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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2006 | ||
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 incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 110 N. Wacker Dr., Chicago, IL | 60606 | |
(Address of principal executive offices) | (Zip Code) |
(312) 960-5000
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, $.01 par value | New York Stock Exchange | |
| Preferred Stock Purchase Rights | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ
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 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. YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). YES o NO þ
On June 30, 2006, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the shares of common stock held by non-affiliates of the registrant was approximately $9.6 billion based upon the closing price of the common stock on the New York Stock Exchange composite tape on such date.
As of February 23, 2007, there were 243,769,536 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held on May 15, 2007 are incorporated by reference into Part III.
GENERAL GROWTH PROPERTIES, INC.
Annual Report onForm 10-K
December 31, 2006
TABLE OF CONTENTS
Annual Report onForm 10-K
December 31, 2006
TABLE OF CONTENTS
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PART I
| Item 1. | Business |
All references to numbered Notes are to specific footnotes to the Consolidated Financial Statements of General Growth Properties, Inc. (“GGP” or the “Company”) as included in this Annual Report onForm 10-K (“Annual Report”). The descriptions included in such Notes are incorporated into the applicable Item response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. The terms “we,” “us” and “our” may also be used to refer to General Growth and its subsidiaries. See also the Glossary at the end of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for definitions of selected terms used in this Annual Report.
Overview
GGP is a self-administered and self-managed real estate investment trust, referred to as a “REIT.” GGP is a Delaware corporation and was organized in 1986.
Our business is focused in two main areas:
| • | 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 |
We own one hundred percent of many of our properties and a majority or controlling interest of certain others. As a result, these properties are consolidated under generally accepted accounting principles (“GAAP”) and we refer to them as the “Consolidated Properties.” Some properties are held through joint venture entities in which we own a non-controlling interest (“Unconsolidated Real Estate Affiliates”) and we refer to those properties as the “Unconsolidated Properties.” Collectively, we refer to the Consolidated Properties and Unconsolidated Properties as our “Company Portfolio.”
We generally make all key strategic decisions for our Consolidated Properties. However, in connection with the Unconsolidated Properties, such strategic decisions are made with the respective stockholders, members or joint venture partners. We are also the asset manager for most of the Company Portfolio, executing the strategic decisions and overseeing theday-to-day property management functions, including operations, leasing, construction management, maintenance, accounting, marketing and promotional services. With respect to jointly owned properties, we generally conduct the management activities through one of our taxable REIT subsidiaries (“TRS”). As of December 31, 2006, we managed the properties for 20 of our unconsolidated joint ventures and 13 of our consolidated joint ventures. Our joint venture partners or other third parties managed the properties for 14 of our unconsolidated joint ventures and one of our consolidated joint ventures.
General Development of Business
Prior to 2005, acquisitions had been a key contributor to our growth. In 2004, for example, acquisitions totaled over $16 billion, largely due to the $14 billion acquisition of The Rouse Company in November (the “TRC Merger”). In 2005 and 2006, however, acquisitions were minimal and our operational focus was on the following:
| • | Development activities, includingground-up development and redevelopment and expansion of existing properties. In 2006, we substantially completed theground-up development of Pinnacle Hills Promenade in Rogers, Arkansas; Otay Ranch Town Center in Chula Vista (San Diego), California; Lincolnshire Commons in Lincolnshire (Chicago), Illinois; and Shopping Leblon in Rio de Janeiro, Brazil. During 2006, we completed 33 development projects totaling over $250 million. Unlike prior years when our developments consisted almost exclusively of traditional shopping malls, our current development activity includes alternative uses and densification. Certain of our current developments include residential, hotel and office space. Development expenditures, includingground-up developments, redevelopments and expansions, exceeded $600 million in 2006 and are expected to approximate $1 billion in 2007. |
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| • | Continued maximization of our retail operations through proactive property management and leasing and through operating cost reductions. Specific actions to increase productivity of our properties have included changing the tenant mix and integrating new retail formats such as power, lifestyle and mixed use centers. |
| • | Increasing our international focus, which includes both attracting international retailers into our existing domestic centers and investing in retail properties overseas. As of December 31, 2006, we had investments in joint ventures in Brazil, Turkey and Costa Rica totaling approximately $128.0 million. Our joint ventures in Brazil have ownership interests in five operating retail centers, two third-party management companies, and two retail centers under development and our joint ventures in Turkey own a third party management company and one retail center under development. |
| • | As the TRC Merger was primarily funded with new acquisition debt, management and refinancing of our current debt. |
Financial Information About Industry Segments
Information regarding our segments is incorporated herein by reference to Note 16.
Narrative Description of Business
Retail and Other Segment
Our Retail and Other segment consists of retail centers, office and industrial buildings and mixed-use and other properties.
Retail Portfolio
The Retail Portfolio is comprised primarily of regional shopping centers, but also includes festival market places, urban mixed-use centers and strip/community centers. Most of our shopping centers are strategically located in major and middle markets where they have strong competitive positions. Most of these properties contain at least one major department store as an Anchor. As of December 31, 2006, we had ownership interest in or management responsibility for a portfolio of over 200 regional shopping malls in 44 states. We also own non-controlling interests in various international joint ventures in Brazil, Turkey and Costa Rica. We believe the Retail Portfolio’s geographic diversification should mitigate the effects of regional economic conditions and local factors.
A detailed listing of the principal properties in our Retail Portfolio is included in Item 2 of this Annual Report.
The majority of the income from the properties in the Retail Portfolio is derived from rents received through long-term leases with retail tenants. These long-term leases generally require the tenants to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases during the term of the lease. Another component of income is overage rent. Overage rent is paid by a tenant generally if its sales exceed an agreed upon minimum amount. Overage rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease, the majority of which is earned in the fourth quarter. Historically, our leases have included 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 these leases attributable to real estate tax and operating expense recoveries are recorded as “Tenant recoveries.” Recently, however, we have structured our new tenant leases such that a higher proportion of our rental revenues represent operating expense recoveries. This change has resulted in a shift between minimum rents and tenant recoveries.
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The following table reflects retail tenant representation by category for the domestic Consolidated Properties as of December 31, 2006. In general, similar percentages existed for the Unconsolidated Properties.
Category | % of Square Feet | Representative Tenants | ||||
| Specialty (includes personal services) | 22 | % | Lenscrafters, Mastercuts, Mia & Maxx, Pearl Vision, The Picture People, Regis | |||
| Family Apparel (includes unisex) | 15 | Banana Republic, Eddie Bauer, Express, Gap, J. Crew, Old Navy | ||||
| Women’s Apparel | 13 | Ann Taylor, bebe, Chico’s, Christopher & Banks, Coldwater Creek, H & M, J. Jill, Lane Bryant, New York & Co., Talbot’s, Victoria’s Secret | ||||
| Teen Apparel | 9 | Abercrombie & Fitch, Aeropostale, American Eagle, Forever 21, Hollister & Co., Hot Topic, Limited Too, Pacific Sunwear, Zumiez | ||||
| Shoes | 9 | Aldo, Champ’s, Easy Spirit, Finish Line, FootLocker, Journeys, Nine West, Payless Shoesource, Shoe Dept | ||||
| Restaurants | 7 | Applebee’s, Cheesecake Factory, Maggiano’s, Panera Bread, PF Chang’s, Red Robin, Ruby Tuesday, TGI Friday’s | ||||
| Home Entertainment and Electronics | 4 | Apple Computer, Brookstone, EB Games, FYE, Gamestop, RadioShack, Ritz Camera, Sharper Image, Suncoast | ||||
| Home Furnishings | 4 | Bombay, Crate & Barrel, Kirkland’s, Pottery Barn, Select Comfort, Williams-Sonoma, Z Gallerie | ||||
| Sporting Goods | 3 | Dick’s Sporting Goods, Hibbett’s, MC Sports, Pro Image, Scheel’s All Sports | ||||
| Gifts (includes stationery, cards, gifts and novelty) | 3 | Carlton Cards, Hallmark, Papyrus, Spencer Gifts, Things Remembered, Yankee Candle | ||||
| Fast Food/Food Court | 3 | Arby’s, Auntie Anne’s, Chick-Fil-A, McDonald’s, Sbarro, Subway, Taco Bell | ||||
| Jewelry | 3 | Bailey, Banks, & Biddle; Ben Bridge Jewelers; Helzberg Diamonds; Kay Jewelers; Piercing Pagoda; Whitehall Co. Jewellers; Zales Jewelers | ||||
| Children’s Merchandise | 2 | Abercrombie Kids,Build-A-Bear Workshop, Children’s Place, Club Libby Lu, Gap Kids, Gymboree, Janie & Jack, Stride Rite | ||||
| Personal Care | 2 | Aveda, Bath & Body Works, Crabtree & Evelyn, M.A.C., L’Occitane, Origins, Sephora, Trade Secret | ||||
| Specialty Food (includes health, candy and coffee) | 1 | Gloria Jean’s Gourmet Coffee, GNC, Godiva Chocolatier, Rocky Mountain Chocolate Factory, Starbucks, Vitamin World | ||||
TOTAL | 100 | % | ||||
As of December 31, 2006, our largest tenant (based on common parent ownership) accounted for approximately 4% of consolidated rents.
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Other Office, Industrial and Mixed-Use Buildings
Office and other properties are located primarily in the Baltimore/Washington, D.C. and Las Vegas markets or are components of large-scale mixed-use properties (which include retail, parking and other uses) located in other urban markets. Including properties adjacent to our retail centers, we own approximately 7 million square feet of leasable office and industrial space.
Master Planned Communities Segment
The Master Planned Communities segment is comprised primarily of the following large-scale, long-term community development projects:
| As of December 31, 2006 | ||||||||||
| Total | Remaining | |||||||||
| Gross | Saleable | |||||||||
Project | Location | Acres(1) | Acres(2) | |||||||
| Columbia | Baltimore, Maryland/Washington D.C. corridor | 18,000 | 417 | |||||||
| Fairwood | Prince George’s County, Maryland | 1,100 | 163 | |||||||
| Summerlin | Northwest of Las Vegas, Nevada | 22,500 | 6,415 | |||||||
| Bridgeland | Western Houston, Texas | 10,200 | 6,519 | |||||||
| Woodlands(3) | Houston, Texas | 28,400 | 3,002 | |||||||
| (1) | Total Gross Acres encompasses all of the land located within the borders of the Master Planned Community, including parcels already sold, saleable parcels and non-saleable areas, such as roads, parks and recreation and conservation areas. | |
| (2) | Remaining Saleable Acres includes only parcels that are intended for sale. Remaining saleable acres is likely to change over time as the master plan for a particular project is developed over time. | |
| (3) | We own 52.5% of Woodlands. Total gross acres and remaining saleable acres represent 100% of the project. |
We develop and sell land in these communities to builders and other developers for residential, commercial and other uses. Additionally, certain saleable land within these properties may be transferred to our Retail and Other segment to be developed as commercial properties for either our own use or to be operated as investment rental property.
Other Business Information
Competition
The nature and extent of the competition we face varies from property to property within each segment of our business. In our Retail and Other segment, our direct competitors include other publicly-traded retail mall development and operating companies, retail real estate companies, commercial property developers and other owners of retail real estate that engage in similar businesses.
Within our Retail Portfolio, we compete for retail tenants. We believe the principal factors that retailers consider in making their leasing decision include:
| • | Consumer demographics |
| • | Quality, design and location of properties |
| • | Total number and geographic distribution of properties |
| • | Diversity of retailers and anchor tenants at shopping center locations |
| • | Management and operational expertise |
| • | Rental rates |
Based on these criteria, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets.
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Because our revenue potential is linked to the success of our retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These dynamics include general competition from other regional shopping centers, including outlet malls and other discount shopping centers, as well as competition with discount shopping clubs, catalog companies, internet sales and telemarketing.
