
capitalized due to decreased development activity during the nine months ended September 30,
2010 compared to the same period of 2009; and
·
$9.0 million of debt extinguishment costs were recorded for
the nine months ended September 30, 2010 resulting from the write-off of
deferred finance costs related to the DIP Facility, which was refinanced on July 23,
2010.
Such increases in interest expense
were partially offset by decreases in interest expense due to the following:
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·
$14.5 million decrease in interest expense primarily
resulting from lower principal balances and lower interest rates on debt which
emerged from bankruptcy during the year, including the debt related to Fashion
Show and The Shoppes at The Palazzo;
·
$19.2 million decrease in interest expense related to our
interest rate swaps;
·
$17.0 million decrease related to amortization of deferred
finance costs, as finance costs associated with debt emergence are classified
as reorganization expenses and are therefore not capitalized as deferred
finance costs;
·
$11.6 million decrease in interest expense as the result of
the pay down of the short-term secured loan in May 2009; and
·
$5.1 million decrease in interest expense at Providence
Place as the result of the pay down of the loan at the time the property
emerged from bankruptcy.
The increase in the provision for
(benefit from) income taxes for the nine months ended September 30, 2010
was primarily attributable to an increase in taxable income related to our taxable
entities for the nine months ended September 30, 2010 and a tax benefit
related to provisions for impairments at our Fairwood and Nouvelle at Natick
master planned communities, as well as a provision for impairment related to
the West Kendall development property, in 2009.
These benefits are partially offset by a significant reduction in
valuation allowances compared to the nine months ended September 30, 2009.
The
increase in equity in income of Unconsolidated Real Estate Affiliates for the
nine months ended September 30, 2010 was primarily due to the following:
·
$9.7 million gain related to our investment
in Aliansce as a result of the Aliansce IPO (Note 3);
·
$3.6 million gain resulting from foreign
currency translation adjustments;
·
$5.7 million increase at our Woodlands joint
venture which was primarily due to land sales revenue; and partially offset by
·
$3.3 million decrease at our Teachers joint
venture which was primarily due to an increase in interest expense.
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.
Liquidity and Capital Resources
Our
primary uses of cash include payment of operating expenses, working capital,
debt repayment, including principal and interest, reinvestment in properties,
redevelopment of properties, tenant allowance, dividends and restructuring
costs. Our primary sources of cash
include tenant rents, land sales and the new equity expected in connection with
the Plan.
As
of September 30, 2010 our consolidated debt ($23.86 billion) combined with
our share of the debt of our Unconsolidated Real Estate Affiliates ($3.02 billion)
aggregated $26.88 billion (excluding Aliansce). 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.
As
of September 30, 2010, $14.89 billion of our consolidated debt has been
restructured and does not mature until dates after January 1, 2014, with
the exception of the debt associated with the Special Consideration Properties.
Principal amortization on these restructured secured loans resumed or commenced
on the emergence of the respective borrowers.
We expect to have sufficient cash to make these amortization payments
through emergence, and assuming consummation of the Plan, expect to have
sufficient cash provided by operations to make interest and amortization
payments subsequent to emergence. These
restructured loans also have financial covenants, primarily debt service
coverage ratios, which will restrict our cash and operations.
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Table of Contents
We
have approximately $6.93 billion of consolidated debt still subject to the stay
under section 362 of Chapter 11. These
debt obligations and substantially all other pre-petition obligations of the
TopCo Debtors will be settled under the Plan.
This consolidated debt 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 2007 issued by GGPLP (the Exchangeable Notes)
·
$2.25 billion of unsecured bonds issued by
TRCLP
·
$206.2 million of TRUPS
·
$338.8 million of secured debt related to the
TopCo Debtors
On
emergence from bankruptcy, given effect of the Plan, and excluding the Special
Consideration Properties, our aggregate debt is expected to be approximately $20.59
billion, consisting of approximately $18.09 billion of consolidated debt and
approximately $2.5 billion of our share of debt of our Unconsolidated Real
Estate Affiliates. Our consolidated debt is expected to consist of:
·
$15.90 billion of secured mortgage debt;
·
$206.2 million of TRUPS;
·
$1.04 billion of reinstated TRCLP Bonds and
$608.7 million of replacement TRCLP Bonds
·
$338.8 million of secured corporate debt; and
·
$300.0 million revolving credit facility,
none of which is expected to be drawn
With
respect to our share of the debt of our Unconsolidated Real Estate Affiliates, $225.2
million matures in 2010 and $893.5 million matures in 2011. We generally
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.
Our
multi-year plan for operating capital expenditures projects estimated
expenditures of $96.3 million and $113.8 million in 2010 and 2011,
respectively. In addition, we are currently redeveloping certain properties,
including St. Louis Galleria and Christiana Mall, and expect to spend $59.5
million and $15.0 million in 2010 and 2011, respectively, on these and other redevelopment
projects.
Principal
amortization on New GGPs consolidated secured loans is estimated to be $211.9
million in the fourth quarter 2010 and approximately $312.7 million during
2011. Our share of the principal
amortization on the secured mortgage debt of the Unconsolidated Real Estate
Affiliates is estimated to be approximately $8.9 million in the fourth quarter
of 2010 and approximately $31.8 million during 2011. New GGP currently believes we will have sufficient
cash provided by operations to make these amortization payments.
We
believe we will have adequate sources of funds to operate our business,
strategically reinvest and redevelop our projects and satisfy our distribution
requirements in order to maintain our REIT status.
Following
our emergence from bankruptcy we intend to reduce our outstanding debt through
a combination of selling non-core assets and certain joint venture interests,
entering into joint ventures with respect to certain of our existing
properties, refinancings, equity issuances and debt pay downs pursuant to our
restructured amortization schedule. With
respect to asset sales, we intend to seek opportunities to dispose of assets
that are not core to our business in order to optimize our portfolio and reduce
leverage, including the opportunistic sale of our strip shopping centers,
stand-alone office buildings and certain regional malls. In addition, New GGP expects to restructure
some of our less profitable, more highly levered properties, consisting of our
Special Consideration Properties, which accounted for approximately $756.0
million of our consolidated debt as of December 31, 2009.
Our
ability to continue as a going concern, as described in Note 1, is dependent
upon our ability to execute upon our confirmed Plan for the TopCo Debtors.
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Summary
of Cash Flows
Cash Flows from Operating Activities
Net
cash provided by operating activities was $545.8 million for the nine months
ended September 30, 2010 and $671.4 million for the nine months ended September 30,
2009.
Cash
used for Land/residential development and acquisitions expenditures was $53.5
million for the nine months ended September 30, 2010, an increase from
$46.8 million for the nine months ended September 30, 2009.
Net
cash provided by 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 $222.9
million in 2010 and $199.2 million in 2009.
Accounts payable and accrued expenses and deferred tax liabilities
increased $177.8 million primarily as a result of an increase in accrued
interest for unsecured debt since payments of interest were stayed as a result
of bankruptcy. 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 the Plan and have not been paid to
date. In addition, accounts and notes
receivable decreased $43.2 million for the nine months ended September 30, 2010,
whereas, such accounts increased $1.1 million for the nine months ended September 30,
2009. Also, restricted cash increased $48.7 million for the nine months ended
September 30, 2010, whereas such accounts decreased $1.1 million for the nine
months ended September 30, 2009. The nine months ended September 30, 2010 also
include the impact of reorganization items of $11.1 million, net.
Cash Flows from Investing Activities
Net
cash used in investing activities was $119.8 million for the nine months ended September 30,
2010 and $237.9 million for the nine months ended September 30, 2009.
Cash
used for acquisition/development of real estate and property
additions/improvements was $204.6 million for the nine months ended September 30,
2010, an increase from $158.2 million for the nine months ended September 30,
2009.
Net
investing cash provided by (used in) our Unconsolidated Real Estate Affiliates
was $97.7 million in 2010 and $(91.6) million in 2009. This increase is
primarily due to distributions received from Unconsolidated Real Estate
Affiliates of $107.4 million in 2010 and $7.5 million of proceeds from the sale
of our investment in Costa Rica (Note 3) in the first quarter of 2010, as well
as increases in investments and loans to Unconsolidated Real Estate Affiliates
during the first nine months of 2009.
Cash Flows from Financing Activities
Net
cash (used in) provided by financing activities was $(450.4) million for the
nine months ended September 30, 2010 and $89.3 million for the nine months
ended September 30, 2009.
Principal
payments on mortgages, notes and loan payables were $704.2 million for the nine
months ended September 30, 2010 and $309.4 million for the nine months
ended September 30, 2009. In
addition, we paid $138.5 million of finance costs related to the Debtors that
emerged from bankruptcy during the nine months ended September 30, 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, and issued approximately 4.9 million
shares of common stock. On January 28,
2010, we paid approximately $6.0 million in cash. No dividends were paid during the nine months
ended September 30, 2009. There were no distributions to holders of common
units during the nine months ended September 30, 2010 while $1.0 million
was paid during the nine months ended September 30, 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,
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Table of Contents
overage
rent thresholds are most commonly achieved in the fourth quarter. As a result,
revenue production is generally highest in the fourth quarter of each year.