We also compete to acquire land for new site development and to acquire existing retail properties. We believe that we have a competitive advantage with respect to acquisitions for the following reasons:
| • | Subject to certain limitations, the funds necessary for cash acquisitions are available to us from a combination of sources, including mortgage or unsecured financing or the issuance of public or private debt or equity. |
| • | We have the flexibility to pay for an acquisition with a combination of cash, GGP equity securities or common or preferred units of limited partnership interest in the Operating Partnership. This last approach may create the opportunity for a tax-advantaged transaction for the seller. |
| • | Our expertise allows us to evaluate proposed acquisitions of existing retail properties for their increased profit potential through expansion, remodeling, re-merchandising and more efficient management of the property. |
With respect to our office and other properties, we experience competition in the development and management of our properties similar to that of our Retail Portfolio. Prospective tenants generally consider quality and appearance, amenities, location relative to other commercial activity and price in determining the attractiveness of our properties. Based on the quality and location of our properties, which are generally in urban markets or are concentrated in the commercial centers of our master planned communities, we believe that our properties are viewed favorably among prospective tenants.
In our Master Planned Communities segment, we compete with other landholders and residential and commercial property developers in the development of properties within the Baltimore/Washington, D.C., Las Vegas and Houston markets. Significant factors affecting our competition in this business include:
| • | The size and scope of our master planned communities |
| • | The recreational and cultural amenities available within the communities |
| • | The commercial centers in the communities |
| • | Our relationships with homebuilders |
| • | The proximity to major metropolitan areas |
We believe our projects offer significant advantages when viewed against these criteria.
Environmental Matters
Under various Federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral. In connection with our ownership and operation of our properties, we, or the relevant joint venture through which the property is owned, may be potentially liable for such costs.
Substantially all of our properties have been subject to Phase I environmental assessments, which are intended to evaluate the environmental condition of the surveyed and surrounding properties. The Phase I environmental assessments included a historical review, a public records review, a preliminary investigation of the site and surrounding properties, screening for the presence of asbestos, polychlorinated biphenyls (“PCBs”) and underground storage tanks and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations. A Phase II assessment, when necessary, was conducted to further investigate any issues raised by the Phase I assessment. In each case where Phase Iand/or Phase II assessments resulted in specific
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recommendations for remedial actions required by law, management has either taken or scheduled the recommended action.
Neither the Phase I nor the Phase II assessments have revealed any environmental liability that we believe would have a material effect on our overall business, financial condition or results of operations. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability or the current environmental condition of our properties will not be adversely affected by tenants and occupants of the properties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of underground storage tanks) or by third parties unrelated to us.
Future development opportunities may require additional capital and other expenditures in order to comply with Federal, state and local statutes and regulations relating to the protection of the environment. We can not predict with any certainty the magnitude of any such expenditures or the long-range effect, if any, on our operations. Compliance with such laws has had no material adverse effect on our operating results or competitive position in the past.
Employees
As of February 23, 2007, we had approximately 4,700 employees.
Qualification as a Real Estate Investment Trust and Taxability of Distributions
GGP currently qualifies as a real estate investment trust pursuant to the requirements contained inSections 856-858 of the Internal Revenue Code of 1986, as amended (the “Code”). If, as we contemplate, such qualification continues, GGP will not be subject to Federal tax on its real estate investment trust taxable income. During 2006, GGP distributed (or was deemed to have distributed) 100% of its taxable income to its common stockholders (Note 7).
Available Information
Our Internet website address iswww.ggp.com. Our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and amendments to those reports are available and may be accessed free of charge through the Investment section of our Internet website under the Shareholder Info subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. Our Internet website and information contained therein or connected thereto are not intended to be incorporated into this Annual Report.
Item 1A. Risk Factors
Risks Related to Real Estate Investments
We invest primarily in regional shopping centers and other retail properties, which are subject to a number of significant risks which are beyond our control
Real property investments are subject to varying degrees of risk that may affect the ability of our retail properties to generate sufficient revenues. A number of factors may decrease the income generated by a retail property, including:
| • | The regional and local economy, which may be negatively impacted by plant closings, industry slowdowns, adverse weather conditions, natural disasters and other factors |
| • | Local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants |
| • | Perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property |
| • | The convenience and quality of competing retail properties and other retailing options such as the Internet |
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| • | Changes in laws and regulations applicable to real property, including tax and zoning laws |
| • | Changes in interest rate levels and the availability and cost of financing |
If we are unable to generate sufficient revenue from our retail properties, including those held by joint ventures, we will be unable to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions from our joint ventures and then, in turn, to our stockholders.
We depend on leasing space to tenants on economically favorable terms and collecting rent from these tenants, who may not be able to pay
Our results of operations will depend on our ability to continue to lease space in our properties on economically favorable terms. If the sales of stores operating in our centers decline 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 tenants’ sales decline, new tenants would be less likely to be willing to pay minimum rents as high as they would otherwise pay. In addition, as substantially all of our income is derived from rentals of real property, our income and cash available for distribution to our stockholders would be adversely affected if a significant number of tenants were unable to meet their obligations to us. During times of economic recession, these risks will increase.
Bankruptcy or store closures of tenants may decrease our revenues and available cash
Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and a number of companies in the retail industry, including some of our tenants, have declared bankruptcy or voluntarily closed certain of their stores in recent years. The bankruptcy or closure of a major tenant, particularly an Anchor tenant, may have a material adverse effect on the retail properties affected and the income produced by these properties and may make it substantially more difficult to lease the remainder of the affected retail properties. As a result, the bankruptcy or closure of a major tenant and potential additional closures as a result of co-tenancy requirements could result in a lower level of revenues and cash available for distribution to our stockholders.
We may be negatively impacted by department store consolidations
Department store consolidations, such as Federated’s acquisition of May Department Stores and the break up of Saks Holdings, Inc., are resulting in the closure of existing department stores and we may be unable to re-lease this area or to re-lease it on comparable or more favorable terms. Other tenants may be entitled to modify the terms of their existing leases, including those pertaining to rent payment, in the event of such closures. Additionally, department store closures could result in decreased customer traffic which could lead to decreased sales at other stores. We may pay more to acquire an Anchor store location in order to avoid these potential decreases as well as to avoid the transfer of certain approval rights typically associated with such locations. Consolidations may also negatively affect current and future development and redevelopment projects.
It may be difficult to buy and sell real estate quickly, and transfer restrictions apply to some of our properties
Equity real estate investments are relatively illiquid, and this characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available for distribution to our stockholders would be adversely affected. A significant portion of our properties are mortgaged to secure payment of indebtedness, and if we were unable to meet our mortgage payments, we could lose money as a result of foreclosure on the properties by the various mortgagees. In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available for distribution to our stockholders. In certain transactions, if persons selling properties to us wish to defer the payment of taxes on the sales proceeds, we
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are likely to pay them in units of limited partnership interest in the Operating Partnership. In transactions of this kind, we may also agree, subject to certain exceptions, not to sell the acquired properties for significant periods of time.
Risks Related to our Business
We develop and expand properties, and this activity is subject to various risks
We intend to continue to pursue development and expansion activities as opportunities arise. In connection with any development or expansion, we will be subject to various risks, including the following:
| • | We may abandon development or expansion activities already under way, which may result in additional cost recognition |
| • | Construction costs of a project may exceed original estimates or available financing, possibly making the project unfeasible or unprofitable |
| • | We may not be able to obtain financing or to refinance construction loans, which generally have full recourse to us |
| • | We may not be able to obtain zoning, occupancy or other required governmental permits and authorizations |
| • | Occupancy rates and rents at a completed project may not meet projections and, therefore, the project may not be profitable |
| • | We may not be able to obtain Anchor, mortgage lender and property partner approvals, if applicable, for expansion or redevelopment activities |
If a development project is unsuccessful, our loss could exceed our investment in the project.
We may incur costs to comply with environmental laws
Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation andclean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner’s ability to sell or lease real estate or to borrow using the real estate as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for some of our redevelopments and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with the ownership, operation and management of our properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.
Our properties have been subjected to varying degrees of environmental assessment at various times. However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us.
We are in a competitive business
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In addition, retailers at our properties face continued competition from other regional shopping centers, including outlet malls and other discount shopping centers, discount shopping clubs, catalog companies, internet sales and telemarketing. Competition of this type could adversely affect our revenues and cash available for distribution to our stockholders.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other REITs, investment banking firms and private institutional investors. This
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competition has increased prices for commercial properties and may impair our ability to make suitable property acquisitions on favorable terms in the future.
We may not be able to obtain capital to make investments
We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code,” for a REIT generally is that it distribute or pay tax on 100% of its capital gains and distribute at least 90% of its ordinary taxable income to its stockholders. Our access to debt or equity financing depends on banks’ willingness to lend to us and on conditions in the capital markets in general. We and other companies in the real estate industry have experienced less favorable terms for bank loans and capital markets financing from time to time. Although we believe, based on current market conditions, that we will be able to finance investments we wish to make in the foreseeable future, financing might not be available on acceptable terms or may be affected by the amount of debt we have outstanding as a result of the TRC Merger.
Some of our properties are subject to potential natural or other disasters
A number of our properties are located in areas which are subject to natural disasters. For example, two of our properties, located in the New Orleans area, suffered major damage in 2005. It is uncertain as to whether the New Orleans area will recover to its prior economic strength.
We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.
If the Terrorism Risk Insurance Extension Act is not extended beyond 2007, we may incur higher insurance costs and greater difficulty in obtaining insurance which covers terrorist-related damages. Our tenants may also experience similar difficulties.
Inflation may adversely affect our financial condition and results of operations
Should inflation increase in the future, we may experience any or all of the following:
| • | Decreasing tenant sales as a result of decreased consumer spending which could result in lower overage rents |
| • | Difficulty in replacing or renewing expiring leases with new leases at higher baseand/or overage rents |
| • | An inability to receive reimbursement from our tenants for their share of certain operating expenses, including common area maintenance, real estate taxes and insurance |
Inflation also poses a potential threat to us due to the probability of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable-rate debt as well as result in higher interest rates on new fixed-rate debt.
We have certain ownership interests outside the United States which may increase in relative significance over time
We hold interests in joint venture properties in Brazil, Turkey and Costa Rica. We expect to pursue additional expansion opportunities outside the United States. International development and ownership activities carry risks that are different from those we face with our domestic properties and operations. These risks include:
| • | Difficulties in managing international operations |
| • | Changes in foreign political environments, regionally, nationally, and locally |
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| • | Challenges of complying with a wide variety of foreign laws including corporate governance, operations, taxes and litigation |
| • | Differing lending practices |
| • | Differences in cultures |
| • | Adverse effects of changes in exchange rates for foreign currencies |
| • | Changes in applicable laws and regulations in the United States that affect foreign operations |
| • | Obstacles to the repatriation of earnings and cash |
Although our international activities currently are a relatively small portion of our business (international properties represented less than 1% of the NOI of all of our properties in 2006), to the extent that we expand our international activities, these risks could increase in significance and adversely affect our results of operations and financial condition.
Risks Related to our Organizational and Financial Structure that Give Rise to Operational and Financial Risks
Our substantial indebtedness could adversely affect our financial health and operating flexibility
We have a substantial amount of indebtedness. As of December 31, 2006, we had an aggregate consolidated indebtedness outstanding of approximately $20.5 billion (Note 6). Approximately $5.5 billion of our aggregate indebtedness was unsecured, recourse indebtedness of the Operating Partnership and consolidated subsidiaries, while approximately $15.0 billion was secured by our properties. A majority of the secured indebtedness was non-recourse to us. This indebtedness does not include our proportionate share of indebtedness incurred by our Unconsolidated Properties. As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which will limit the cash flow available for other desirable business opportunities.
Our substantial indebtedness could have important consequences to us and the value of our common stock, including:
| • | Limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy or other purposes |
| • | Limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt |
| • | Increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given our substantial indebtedness which bears interest at variable rates |
| • | Limiting our ability to capitalize on business opportunities, including the acquisition of additional properties, and to react to competitive pressures and adverse changes in government regulation |
| • | Limiting our ability or increasing the costs to refinance indebtedness |
| • | Limiting our ability to enter into marketing and hedging transactions by reducing the number of counterparties with whom we can enter into such transactions as well as the volume of those transactions |
The terms of the 2006 Credit Facility, and certain other debt, require us to satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests including ratios and tests based on leverage, interest coverage and net worth. The covenants under our debt affect, among other things, our ability to:
| • | Incur indebtedness |
| • | Create liens on assets |
| • | Sell assets |
| • | Make capital expenditures |
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| • | Engage in mergers and acquisitions |
Given the restrictions in our debt covenants on these and other activities, we may be restricted in our ability to pursue other acquisitions, may be significantly limited in our operating and financial flexibility and may be limited in our ability to respond to changes in our business or competitive activities.
A failure to comply with these covenants, including a failure to meet the financial tests or ratios, would likely result in an event of default under our debt and would allow the lenders to accelerate such debt under such facility. If our debt is accelerated, our assets may not be sufficient to repay such debt in full.
We share control of some of our properties with other investors and may have conflicts of interest with those investors
While we generally make all operating decisions for the Unconsolidated Properties, we are required to make other decisions with the other investors who have interests in the relevant property or properties. For example, the approval of certain of the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties. We might not have the same interests as the other investors in relation to these transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducement to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and rights apply to sales or transfers of interests in our jointly owned properties. These may work to our disadvantage because, among other things, we might be required to make decisions about buying or selling interests in a property or properties at a time that is disadvantageous to us or we might be required to purchase the interests of our partners in our jointly owned properties.
Bankruptcy of joint venture partners could impose delays and costs on us with respect to the jointly owned retail properties
The bankruptcy of one of the other investors in any of our jointly owned shopping centers could materially and adversely affect the relevant property or properties. Under the bankruptcy laws, we would be precluded by the automatic stay from taking some actions affecting the estate of the other investor without prior approval of the bankruptcy court, which would, in most cases, entail prior notice to other parties and a hearing in the bankruptcy court. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.
Payments by our direct and indirect subsidiaries of dividends and distributions to us may be adversely affected by prior payments to these subsidiaries’ creditors and preferred security holders
Substantially all of our assets are owned through our general partnership interest in the Operating Partnership, including TRCLP. The Operating Partnership holds substantially all of its properties and assets through subsidiaries, including subsidiary partnerships, limited liability companies and corporations that have elected to be taxed as REITs. The Operating Partnership therefore derives substantially all of its cash flow from cash distributions to it by its subsidiaries, and we, in turn, derive substantially all of our cash flow from cash distributions to us by the Operating Partnership. The creditors and preferred security holders, if any, of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before that subsidiary may make distributions to us. Thus, the Operating Partnership’s ability to make distributions to its partners, including us, depends on its subsidiaries’ ability first to satisfy obligations to their creditors and preferred security holders, if any, and then to make distributions to the Operating Partnership. Similarly, our ability to pay dividends to holders of our common stock depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and preferred security holders and then to make distributions to us.
In addition, we will have the right to participate in any distribution of the assets of any of our direct or indirect subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary only after the claims of the creditors, including trade creditors, and preferred security holders, if any, of the subsidiary are satisfied. Our
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common stockholders, in turn, will have the right to participate in any distribution of our assets upon the liquidation, reorganization or insolvency of us only after the claims of our creditors, including trade creditors, and preferred security holders, if any, are satisfied.
We might fail to qualify or remain qualified as a REIT
Although we believe that we will remain structured and will continue to operate so as to qualify as a REIT for federal income tax purposes, we might not continue to be so qualified. Qualification as a REIT for federal income tax purposes involves the application of highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. Therefore, the determination of various factual matters and circumstances not entirely within our control may impact our ability to qualify as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions might significantly change the tax laws with respect to the requirements for qualification as a REIT or the federal income tax consequences of qualification as a REIT.
If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to stockholders in computing our taxable income and federal income tax. The corporate level income tax, including any applicable alternative minimum tax, would apply to our taxable income at regular corporate rates. As a result, the amount available for distribution to stockholders would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, unless we were entitled to relief under the relevant statutory provisions, we would be disqualified from treatment as a REIT for four subsequent taxable years. Notwithstanding that we currently intend to operate in a manner designed to allow us to qualify as a REIT, future economic, market, legal, tax or other considerations may cause us to determine that it is in our best interest and the best interest of our stockholders to revoke the REIT election.
An ownership limit and certain anti-takeover defenses and applicable law may hinder any attempt to acquire us
The Ownership Limit. Generally, for us to maintain our qualification as a REIT under the Code, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year. The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. In general, under our current certificate of incorporation, no person other than Martin Bucksbaum (deceased), Matthew Bucksbaum (the Chairman of our board of directors), their families and related trusts and entities, including M.B. Capital Partners III, may own more than 7.5% of the value of our outstanding capital stock. However, our certificate of incorporation also permits our company to exempt a person from the 7.5% ownership limit upon the satisfaction of certain conditions which are described in our certificate of incorporation.
Selected Provisions of our Charter Documents. Our board of directors is divided into three classes of directors. Directors of each class are chosen for three-year staggered terms. Staggered terms of directors may reduce the possibility of a tender offer or an attempt to change control of our company, even though a tender offer or change in control might be in the best interest of our stockholders. Our charter authorizes the board of directors:
| • | To cause us to issue additional authorized but unissued shares of common stock or preferred stock |
| • | To classify or reclassify, in one or more series, any unissued preferred stock |
| • | To set the preferences, rights and other terms of any classified or reclassified stock that we issue |
Stockholder Rights Plan. We have a stockholder rights plan which will impact a potential acquirer unless the acquirer negotiates with our board of directors and the board of directors approves the transaction.
Selected Provisions of Delaware Law. We are a Delaware corporation, and Section 203 of the Delaware General Corporation Law applies to us. In general, Section 203 prevents an “interested stockholder,” as defined in the next
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sentence, from engaging in a “business combination,” as defined in the statute, with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs:
| • | Before that person became an interested stockholder, our board of directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination |
| • | Upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of the company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer |
| • | Following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder |
The statute defines “interested stockholder” to mean generally any person that is the owner of 15% or more of our outstanding voting stock or is an affiliate or associate of us and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination.
Each item discussed above may delay, deter or prevent a change in control of our company, even if a proposed transaction is at a premium over the then current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.
We are impacted by tax-related obligations to some of our partners
We own properties through partnerships which have arrangements in place that protect the deferred tax situation of our existing third party limited partners. Violation of these arrangements could impose costs on us. As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.
Several of our joint venture partners are tax-exempt. As such, they are taxable to the extent of their share of unrelated business taxable income generated from these properties. As the managing partner in these joint ventures, we have obligations to avoid the creation of unrelated business taxable income at these properties. As a result, we may be restricted with respect to decisions such as financing and revenue generation with respect to these properties.
Risks Related to the TRC Merger
We may not realize the full anticipated benefits of the TRC Merger
Achieving the anticipated benefits of the TRC Merger will depend in part upon our ability to integrate the two companies’ businesses in an efficient and effective manner. We may continue to face difficulties integrating aspects of the combined company’s businesses that we have not historically focused on, such as the master planned community business. Any inability of management to integrate the operations of TRCLP successfully could cause us to not fully achieve the expected benefits of the TRC Merger.
Limitations on the sale of the TRCLP assets may affect our cash flow
We may be restricted in our ability to dispose of certain TRCLP assets until the ten-year period after TRC’s election of REIT status expires in 2008 due to the potential incurrence of substantial tax liabilities on such dispositions due to applicable REIT regulations.
We have significant obligations under a Contingent Stock Agreement we assumed in the TRC Merger
We have assumed the obligations of TRC under a Contingent Stock Agreement, which we refer to as the “CSA.” The assumption includes the obligation under the CSA to issue shares of common stock twice a year to the
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beneficiaries under the CSA and certain indemnification obligations. The number of shares is based upon our stock price and upon a formula set forth in the CSA. In addition, the CSA requires a valuation of certain assets that we own as of December 31, 2009, which is expected to result in the issuance of a significant number of additional shares to the beneficiaries under the CSA. Such issuances would be dilutive to our existing stockholders if we are unable to repurchase a corresponding number of shares through our publicly announced stock repurchase program.
Risks Related to our Common Stock
Our common stock price may be volatile, and consequently investors may not be able to resell their common stock at or above their purchase price
The price at which our common stock will trade may be volatile and may fluctuate due to factors such as:
| • | Our historical and anticipated quarterly and annual operating results |
| • | Variations between our actual results and analyst and investor expectations or changes in financial estimates and recommendations by securities analysts |
| • | The performance and prospects of our industry |
| • | The depth and liquidity of the market for our common stock |
| • | Investor perception of us and the industry in which we operate |
| • | Domestic and international economic conditions |
| • | The extent of institutional investor interest in us |
| • | The reputation of REITs generally and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities |
| • | Our financial condition and performance |
| • | General market conditions and trends |
Fluctuations may be unrelated to or disproportionate to our financial performance. These fluctuations may result in a material decline in the trading price of our common stock.
Future sales of our common stock may depress our stock price
As of December 31, 2006, approximately 58.3 million shares of common stock were issuable upon exercise of conversionand/or redemption rights as to units of limited partnership interest in the Operating Partnership. Under our shelf registration statement, we may offer from time to time up to approximately $1.5 billion worth of common stock, preferred stock, depositary shares, debt securities, warrants, stock purchase contractsand/or purchase units. An additional 14.5 million shares of our common stock are reserved for issuance to meet our obligations under the CSA we assumed in connection with the TRC Merger. In addition, we have reserved a number of shares of common stock for issuance under our option and other benefit plans for employees and directors and in connection with certain other obligations, and these shares will be available for sale from time to time. Although we have publicly announced a stock repurchase program which may offset the dilution resulting from issuances pursuant to the CSA and one of our employee option plans, there is no certainty that we will be successful in acquiring a sufficient number of shares at an acceptable price to accomplish this goal. No prediction can be made as to the effect, if any, that these and other future sales of our common stock, or the availability of common stock for future sales, will have on the market price of the stock. Sales in the public market of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock.
Increases in market interest rates may hurt the market price of our common stock
We believe that investors consider the distribution rate on REIT stocks, expressed as a percentage of the price of the stocks, relative to market interest rates as an important factor in deciding whether to buy or sell the stocks. If market interest rates go up, prospective purchasers of REIT stocks may expect a higher distribution rate. Higher interest
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rates would not, however, result in more funds being available for us to distribute and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decline.
Forward-Looking Information
We may make forward-looking statements in this Annual Report and in other reports which we file with the SEC. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others.
Forward-looking statements include:
| • | Projections of our revenues, income, earnings per share, Funds From Operations, capital expenditures, dividends, capital structure or other financial items |
| • | Descriptions of plans or objectives of our management for future operations, including pending acquisitions |
| • | Forecasts of our future economic performance |
| • | Descriptions of assumptions underlying or relating to any of the foregoing |
In this Annual Report, for example, we make forward-looking statements discussing our expectations about:
| • | Future repayment of debt and interest rates |
| • | Distributions pursuant to the Contingent Stock Agreement |
| • | Expected sales and development and acquisition expenditures in our Master Planned Communities segment |
| • | Expected restructurings of certain of our operating properties that are currently owned by TRS entities |
| • | Future cash needed to meet federal income tax requirements |
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions. Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made and we might not update them to reflect changes that occur after the date they are made.