Critical Accounting Policies
Critical
accounting policies are those that are both significant to the overall
presentation of our financial condition and results of operations and require management
to make difficult, complex or subjective judgments. 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
New
accounting pronouncements have been issued as described in Note 9.
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
The following risk factors should be considered in addition to the risk
factors previously discussed in our Annual Report and our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2010.
Business Risks
Regional and local economic conditions may adversely affect our
business
Our real property
investments are influenced by the regional and local economy, which may be
negatively impacted by plant closings, industry slowdowns, increased
unemployment, lack of availability of consumer credit, increased levels of
consumer debt, poor housing market conditions, adverse weather conditions,
natural disasters and other factors. Similarly, local real estate conditions,
such as an oversupply of, or a reduction in
57
Table of Contents
demand for, retail space or
retail goods, and the supply and creditworthiness of current and prospective
tenants may affect the ability of our properties to generate significant
revenue.
Economic conditions, especially in the retail sector, may have an
adverse affect on our revenues and available cash
General and retail economic
conditions continue to be weak, and we do not expect a near term return to the
economic conditions that prevailed in 2007. High unemployment, weak income
growth, tight credit and the need to pay down existing debt may continue to negatively
impact consumer spending. Given these economic conditions, we believe there is
a significant risk that the sales at stores operating in our malls will either
not improve, or will improve more slowly than we expect, which will have an
adverse impact on our ability to implement our strategy and may have a negative
effect on our operations and our ability to attract new tenants.
We may be unable to lease or re-lease space in our properties on
favorable terms or at all
Our results of operations
depend on our ability to continue to strategically lease space in our
properties, including re-leasing space in properties where leases are expiring,
optimizing our tenant mix or leasing properties on more economically favorable
terms. Because approximately eight to nine percent of our total leases expire
annually, we are continually focused on our ability to lease properties and
collect rents from tenants. Similarly, we are pursuing a strategy of replacing
expiring short-term leases with long-term leases. If the sales at certain
stores operating in our regional malls do not improve sufficiently, tenants
might be unable to pay their existing minimum rents or expense recovery
charges, since these rents and charges would represent a higher percentage of
their sales. If our existing tenants sales do not improve, new tenants would
be less likely to be willing to pay minimum rents as high as they would
otherwise pay. In addition, some of our leases are fixed-rate leases, and we
may not be able to collect rent sufficient to meet our costs. Because
substantially all of our income is derived from rentals of real property, our
income and available cash would be adversely affected if a significant number
of tenants are unable to meet their obligations.
The bankruptcy or store closures of national tenants, which are tenants
with chains of stores in many of our properties, may adversely affect our
revenue
Our leases generally do not
contain provisions designed to ensure the creditworthiness of the tenant, and
in recent years a number of companies in the retail industry, including some of
our tenants, have declared bankruptcy or voluntarily closed certain of their
stores. We may be unable to re-lease such space or to re-lease it on comparable
or more favorable terms. As a result, the bankruptcy or closure of a national
tenant may adversely affect our revenues.
Certain co-tenancy provisions in our lease agreements may result in
reduced rent payments, which may adversely affect our operations and occupancy
Many of our lease agreements
include a co-tenancy provision which allows the tenant to pay a reduced rent
amount and, in certain instances, terminate the lease, if we fail to maintain
certain occupancy levels. Therefore, if occupancy or tenancy falls below
certain thresholds, rents we are entitled to receive from our retail tenants
could be reduced and may limit our ability to attract new tenants.
Our business is dependent on perceptions by retailers and shoppers of
the convenience and attractiveness of our retail properties, and our inability
to maintain a positive perception may adversely affect our revenues
We are dependent on
perceptions by retailers or shoppers of the safety, convenience and
attractiveness of our retail properties. If retailers and shoppers perceive
competing retail properties and other retailing options such as the internet to
be more convenient or of a higher quality, our revenues may be adversely
affected.
ITEM 2 UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
None
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ITEM 3 DEFAULTS UPON SENIOR
SECURITIES
Previously
reported in our Form 10-K for the year ended December 31, 2009.
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 September 30,
2010, has been filed with the SEC on October 29, 2010, formatted in XBRL
(Extensible Business Reporting Language): (1) Consolidated Balance
Sheets, (2) Consolidated Statements 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)(iii) 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 September 30, 2010. The registrant agrees to furnish a copy of
such agreements to the SEC upon request.
59
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:
October 29, 2010
|
by:
|
/s/
Steven J. Douglas
|
|
|
Steven
J. Douglas
|
|
|
Chief
Financial Officer
|
|
|
|
|
60
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 September 30,
2010, has been filed with the SEC on October 29, 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 September 30, 2010. The registrant agrees to furnish a copy of
such agreements to the SEC upon request.
61
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