There are several factors, many beyond our control, which could cause results to differ significantly from our expectations. Factors such as credit, market, operational, liquidity, interest rate and other risks are described elsewhere in this Annual Report. Any factor described in this Annual Report 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 Annual Report that could cause results to differ from our expectations.
| Item 1B. | Unresolved Staff Comments |
None.
| Item 2. | Properties |
Our investment in real estate as of December 31, 2006 consisted of our interests in the properties in our Retail and Other and Master Planned Communities segments. We, generally, own the land underlying the properties in our Retail and Other segment. However, at certain of the properties, all or part of the underlying land is owned by a third party that leases the land to us pursuant to a long-term ground lease. The leases generally contain various purchase options and typically provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Information regarding encumbrances on these properties is included in Schedule III of this Annual Report.
The following tables set forth certain information regarding the Consolidated Properties and the Unconsolidated Properties in our Retail Portfolio as of December 31, 2006. These tables do not reflect subsequent activity in 2007
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including purchases, sales or consolidations of Anchor stores. Anchors include all stores with Gross Leasable Area greater than 30,000 square feet.
Combined occupancy for Consolidated Properties and Unconsolidated Properties as of December 31, 2006 was approximately 93.6%.
Consolidated Retail Properties
| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Ala Moana Center | Honolulu, HI | 1,773,537 | 826,929 | Barnes & Noble, Macy’s, Neiman Marcus, Old Navy, Sears, Shirokiya | — | |||||||||
| Alameda Plaza | Pocatello, ID | 190,341 | 190,341 | — | 2 | |||||||||
| Anaheim Crossing(2)(3) | Anaheim, CA | 92,170 | 92,170 | N/A | N/A | |||||||||
| Animas Valley Mall | Farmington, NM | 490,739 | 241,274 | Allen Theatres, Dillard’s, JCPenney, Ross Dress for Less, Sears | — | |||||||||
| Apache Mall(2) | Rochester, MN | 752,330 | 269,338 | Herberger’s, JCPenney, Macy’s, Sears | — | |||||||||
| Arizona Center(2) | Phoenix, AZ | 164,881 | 78,878 | AMC Theatres | — | |||||||||
| Augusta Mall(2) | Augusta, GA | 1,073,562 | 324,339 | Dillard’s, JCPenney, Macy’s, Sears | 1 | |||||||||
| Austin Bluffs Plaza | Colorado Springs, CO | 107,402 | 107,402 | Longs Drugs | 1 | |||||||||
| Bailey Hills Village | Eugene, OR | 11,887 | 11,887 | N/A | N/A | |||||||||
| Baskin Robbins | Idaho Falls, ID | 1,814 | 1,814 | N/A | N/A | |||||||||
| Baybrook Mall | Friendswood (Houston), TX | 1,243,195 | 342,586 | Dillard’s, JCPenney, Macy’s, Sears | 1 | |||||||||
| Bayshore Mall(2) | Eureka, CA | 613,371 | 393,113 | Gottschalks, Mervyn’s, Sears | — | |||||||||
| Bayside Marketplace(2) | Miami, FL | 226,289 | 226,289 | N/A | N/A | |||||||||
| Beachwood Place | Beachwood, OH | 905,486 | 325,906 | Dillard’s, Nordstrom, Saks Fifth Avenue | — | |||||||||
| Bellis Fair | Bellingham (Seattle), WA | 773,050 | 334,726 | JCPenney, Kohl’s, Macy’s, Macy’s Home Store, Sears, Target | — | |||||||||
| Birchwood Mall | Port Huron (Detroit), MI | 787,222 | 330,993 | GKC Theaters, JCPenney, Macy’s, Sears, Target, Younkers | — | |||||||||
| Boise Plaza | Boise, ID | 114,404 | 114,404 | Albertson’s, Burlington Coat Factory | — | |||||||||
| Boise Towne Plaza(3) | Boise, ID | 116,677 | 116,677 | Circuit City, Linens ’N Things, Old Navy | — | |||||||||
| Boise Towne Square | Boise, ID | 1,165,352 | 495,323 | JCPenney, Dillard’s, Macy’s, Mervyn’s, Sears | — | |||||||||
| The Boulevard Mall | Las Vegas, NV | 1,184,547 | 396,511 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Burlington Town Center(3) | Burlington, VT | 308,770 | 162,017 | Macy’s | — | |||||||||
| Cache Valley Mall | Logan, UT | 321,723 | 175,891 | Dillard’s, Dillard’s Men’s & Home, JCPenney | — | |||||||||
| Cache Valley Marketplace | Logan, UT | 179,996 | 179,996 | Home Depot, Olive Garden, T.J. Maxx | — | |||||||||
| Canyon Point Village Center | Las Vegas, NV | 57,229 | 57,229 | N/A | N/A | |||||||||
| Capital Mall | Jefferson City, MO | 518,880 | 285,803 | Dillard’s, JCPenney, Sears | — | |||||||||
| Century Plaza | Birmingham, AL | 738,867 | 252,911 | Sears | 3 | |||||||||
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| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Chapel Hills Mall | Colorado Springs, CO | 1,211,271 | 415,832 | Dick’s Sporting Goods, Dillard’s, JCPenney, Kmart, Macy’s, Sears | 1 | |||||||||
| Chico Mall | Chico, CA | 502,891 | 177,308 | Gottschalks, Gottschalks Home Store, JCPenney, Sears | 1 | |||||||||
| Coastland Center | Naples, FL | 910,759 | 320,369 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Collin Creek | Plano, TX | 1,118,408 | 328,325 | Dillard’s, JCPenney, Macy’s, Sears | 1 | |||||||||
| Colony Square Mall | Zanesville, OH | 514,951 | 268,169 | Cinemark, Elder-Beerman, JCPenney, Sears | — | |||||||||
| Columbia Mall | Columbia, MO | 747,626 | 326,566 | Dillard’s, JCPenney, Sears, Target | — | |||||||||
| Coral Ridge Mall | Coralville (Iowa City), IA | 1,075,581 | 420,416 | Dillard’s, JCPenney, Scheel’s, Sears, Target, Younkers | — | |||||||||
| Coronado Center(2) | Albuquerque, NM | 1,151,919 | 377,590 | Barnes & Noble, JCPenney, Macy’s, Mervyn’s, Sears, Target | — | |||||||||
| Cottonwood Mall | Salt Lake City, UT | 734,018 | 354,510 | JCPenney, Macy’s | — | |||||||||
| Cottonwood Square(2) | Salt Lake City, UT | 77,079 | 77,079 | — | 1 | |||||||||
| Country Hills Plaza | Ogden, UT | 140,097 | 140,097 | McKay-Dee Hospital Center, Smith’s Food King | — | |||||||||
| The Crossroads | Portage (Kalamazoo), MI | 769,821 | 266,861 | JCPenney, Macy’s, Sears | 1 | |||||||||
| Crossroads Center | St. Cloud, MN | 890,078 | 284,398 | JCPenney, Macy’s, Scheel’s, Sears, Target | — | |||||||||
| Cumberland Mall | Atlanta, GA | 1,037,629 | 387,407 | Costco, Macy’s, Sears | — | |||||||||
| Division Crossing | Portland, OR | 100,910 | 100,910 | Rite Aid, Safeway | — | |||||||||
| Eagle Ridge Mall | Lake Wales (Orlando), FL | 657,304 | 261,849 | �� | Dillard’s, JCPenney, Recreation Station, Regal Cinemas, Sears | — | ||||||||
| Eastridge Mall | San Jose, CA | 1,313,025 | 478,631 | AMC 15, Bed Bath & Beyond, JCPenney, Macy’s, Sears, Sport Chalet | — | |||||||||
| Eastridge Mall | Casper, WY | 571,910 | 282,114 | JCPenney, Macy’s, Sears, Target | — | |||||||||
| Eden Prairie Center | Eden Prairie (Minneapolis), MN | 1,007,023 | 327,442 | AMC Theatres, JCPenney, Kohl’s, Sears, Target, Von Maur | — | |||||||||
| Fallbrook Center | West Hills (Los Angeles), CA | 877,782 | 877,782 | 24 Hour Fitness, DSW Shoe Warehouse, Home Depot, Kohl’s, Linens ’N Things, Mervyn’s, Michael’s Arts & Crafts, Old Navy, Party City | 1 | |||||||||
| Faneuil Hall Marketplace(2) | Boston, MA | 198,364 | 198,364 | N/A | N/A | |||||||||
| Fashion Place(2) | Murray, UT | 876,779 | 310,806 | Dillard’s, Nordstrom, Sears | — | |||||||||
| Fashion Show | Las Vegas, NV | 1,898,078 | 538,187 | Bloomingdale’s Home, Dillard’s, Macy’s, Neiman Marcus, Nordstrom, Saks Fifth Avenue | 1 | |||||||||
| Foothills Mall | Fort Collins, CO | 804,377 | 464,280 | Macy’s, Sears | 2 | |||||||||
| Fort Union(2) | Midvale (Salt Lake City), UT | 32,968 | 32,968 | N/A | N/A | |||||||||
| Four Seasons Town Centre | Greensboro, NC | 1,141,326 | 499,310 | Belk, Dillard’s, JCPenney | — | |||||||||
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| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Fox River Mall | Appleton, WI | 1,207,363 | 518,726 | Cost Plus World Market, David’s Bridal, DSW Shoe Warehouse, Factory Card Outlet, JCPenney, Linens ’N Things, Macy’s, Scheel’s, Sears | — | |||||||||
| Fremont Plaza(2) | Las Vegas, NV | 115,862 | 115,862 | Asian Seafood & Grocery, Sav-On Drugs | — | |||||||||
| The Gallery at Harborplace(2) | Baltimore, MD | 132,105 | 132,105 | N/A | N/A | |||||||||
| Gateway Crossing Shopping Center | Bountiful (Salt Lake City), UT | 183,526 | 183,526 | All A Dollar, Barnes & Noble, T.J. Maxx | — | |||||||||
| Gateway Mall | Springfield, OR | 824,152 | 342,446 | 24 Hour Fitness, Ashley Furniture Homestore, Kohl’s, Movies 12, Ross Dress for Less, Sears, Target | — | |||||||||
| Glenbrook Square | Fort Wayne, IN | 1,210,029 | 433,159 | JCPenney, Macy’s, Sears | 1 | |||||||||
| Governor’s Square(2) | Tallahassee, FL | 1,021,989 | 330,384 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| The Grand Canal Shoppes | Las Vegas, NV | 512,815 | 512,815 | N/A | N/A | |||||||||
| Grand Teton Mall | Idaho Falls, ID | 543,084 | 219,159 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Grand Teton Plaza | Idaho Falls, ID | 93,274 | 93,274 | Best Buy, Linens ’N Things, Petsmart, Ross Dress for Less | — | |||||||||
| Grand Traverse Mall | Traverse City, MI | 592,774 | 279,383 | GKC Theaters, JCPenney, Macy’s, Target | — | |||||||||
| Greenwood Mall | Bowling Green, KY | 847,578 | 418,525 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Halsey Crossing(2) | Gresham (Portland), OR | 99,438 | 99,438 | Safeway | — | |||||||||
| Harborplace(2) | Baltimore, MD | 153,371 | 153,371 | N/A | N/A | |||||||||
| Hulen Mall | Fort Worth, TX | 941,681 | 345,111 | Dillard’s, Macy’s, Sears | — | |||||||||
| Jordan Creek Town Center | West Des Moines, IA | 1,335,574 | 793,875 | Century Theatres, Dillard’s, Scheel’s, Younkers | — | |||||||||
| Knollwood Mall | St. Louis Park (Minneapolis), MN | 463,907 | 167,684 | Cub Foods, Kohl’s, Steve & Barry’s University Sportswear, T.J. Maxx | — | |||||||||
| Lakeside Mall | Sterling Heights, MI | 1,529,736 | 507,138 | JCPenney, Lord & Taylor, Macy’s, Macy’s Men’s & Home, Sears | — | |||||||||
| Lakeview Square | Battle Creek, MI | 552,563 | 260,970 | JCPenney, Macy’s, Sears | — | |||||||||
| Landmark Mall(2) | Alexandria (Washington, D.C.), VA | 884,596 | 325,659 | Lord & Taylor, Macy’s, Sears | — | |||||||||
| Lansing Mall(2) | Lansing, MI | 836,390 | 413,220 | JCPenney, Macy’s, Steve & Barry’s University Sportswear, T.J. Maxx, Younkers | — | |||||||||
| Lincolnshire Commons | Lincolnshire (Chicago), IL | 88,894 | 88,894 | N/A | N/A | |||||||||
| Lockport Mall | Lockport, NY | 336,070 | 122,989 | The Bon Ton | 2 | |||||||||
| Lynnhaven Mall | Virginia Beach, VA | 1,174,106 | 458,659 | AMC Theatres, Dick’s Sporting Goods, Dillard’s, JCPenney, Macy’s, Steve & Barry’s University Sportswear | — | |||||||||
18
Table of Contents
| GLA | |||||||||||||||
| Mall and | Anchor | ||||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | ||||||||||
| The Maine Mall | South Portland, ME | 1,020,001 | 347,067 | Best Buy, Chuck E Cheese, JCPenney, Linens ’N Things, Macy’s, Sears, Sports Authority | — | ||||||||||
| Mall at Sierra Vista | Sierra Vista, AZ | 362,053 | 130,783 | Cinemark, Dillard’s, Sears | — | ||||||||||
| The Mall in Columbia | Columbia, MD | 1,399,642 | 599,474 | JCPenney, Lord & Taylor, Macy’s, Nordstrom, Sears | — | ||||||||||
| Mall of Louisiana | Baton Rouge, LA | 1,316,055 | 508,573 | Dillard’s, Dillard’s Mens & Home, JCPenney, Macy’s, Sears | — | ||||||||||
| Mall of the Bluffs | Council Bluffs (Omaha, NE), IA | 703,732 | 377,510 | Dillard’s, Hy-Vee, JCPenney, Sears, Target | — | ||||||||||
| Mall St. Matthews | Louisville, KY | 1,085,896 | 350,191 | Dillard’s, Dillard’s Men’s & Home, JCPenney | 1 | ||||||||||
| Mall St. Vincent(2) | Shreveport, LA | 533,738 | 185,738 | Dillard’s, Sears | — | ||||||||||
| Market Place Shopping Center | Champaign, IL | 1,041,426 | 505,680 | Bergner’s, JCPenney, Macy’s, Sears | — | ||||||||||
| Mayfair | Wauwatosa (Milwaukee), WI | 1,112,898 | 493,514 | AMC Theatres, Barnes & Noble, Boston Store, Macy’s | — | ||||||||||
| Meadows Mall | Las Vegas, NV | 956,948 | 320,095 | Dillard’s, JCPenney, Macy’s, Sears | — | ||||||||||
| Metro Plaza | Baltimore, MD | 85,289 | 85,289 | N/A | N/A | ||||||||||
| Mondawmin Mall | Baltimore, MD | 361,506 | 294,806 | Shoppers Food and Pharmacy | — | ||||||||||
| North Plains Mall | Clovis, NM | 303,613 | 109,532 | Beall’s, Dillard’s, JCPenney, Sears | — | ||||||||||
| North Star Mall | San Antonio, TX | 1,257,407 | 432,535 | Dillard’s, Macy’s, Mervyn’s Saks Fifth Avenue | 1 | ||||||||||
| North Temple Shops | Salt Lake City, UT | 10,181 | 10,181 | N/A | N/A | ||||||||||
| North Town Mall | Spokane, WA | 1,046,358 | 414,864 | JCPenney, Macy’s, Mervyn’s, Regal Cinemas, Sears, Steve & Barry’s University Sportswear | 1 | ||||||||||
| Northgate Mall | Chattanooga, TN | 824,191 | 358,871 | JCPenney, Proffitt’s, Proffitt’s Home Store, Sears, T.J. Maxx | — | ||||||||||
| Northridge Fashion Center | Northridge (Los Angeles), CA | 1,443,563 | 568,120 | JCPenney, Macy’s, Pacific Theatres, Sears | 1 | ||||||||||
| Oak View Mall | Omaha, NE | 865,003 | 260,743 | Dillard’s, JCPenney, Sears, Younkers | — | ||||||||||
| Oakwood Center | Gretna, LA | 949,426 | 351,079 | Dillard’s, JCPenney, Sears | (4 | ) | |||||||||
| Oakwood Mall | Eau Claire, WI | 818,933 | 333,857 | JCPenney, Macy’s, Scheel’s, Sears, Younkers | — | ||||||||||
| Oglethorpe Mall | Savannah, GA | 945,582 | 365,434 | Belk, JCPenney, Macy’s, Macy’s Junior, Sears, Stein Mart | — | ||||||||||
| Orem Plaza Center Street | Orem, UT | 90,218 | 90,218 | Chuck E Cheese, Robert’s Crafts | — | ||||||||||
| Orem Plaza State Street | Orem, UT | 27,557 | 27,557 | N/A | N/A | ||||||||||
| Oviedo Marketplace | Oviedo, FL | 951,286 | 286,357 | Bed Bath & Beyond, Dillard’s, Macy’s, Regal Cinemas, Sears | — | ||||||||||
| Owings Mills Mall | Owings Mills, MD | 1,083,447 | 436,410 | Boscov’s, JCPenney, Macy’s | 1 | ||||||||||
| Oxmoor Center | Louisville, KY | 928,545 | 281,335 | Dick’s Sporting Goods, Macy’s, Sears, Von Maur | — | ||||||||||
19
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| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Paramus Park | Paramus, NJ | 769,156 | 310,099 | Macy’s, Sears | — | |||||||||
| Park City Center | Lancaster (Philadelphia), PA | 1,374,133 | 510,944 | The Bon Ton, Boscov’s, JCPenney, Kohl’s, Sears | — | |||||||||
| Park Place | Tucson, AZ | 1,047,141 | 392,404 | Century Theatres, Dillard’s, Macy’s, Sears | — | |||||||||
| Peachtree Mall | Columbus, GA | 820,202 | 311,587 | Dillard’s, JCPenney, Macy’s, Parisian | — | |||||||||
| Pecanland Mall | Monroe, LA | 945,248 | 329,812 | Belk, Dillard’s, JCPenney, Sears | 1 | |||||||||
| Piedmont Mall | Danville, VA | 725,122 | 173,384 | Belk, Belk Men’s, Boscov’s, JCPenney, Sears | — | |||||||||
| Pierre Bossier Mall | Bossier City (Shreveport), LA | 607,022 | 213,724 | Dillard’s, JCPenney, Sears, Stage | 1 | |||||||||
| Pine Ridge Mall(2) | Pocatello, ID | 641,654 | 203,667 | Dillard’s, JCPenney, Sears, ShopKo | 1 | |||||||||
| The Pines | Pine Bluff, AR | 644,469 | 262,049 | Dillard’s, Holiday Inn Express, JCPenney, Sears | 1 | |||||||||
| Pioneer Place(2) | Portland, OR | 368,183 | 287,183 | Saks Fifth Avenue | — | |||||||||
| Plaza 800(2) | Sparks (Reno), NV | 176,431 | 176,431 | Albertson’s | 1 | |||||||||
| Plaza 9400(2) | Sandy (Salt Lake City), UT | 228,661 | 228,661 | Albertson’s, Deseret Industries | 1 | |||||||||
| Prince Kuhio Plaza(2) | Hilo, HI | 504,807 | 272,185 | Macy’s, Sears | 1 | |||||||||
| Providence Place(2) | Providence, RI | 1,258,733 | 513,185 | Bed Bath & Beyond, Dave & Buster’s, JCPenney, Macy’s, National Amusements Cinema 16, Nordstrom, Old Navy | — | |||||||||
| Provo Towne Centre(3) | Provo, UT | 801,014 | 230,945 | Cinemark, Dillard’s, JCPenney, Sears | — | |||||||||
| Red Cliffs Mall | St. George, UT | 383,131 | 108,431 | Dillard’s, JCPenney, Sears | 1 | |||||||||
| Red Cliffs Plaza | St. George, UT | 57,304 | 57,304 | Gold’s Gym, Sears | — | |||||||||
| Redlands Mall | Redlands, CA | 173,997 | 78,938 | Gottschalks | — | |||||||||
| Regency Square Mall | Jacksonville, FL | 1,386,950 | 527,944 | Belk, Champs Sports/World Foot Locker, Dillard’s, Homeworks Furniture Center, JCPenney, Sears | — | |||||||||
| Ridgedale Center | Minnetonka, MN | 1,044,076 | 341,696 | JCPenney, Macy’s Mens & Home, Macy’s Women’s, Sears | — | |||||||||
| Rio West Mall(2)(3) | Gallup, NM | 515,038 | 333,905 | Beall’s, JCPenney | 1 | |||||||||
| River Falls Mall | Clarksville, IN | 819,878 | 588,735 | Bass Pro Shops Outdoor World, Toys R Us | 2 | |||||||||
| River Hills Mall | Mankato, MN | 718,540 | 278,346 | Herberger’s, JCPenney, Scheel’s, Sears, Target | — | |||||||||
| River Pointe Plaza | West Jordan (Salt Lake City), UT | 224,252 | 224,252 | Albertson’s, ShopKo | — | |||||||||
| Riverlands Shopping Center | LaPlace (New Orleans), LA | 184,992 | 184,992 | Burke’s Outlet, Citi Trends, Matherne’s Supermarkets, Stage | — | |||||||||
| Riverside Plaza | Provo, UT | 175,417 | 175,417 | Big Lots, Macey’s, Rite Aid | — | |||||||||
| Rivertown Crossings | Grandville (Grand Rapids), MI | 1,270,948 | 421,890 | Dick’s Sporting Goods, JCPenney, Kohl’s, Macy’s, Old Navy, Rivertown Cinemas, Sears, Younkers | — | |||||||||
| Riverwalk Marketplace(2) | New Orleans, LA | 189,250 | 189,250 | N/A | N/A | |||||||||
20
Table of Contents
| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Rogue Valley Mall | Medford (Portland), OR | 640,762 | 253,324 | JCPenney, Kohl’s, Linens ’N Things, Macy’s, Macy’s Home Store | — | |||||||||
| Saint Louis Galleria | St. Louis, MO | 1,046,205 | 470,153 | Dillard’s, Macy’s | 1 | |||||||||
| Salem Center(2) | Salem, OR | 650,132 | 212,132 | JCPenney, Macy’s, Nordstrom | 1 | |||||||||
| The Shops at La Cantera(3) | San Antonio, TX | 1,017,798 | 388,798 | Dillard’s, Macy’s, Neiman Marcus, Nordstrom | — | |||||||||
| Sikes Senter | Wichita Falls, TX | 667,551 | 262,027 | Dillard’s, JCPenney, Sears, Sikes Ten Theatres | — | |||||||||
| Silver Lake Mall | Coeur d’ Alene, ID | 326,618 | 110,254 | JCPenney, Macy’s, Sears | 1 | |||||||||
| Sooner Mall | Norman, OK | 509,141 | 169,069 | Dillard’s, JCPenney, Old Navy, Sears, Stein Mart | — | |||||||||
| South Street Seaport(2) | New York, NY | 283,783 | 283,783 | N/A | N/A | |||||||||
| Southlake Mall | Morrow (Atlanta), GA | 1,014,204 | 273,952 | JCPenney, Macy’s, Sears | 1 | |||||||||
| Southland Center | Taylor, MI | 915,197 | 287,160 | Best Buy, JCPenney, Macy’s | 1 | |||||||||
| Southland Mall | Hayward, CA | 1,275,469 | 535,205 | JCPenney, Macy’s, Mervyn’s, Sears | — | |||||||||
| Southshore Mall(2) | Aberdeen, WA | 291,666 | 157,891 | JCPenney, Sears | — | |||||||||
| Southwest Plaza | Littleton (Denver), CO | 1,361,097 | 654,701 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Spokane Valley Mall(3) | Spokane, WA | 737,954 | 318,870 | JCPenney, Macy’s, Regal Act III, Sears | — | |||||||||
| Spokane Valley Plaza(3) | Spokane, WA | 132,048 | 132,048 | Linens ’N Things, Old Navy, Sportsman’s Warehouse, T.J. Maxx | — | |||||||||
| Spring Hill Mall | West Dundee (Chicago), IL | 1,370,930 | 638,135 | Carson Pirie Scott, JCPenney, Kohl’s, Macy’s, Sears, Steve & Barry’s University Sportswear | — | |||||||||
| Staten Island Mall | Staten Island, NY | 1,276,207 | 605,118 | JCPenney, Macy’s, Macy’s Annex II, Macy’s Home Store, Sears | — | |||||||||
| Stonestown Galleria | San Francisco, CA | 867,391 | 439,098 | Macy’s, Nordstrom | — | |||||||||
| The Streets at Southpoint | Durham, NC | 1,329,123 | 582,202 | Barnes & Noble, Hudson Belk, JCPenney, Macy’s, Maggiano’s, Nordstrom, Pottery Barn, Sears, Urban Outfitters | — | |||||||||
| Three Rivers Mall | Kelso, WA | 430,111 | 236,878 | JCPenney, Macy’s, Sears | 1 | |||||||||
| Town East Mall | Mesquite (Dallas), TX | 1,215,358 | 405,972 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||
| Tucson Mall(2) | Tucson, AZ | 1,306,515 | 448,251 | Dillard’s, JCPenney, Macy’s, Mervyn’s, Sears | 1 | |||||||||
| Twin Falls Crossing | Twin Falls, ID | 37,680 | 37,680 | Kalik Investors | — | |||||||||
| University Crossing | Orem, UT | 206,035 | 206,035 | Barnes & Noble, CompUSA, Fred Meyer — Burlington Coat, OfficeMax, Pier 1 Imports | — | |||||||||
| Valley Hills Mall | Hickory, NC | 931,534 | 320,018 | Belk, Dillard’s, JCPenney, Sears | — | |||||||||
| Valley Plaza Mall | Bakersfield, CA | 1,178,327 | 451,638 | Gottschalks, JCPenney, Macy’s, Sears | 1 | |||||||||
| Village of Cross Keys Retail | Baltimore, MD | 74,112 | 74,112 | N/A | N/A | |||||||||
| Visalia Mall | Visalia, CA | 439,548 | 182,548 | Gottschalks, JCPenney | — | |||||||||
21
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| GLA | ||||||||||||||
| Mall and | Anchor | |||||||||||||
Name of Center | Location(1) | Total | Freestanding | Anchors/Significant Tenants | Vacancies | |||||||||
| Ward Centers | Honolulu, HI | 743,061 | 700,400 | Sports Authority | — | |||||||||
| West Valley Mall | Tracy (San Francisco), CA | 880,114 | 483,205 | Gottschalks, JCPenney, Movies 14, Sears, Target | — | |||||||||
| Westlake Center(2) | Seattle, WA | 104,631 | 104,631 | N/A | N/A | |||||||||
| Westwood Mall | Jackson, MI | 508,199 | 136,511 | Elder-Beerman, JCPenney, Wal-Mart | — | |||||||||
| White Marsh Mall | Baltimore, MD | 1,204,212 | 367,970 | Boscov’s, JCPenney, Macy’s, Sears, Sports Authority | 1 | |||||||||
| White Mountain Mall | Rock Springs, WY | 330,197 | 175,737 | Flaming Gorge Harley Davidson, Herberger’s, JCPenney, State Of Wyoming | — | |||||||||
| Willowbrook | Wayne, NJ | 1,518,873 | 490,873 | Bloomingdale’s, Lord & Taylor, Macy’s, Sears | — | |||||||||
| Woodbridge Center | Woodbridge, NJ | 1,631,080 | 546,045 | Dick’s Sporting Goods, Fortunoff, JCPenney, Lord & Taylor, Macy’s, Sears | — | |||||||||
| Woodlands Village | Flagstaff, AZ | 91,810 | 91,810 | — | — | |||||||||
| Yellowstone Square | Idaho Falls, ID | 221,937 | 221,937 | Yellowstone Warehouse | 2 | |||||||||
| 118,303,425 | 51,078,033 | |||||||||||||
| (1) | In certain cases, where a center is located in part of a larger metropolitan area, the metropolitan area is identified in parenthesis. | |
| (2) | A portion of the property is subject to a ground lease. | |
| (3) | Owned in a joint venture with independent, non-controlling minority investors. | |
| (4) | Mervyn’s is not expected to re-open when the mall re-opens, which is currently expected to be October 2007. |
Unconsolidated Retail Properties
| GLA | |||||||||||||||||||
| Ownership | Mall and | Anchors/ | Anchor | ||||||||||||||||
Name of Center | Location | Interest | Total | Freestanding | Significant Tenants | Vacancies | |||||||||||||
| Alderwood | Lynnwood (Seattle), WA | 50 | % | 1,271,237 | 500,686 | JCPenney, Loews Cineplex, Macy’s, Nordstrom, Sears | — | ||||||||||||
| Altamonte Mall | Altamonte Springs (Orlando), FL | 50 | 1,149,411 | 470,863 | Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||||||
| Arrowhead Towne Center | Glendale, AZ | 16.7 | 1,133,342 | 348,805 | AMC Theatres, Dillard’s, JCPenney, Macy’s, Mervyn’s, Sears | — | |||||||||||||
| Bay City Mall | Bay City, MI | 50 | 526,742 | 211,091 | JCPenney, Sears, Target, Younkers | — | |||||||||||||
| Brass Mill Center and Commons | Waterbury, CT | 50 | 1,184,909 | 527,570 | Burlington Coat Factory, JCPenney, Macy’s, Regal Cinemas, Sears, Steve & Barry’s University Sportswear | — | |||||||||||||
| Bridgewater Commons | Bridgewater, NJ | 35 | 971,547 | 435,658 | AMC Theatres, Bloomingdale’s, Lord & Taylor, Macy’s | — | |||||||||||||
22
Table of Contents
| GLA | |||||||||||||||||||
| Ownership | Mall and | Anchors/ | Anchor | ||||||||||||||||
Name of Center | Location | Interest | Total | Freestanding | Significant Tenants | Vacancies | |||||||||||||
| Carolina Place | Pineville (Charlotte), NC | 50 | 1,154,344 | 349,428 | Barnes & Noble, Belk, Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||||||
| Center Pointe Plaza | Las Vegas, NV | 50 | 144,635 | 144,635 | Albertson’s, CVS | — | |||||||||||||
| Christiana Mall | Newark, DE | 50 | 1,083,027 | 311,623 | JCPenney, Macy’s | 2 | |||||||||||||
| Chula Vista Center | Chula Vista (San Diego), CA | 50 | 876,212 | 288,075 | JCPenney, Macy’s, Mervyn’s, Sears, Ultrastar Theaters | — | |||||||||||||
| Clackamas Town Center | Portland, OR | 50 | 1,229,899 | 351,210 | Barnes & Noble, Century Theatres, JCPenney, Meier & Frank, Meier & Frank Home Store, Nordstrom, Sears | — | |||||||||||||
| Columbiana Centre | Columbia, SC | 50 | 824,184 | 265,207 | Belk, Dillard’s, JCPenney, Sears | — | |||||||||||||
| Deerbrook Mall | Humble (Houston), TX | 50 | 1,204,982 | 366,158 | AMC Theatres, Dillard’s, JCPenney, Macy’s, Sears | 1 | |||||||||||||
| First Colony Mall | Sugar Land (Houston), TX | 50 | 1,108,387 | 489,339 | Dillard’s, Dillard’s Men’s & Home, JCPenney, Macy’s | — | |||||||||||||
| Florence Mall | Florence (Cincinnati, OH), KY | 50 | 889,236 | 336,829 | JCPenney, Macy’s, Macy’s Home Store, Sears | — | |||||||||||||
| Galleria at Tyler(2) | Riverside, CA | 50 | 1,154,039 | 532,331 | JCPenney, Macy’s, Nordstrom | 1 | |||||||||||||
| Glendale Galleria(2) | Glendale, CA | 50 | 1,319,256 | 515,018 | JCPenney, Macy’s, Mervyn’s, Nordstrom, Target | — | |||||||||||||
| Highland Mall(2) | Austin, TX | 50 | 1,116,203 | 397,462 | Austin Leasehold Investors, Dillard’s, Dillard’s Men’s, Macy’s | — | |||||||||||||
| Kenwood Towne Centre(2) | Cincinnati, OH | 50 | 1,200,907 | 549,887 | Dillard’s, Macy’s, Parisian | — | |||||||||||||
| Lake Mead & Buffalo Partners Village Center | Las Vegas, NV | 50 | 150,948 | 150,948 | Only 99 Cent Store, Vons | — | |||||||||||||
| Lakeland Square | Lakeland (Orlando), FL | 50 | 894,430 | 284,392 | Dillard’s, Dillard’s Men’s & Home, Inland Retail Trs. Corp, JCPenney, Macy’s, Sears | — | |||||||||||||
| Mizner Park(2) | Boca Raton, FL | 50 | 236,999 | 126,177 | Mizner Park Cinema, Robb & Stucky | — | |||||||||||||
| Montclair Plaza | Montclair (San Bernadino), CA | 50 | 1,353,074 | 555,497 | Circuit City, Ethan Allen Gallery, JCPenney, Linens ’N Things, Macy’s, Nordstrom, Sears, Ninety Nine Cent Only Store | 1 | |||||||||||||
| Moreno Valley Mall | Moreno Valley (Riverside), CA | 50 | 1,086,776 | 317,585 | Gottschalks, Harkins Theatre, JCPenney, Limited, Macy’s, Sears | — | |||||||||||||
| Natick Mall | Natick (Boston), MA | 50 | 1,129,628 | 402,966 | JCPenney, Lord & Taylor, Macy’s, Sears | — | |||||||||||||
23
Table of Contents
| GLA | |||||||||||||||||||
| Ownership | Mall and | Anchors/ | Anchor | ||||||||||||||||
Name of Center | Location | Interest | Total | Freestanding | Significant Tenants | Vacancies | |||||||||||||
| Neshaminy Mall | Bensalem, PA | 25 | 1,016,631 | 318,645 | AMC Theatres, Boscov’s, Macy’s, Sears | — | |||||||||||||
| Newgate Mall | Ogden (Salt Lake City), UT | 50 | 725,288 | 253,154 | Dillard’s, Mervyn’s, Sears, Sports Authority, Tinsel Town | — | |||||||||||||
| NewPark Mall | Newark (San Francisco), CA | 50 | 1,209,906 | 395,058 | Century Theatres, JCPenney, Macy’s, Mervyn’s, Sears, Target | — | |||||||||||||
| North Point Mall | Alpharetta (Atlanta), GA | 50 | 1,372,650 | 406,363 | Dillard’s, JCPenney, Macy’s, Parisian, Sears | 1 | |||||||||||||
| Northbrook Court | Northbrook (Chicago), IL | 50 | 1,000,941 | 385,022 | AMC Theatres, Lord & Taylor, Macy’s, Neiman Marcus | — | |||||||||||||
| Oakbrook Center | Oakbrook (Chicago), IL | 47 | 2,090,601 | 805,621 | Bloomingdale’s Home, Crate & Barrel, Eddie Bauer, Lord & Taylor, Macy’s, Neiman Marcus, Nordstrom, Sears | — | |||||||||||||
| The Oaks Mall | Gainesville, FL | 51 | 907,282 | 349,415 | Belk, Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||||||
| Otay Ranch Town Center | Chula Vista (San Diego), CA | 50 | 589,423 | 449,423 | Macy’s | — | |||||||||||||
| The Parks at Arlington | Arlington (Dallas), TX | 50 | 1,509,692 | 423,432 | AMC Theatres, Circuit City, Dick’s Sporting Goods, Dillard’s, JCPenney, Macy’s, Sears, Steve & Barry’s University Sportswear | 1 | |||||||||||||
| Park Meadows | Littleton, CO | 35 | 1,631,482 | 533,482 | Dick’s Sporting Goods, Dillard’s, JCPenney, Macy’s, Nordstrom | 1 | |||||||||||||
| Pembroke Lakes Mall | Pembroke Pines (Fort Lauderdale), FL | 50 | 1,136,859 | 355,584 | Dillard’s, Dillard’s Men’s & Home, JCPenney, Macy’s, Macy’s Home Store, Sears | — | |||||||||||||
| Perimeter Mall | Atlanta, GA | 50 | 1,560,321 | 507,047 | Bloomingdale’s, Dillard’s, Macy’s, Nordstrom | — | |||||||||||||
| Pinnacle Hills Promenade | Rogers, AR | 50 | 601,228 | 347,688 | Dillard’s, JCPenney | — | |||||||||||||
| Quail Springs Mall | Oklahoma City, OK | 50 | 1,134,643 | 349,843 | AMC Theatres, Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||||||
| Riverchase Galleria | Hoover (Birmingham), AL | 50 | 1,553,451 | 504,544 | Belk, CompUSA, JCPenney, Macy’s, Parisian, Sears | 1 | |||||||||||||
| The Shoppes at Buckland Hills | Manchester, CT | 50 | 1,051,380 | 458,769 | Dick’s Sporting Goods, JCPenney, Macy’s, Macy’s Men’s & Home, Sears | — | |||||||||||||
| Shopping Iguatemi Salvador | Salvador, Bahia (Brazil) | 13 | 505,653 | 2,321 | Bompreco, C&A, Cinema Multiplex, Lojas Americanas, Playland, Riachuelo, Renner, Zara | — | |||||||||||||
24
Table of Contents
| GLA | |||||||||||||||||||
| Ownership | Mall and | Anchors/ | Anchor | ||||||||||||||||
Name of Center | Location | Interest | Total | Freestanding | Significant Tenants | Vacancies | |||||||||||||
| Shopping Iguatemi Campina Grande | Campina Grande, Paraiba (Brazil) | 8 | 171,512 | 1,780 | Bompreco, Cine Sercia, Gamestation, Insinuante, Lojas Americanas, Riachuelo | — | |||||||||||||
| Shopping Taboao | Taboao da Serra, Sao Paulo (Brazil) | 19 | 265,296 | 4,650 | Besni, C&A, Carrefour, Casas Bahia, Lojas Americanas, Riachuelo, Telha Norte | — | |||||||||||||
| Shopping Leblon | Rio de Janeiro, Rio de Janeiro (Brazil) | 15 | 247,661 | — | Centauro, Cinema Kinoplex, Livraria da Travessa, Renner, Zara | — | |||||||||||||
| Silver City Galleria | Taunton (Boston), MA | 50 | 1,025,192 | 413,926 | Dick’s Sporting Goods, JCPenney, Macy’s, Sears, Silver City Cinemas, Steve & Barry’s University Sportswear | 2 | |||||||||||||
| Steeplegate Mall | Concord, NH | 50 | 481,896 | 225,549 | The Bon Ton, JCPenney, Sears | — | |||||||||||||
| Stonebriar Centre | Frisco (Dallas), TX | 50 | 1,652,900 | 527,867 | AMC Theatres, Barnes & Noble, Dave & Buster’s, Dick’s Sporting Goods, JCPenney, Macy’s, Nordstrom, Sears | 1 | |||||||||||||
| Superstition Springs Center(2) | East Mesa (Phoenix), AZ | 16.7 | 1,068,290 | 331,136 | Dillards, JCPenney, JCPenney Home Store, Macy’s, Mervyn’s, Sears | — | |||||||||||||
| Towson Town Center | Towson, MD | 35 | 944,105 | 524,976 | Macy’s, Nordstrom | — | |||||||||||||
| The Trails Village Center | Las Vegas, NV | 50 | 174,660 | 174,660 | Longs Drugs, Vons | — | |||||||||||||
| Tysons Galleria | McLean (Washington, D.C.), VA | 50 | 820,492 | 308,559 | Macy’s, Neiman Marcus, Saks Fifth Avenue | — | |||||||||||||
| Via Parque Shopping | Rio de Janeiro, Rio de Janeiro (Brazil) | 29 | 574,258 | 29,150 | C&C Casa e Construcao, Casa & Video, Casas Bahia, Cine Via Parque, Claro Hall, Kalunga, Leader, Lojas Americanas, Marisa, Ponto Frio, Renner | — | |||||||||||||
| Village of Merrick Park(2) | Coral Gables, FL | 40 | 743,414 | 413,414 | Neiman Marcus, Nordstrom | — | |||||||||||||
| Vista Ridge Mall | Lewisville (Dallas), TX | 50 | 1,105,334 | 336,487 | Cinemark, Dillard’s, JCPenney, Macy’s, Sears | — | |||||||||||||
| Washington Park Mall | Bartlesville, OK | 50 | 357,346 | 163,050 | Dillard’s, JCPenney, Sears | — | |||||||||||||
| Water Tower Place | Chicago, IL | 52 | 711,737 | 284,694 | Lord & Taylor, Macy’s | — | |||||||||||||
| West Oaks Mall | Ocoee (Orlando), FL | 50 | 1,163,119 | 366,369 | AMC Theatres, Belk, Dillard’s, JCPenney, Sears Dick’s Sporting Goods, JCPenney, Tilt, | 1 | |||||||||||||
| Westroads Mall | Omaha, NE | 51 | 1,155,493 | 331,433 | Von Maur, Younkers | 1 | |||||||||||||
| Whaler’s Village | Lahaina, HI | 50 | 112,057 | 112,057 | N/A | N/A | |||||||||||||
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| GLA | |||||||||||||||||||
| Ownership | Mall and | Anchors/ | Anchor | ||||||||||||||||
Name of Center | Location | Interest | Total | Freestanding | Significant Tenants | Vacancies | |||||||||||||
| Willowbrook Mall | Houston, TX | 50 | 1,506,724 | 400,140 | Dillard’s, JCPenney, Macy’s, Sears | 1 | |||||||||||||
| The Woodlands Mall | Woodlands (Houston), TX | 50 | 1,354,849 | 509,620 | Dillard’s, JCPenney, Macy’s, Macy’s Children Store, Sears | 1 | |||||||||||||
| 59,628,120 | 21,534,368 | ||||||||||||||||||
| (1) | In certain cases, where a center is located in part of a larger metropolitan area, the metropolitan area is identified in parenthesis. | |
| (2) | A portion of the property is subject to a ground lease. |
Anchors
Anchors have traditionally been a major component of a regional shopping center. Anchors are frequently department stores whose merchandise appeals to a broad range of shoppers. Anchors generally either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rates that are generally lower than the rents charged to Mall Store tenants. We also typically enter into long-term reciprocal agreements with Anchors that provide for, among other things, mall and Anchor operating covenants and Anchor expense participation. The centers in the Retail Portfolio receive a smaller percentage of their operating income from Anchors than from Mall Stores. While the market share of many traditional department store Anchors has been declining, strong Anchors continue to play an important role in maintaining customer traffic and making the centers in the Retail Portfolio desirable locations for Mall Store tenants.
The following table indicates the parent company of certain Anchors and sets forth the number of stores and square feet owned or leased by each Anchor in the Retail Portfolio as of December 31, 2006.
| Consolidated | Unconsolidated | Total | ||||||||||||||||||||||
| Total | Square Feet | Total | Square Feet | Total | Square Feet | |||||||||||||||||||
| Stores | (000’s) | Stores | (000’s) | Stores | (000’s) | |||||||||||||||||||
Federated Department Stores, Inc. | ||||||||||||||||||||||||
| Bloomingdale’s, including Home | 2 | 360 | 3 | 465 | 5 | 825 | ||||||||||||||||||
| David’s Bridal | 1 | 10 | — | — | 1 | 10 | ||||||||||||||||||
| Macy’s, including Mens, Womens, Children and Home | 85 | 13,301 | 48 | 8,583 | 133 | 21,884 | ||||||||||||||||||
| Meier & Frank, including Home | — | — | 2 | 365 | 2 | 365 | ||||||||||||||||||
| Total Federated Department Stores, Inc. | 88 | 13,671 | 53 | 9,413 | 141 | 23,084 | ||||||||||||||||||
Sears Holdings Corporation | ||||||||||||||||||||||||
| Sears | 95 | 13,521 | 33 | 5,164 | 128 | 18,685 | ||||||||||||||||||
| Kmart | 1 | 88 | — | — | 1 | 88 | ||||||||||||||||||
| Total Sears Holdings Corporation | 96 | 13,609 | 33 | 5,164 | 129 | 18,773 | ||||||||||||||||||
Belk, Inc. | ||||||||||||||||||||||||
| Belk, including Men’s and Hudson | 9 | 1,187 | 5 | 898 | 14 | 2,085 | ||||||||||||||||||
| Dillard’s | 1 | 160 | — | — | 1 | 160 | ||||||||||||||||||
| Parisian | 1 | 86 | 4 | 423 | 5 | 509 | ||||||||||||||||||
| Proffit’s, including Home | 2 | 113 | — | — | 2 | 113 | ||||||||||||||||||
| Total Belk, Inc. | 13 | 1,546 | 9 | 1,321 | 22 | 2,867 | ||||||||||||||||||
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| Consolidated | Unconsolidated | Total | ||||||||||||||||||||||
| Total | Square Feet | Total | Square Feet | Total | Square Feet | |||||||||||||||||||
| Stores | (000’s) | Stores | (000’s) | Stores | (000’s) | |||||||||||||||||||
Bon-Ton Department Stores, Inc. | ||||||||||||||||||||||||
| Bergner’s | 1 | 154 | — | — | 1 | 154 | ||||||||||||||||||
| The Bon-Ton | 2 | 224 | 1 | 88 | 3 | 312 | ||||||||||||||||||
| Boston Store | 1 | 211 | — | — | 1 | 211 | ||||||||||||||||||
| Carson Pirie Scott | 1 | 138 | — | — | 1 | 138 | ||||||||||||||||||
| Elder-Beerman | 3 | 142 | — | — | 3 | 142 | ||||||||||||||||||
| Herberger’s | 3 | 186 | — | — | 3 | 186 | ||||||||||||||||||
| Younkers | 8 | 939 | 2 | 244 | 10 | 1,183 | ||||||||||||||||||
| Total Bon-Ton Department Stores, Inc. | 19 | 1,994 | 3 | 332 | 22 | 2,326 | ||||||||||||||||||
JCPenney Company, Inc. (d.b.a. JCPenney) | 94 | 10,847 | 37 | 4,943 | 131 | 15,790 | ||||||||||||||||||
Dillard’s Inc. (d.b.a. Dillard’s) | 53 | 8,769 | 27 | 4,683 | 80 | 13,422 | ||||||||||||||||||
Nordstrom, Inc. (d.b.a. Nordstrom) | 8 | 1,256 | 12 | 2,046 | 20 | 3,302 | ||||||||||||||||||
Target Corporation (d.b.a. Target) | 14 | 1,604 | 3 | 480 | 17 | 2,084 | ||||||||||||||||||
MDS Texas Realty I (d.b.a. Mervyn’s) | 9 | 767 | 4 | 338 | 13 | 1,105 | ||||||||||||||||||
The Neiman Marcus Group, Inc. | 2 | 328 | 5 | 624 | 7 | 952 | ||||||||||||||||||
American Multi-Cinema, Inc. | 5 | 403 | 7 | 547 | 12 | 950 | ||||||||||||||||||
Others | 120 | 8,232 | 43 | 3,381 | 163 | 11,613 | ||||||||||||||||||
Grand Total | 521 | 63,026 | 236 | 33,272 | 757 | 96,298 | ||||||||||||||||||
Non-Retail Properties
See Item 1 “Narrative Description of Business” for information regarding our other properties (office, industrial and mixed-use buildings) and our Master Planned Communities segment.
| Item 3. | Legal Proceedings |
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 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of GGP’s stockholders during the fourth quarter of 2006.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
GGP’s common stock is listed on the New York Stock Exchange (“NYSE”) and is traded under the symbol “GGP.” As of February 23, 2007, 243,769,536 outstanding shares of our common stock were held by 2,825 stockholders of record. The closing price per share of our common stock on the NYSE on February 23, 2007, was $64.80 per share.
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The following table summarizes the quarterly high and low sales prices per share of our common stock as reported by the NYSE.
| Stock Price | ||||||||
Quarter Ended | High | Low | ||||||
2006 | ||||||||
| December 31 | $ | 56.14 | $ | 46.14 | ||||
| September 30 | 48.70 | 43.49 | ||||||
| June 30 | 49.06 | 41.92 | ||||||
| March 31 | 52.32 | 46.23 | ||||||
2005 | ||||||||
| December 31 | $ | 48.27 | $ | 39.60 | ||||
| September 30 | 47.48 | 40.82 | ||||||
| June 30 | 42.08 | 33.40 | ||||||
| March 31 | 37.75 | 31.38 | ||||||
2004 | ||||||||
| December 31 | $ | 36.90 | $ | 30.90 | ||||
| September 30 | 32.12 | 28.41 | ||||||
| June 30 | 35.30 | 24.31 | ||||||
| March 31 | 35.15 | 27.25 | ||||||
The following table summarizes quarterly distributions per share of our common stock.
| Record | Payment | |||||||
Declaration Date | Date | Date | Amount | |||||
2007 | ||||||||
| January 5 | January 17 | January 31 | $ | .45 | ||||
2006 | ||||||||
| October 6 | October 17 | October 31 | .45 | |||||
| July 5 | July 17 | July 31 | .41 | |||||
| April 4 | April 13 | April 28 | .41 | |||||
| January 6 | January 17 | January 31 | .41 | |||||
2005 | ||||||||
| October 6 | October 18 | October 31 | .41 | |||||
| July 5 | July 15 | July 29 | .36 | |||||
| April 4 | April 15 | April 29 | .36 | |||||
| January 7 | January 17 | January 31 | .36 | |||||
2004 | ||||||||
| August 20 | October 15 | October 29 | .36 | |||||
| July 2 | July 15 | July 30 | .30 | |||||
| April 5 | April 15 | April 30 | .30 | |||||
| January 5 | January 15 | January 30 | .30 | |||||
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The following table summarizes treasury share repurchases during the quarter ended December 31, 2006.
Issuer Purchases of Equity Securities
| Total Number | Approximate | |||||||||||||||
| of Shares | Dollar Value | |||||||||||||||
| Purchased | of Shares that | |||||||||||||||
| as Part of | May Yet be | |||||||||||||||
| Total | Average | Publicly | Purchased | |||||||||||||
| Number of | Price | Announced | Under the | |||||||||||||
| Shares | Paid | Plans or | Plans or | |||||||||||||
Period | Purchased | per Share | Programs | Programs | ||||||||||||
| November 9-13 | 346,300 | $ | 46.88 | 346,300 | $ | 600,000,000(1 | ) | |||||||||
| (1) | We have a common stock repurchase program which allows us to repurchase $200 million of our common stock per year through 2009, unless the program is earlier terminated. Stock repurchases under this program are made through open market or privately negotiated transactions. The repurchase program gives us the ability to acquire some or all of the shares of common stock to be issued upon the exercise of certain employee stock options and pursuant to the CSA. |
See Note 12 for information regarding redemptions of Common Units for common stock and information regarding shares of our common stock that may be issued under our equity compensation plans as of December 31, 2006.
| Item 6. | Selected Financial Data |
The following table sets forth selected financial data which is derived from, and should be read in conjunction with, the Consolidated Financial Statements and the related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report.
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||
Operating Data | ||||||||||||||||||||
| Revenues | $ | 3,256,283 | $ | 3,072,704 | $ | 1,799,881 | $ | 1,262,791 | $ | 973,440 | ||||||||||
| Depreciation and amortization | (690,194 | ) | (672,914 | ) | (364,854 | ) | (230,195 | ) | (179,036 | ) | ||||||||||
| Other operating expenses | (1,377,637 | ) | (1,340,806 | ) | (693,735 | ) | (484,196 | ) | (366,806 | ) | ||||||||||
| Interest expense, net | (1,105,852 | ) | (1,020,825 | ) | (468,958 | ) | (276,235 | ) | (215,340 | ) | ||||||||||
| Provision for income taxes | (98,984 | ) | (51,289 | ) | (2,383 | ) | (98 | ) | (119 | ) | ||||||||||
| Minority interest | (37,761 | ) | (43,989 | ) | (105,274 | ) | (110,984 | ) | (86,213 | ) | ||||||||||
| Equity in income of unconsolidated affiliates | 114,241 | 120,986 | 88,191 | 94,480 | 80,825 | |||||||||||||||
| Income from continuing operations | 60,096 | 63,867 | 252,868 | 255,563 | 206,751 | |||||||||||||||
| Income (loss) from discontinued operations, net | (823 | ) | 11,686 | 14,984 | 7,848 | 2,507 | ||||||||||||||
| Net income | 59,273 | 75,553 | 267,852 | 263,411 | 209,258 | |||||||||||||||
| Convertible preferred stock dividends | — | — | — | (13,030 | ) | (24,467 | ) | |||||||||||||
| Net income available to common stockholders | $ | 59,273 | $ | 75,553 | $ | 267,852 | $ | 250,381 | $ | 184,791 | ||||||||||
Basic earnings per share: | ||||||||||||||||||||
| Continuing operations | $ | 0.25 | $ | 0.27 | $ | 1.15 | $ | 1.21 | $ | 0.98 | ||||||||||
| Discontinued operations | — | 0.05 | 0.07 | 0.04 | 0.01 | |||||||||||||||
| $ | 0.25 | $ | 0.32 | $ | 1.22 | $ | 1.25 | $ | 0.99 | |||||||||||
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| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||
| Continuing operations | $ | 0.24 | $ | 0.27 | $ | 1.15 | $ | 1.19 | $ | 0.97 | ||||||||||
| Discontinued operations | — | 0.05 | 0.06 | 0.03 | 0.01 | |||||||||||||||
| $ | 0.24 | $ | 0.32 | $ | 1.21 | $ | 1.22 | $ | 0.98 | |||||||||||
Distributions declared per share | $ | 1.68 | $ | 1.49 | $ | 1.26 | $ | 0.78 | $ | 0.92 | ||||||||||
Balance Sheet Data | ||||||||||||||||||||
| Investment in real estate assets — cost | $ | 26,160,637 | $ | 25,404,891 | $ | 25,254,333 | $ | 10,307,961 | $ | 7,724,515 | ||||||||||
| Total assets | 25,241,445 | 25,307,019 | 25,718,625 | 9,582,897 | 7,280,822 | |||||||||||||||
| Total debt | 20,521,967 | 20,418,875 | 20,310,947 | 6,649,490 | 4,592,311 | |||||||||||||||
| Preferred minority interests | 182,828 | 205,944 | 403,161 | 495,211 | 468,201 | |||||||||||||||
| Common minority interests | 347,753 | 430,292 | 551,282 | 408,613 | 377,746 | |||||||||||||||
| Convertible preferred stock | — | — | — | — | 337,500 | |||||||||||||||
| Stockholders’ equity | 1,664,079 | 1,932,918 | 2,143,150 | 1,670,409 | 1,196,525 | |||||||||||||||
Cash Flow Data | ||||||||||||||||||||
| Operating activities | $ | 816,351 | $ | 841,978 | $ | 719,376 | $ | 585,735 | $ | 460,495 | ||||||||||
| Investing activities | (210,400 | ) | (154,197 | ) | (9,020,815 | ) | (1,753,426 | ) | (949,411 | ) | ||||||||||
| Financing activities | (611,603 | ) | (624,571 | ) | 8,330,343 | 1,124,728 | 381,801 | |||||||||||||
Funds From Operations(1) | ||||||||||||||||||||
| Operating Partnership | $ | 902,361 | $ | 891,696 | $ | 766,164 | $ | 618,561 | $ | 485,304 | ||||||||||
| Less: Allocation to Operating Partnership unitholders | (161,795 | ) | (165,205 | ) | (154,347 | ) | (138,568 | ) | (116,170 | ) | ||||||||||
| General Growth stockholders | $ | 740,566 | $ | 726,491 | $ | 611,817 | $ | 479,993 | $ | 369,134 | ||||||||||
| (1) | Funds From Operations (“FFO” as defined below) does not represent cash flow from operations as defined by Generally Accepted Accounting Principles (“GAAP”). |
Funds From Operations
Consistent with real estate industry and investment community practices, we use Funds From Operations (“FFO”) as a supplemental measure of our operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains or losses from cumulative effects of accounting changes, extraordinary items and sales of operating rental properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
We consider FFO a useful supplemental measure for equity REITs and a complement to GAAP measures because it facilitates an understanding of the operating performance of our properties. FFO does not include real estate depreciation and amortization required by GAAP since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO provides investors with a clearer view of our operating performance.
In order to provide a better understanding of the relationship between FFO and net income available to common stockholders, a reconciliation of FFO to net income available to common stockholders has been provided. FFO does
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not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to GAAP net income and is not necessarily indicative of cash available to fund all cash requirements.
Reconciliation of FFO to Net Income Available to Common Stockholders
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| FFO: | ||||||||||||||||||||
| General Growth stockholders | $ | 740,566 | $ | 726,491 | $ | 611,817 | $ | 479,993 | $ | 369,134 | ||||||||||
| Operating Partnership unitholders | 161,795 | 165,205 | 154,347 | 138,568 | 116,170 | |||||||||||||||
| Operating Partnership | 902,361 | 891,696 | 766,164 | 618,561 | 485,304 | |||||||||||||||
| Depreciation and amortization of capitalized real estate costs | (835,656 | ) | (799,337 | ) | (440,108 | ) | (299,711 | ) | (241,393 | ) | ||||||||||
| FFO of discontinued operations and other | 8,401 | (10,712 | ) | (6,235 | ) | (6,299 | ) | (4,263 | ) | |||||||||||
| Allocations to Operating Partnership unitholders | (15,010 | ) | (17,780 | ) | (66,953 | ) | (56,988 | ) | (32,897 | ) | ||||||||||
| Income from continuing operations | 60,096 | 63,867 | 252,868 | 255,563 | 206,751 | |||||||||||||||
| Income (loss) from discontinued operations, net of minority interest | (823 | ) | 11,686 | 14,984 | 7,848 | 2,507 | ||||||||||||||
| Net income | 59,273 | 75,553 | 267,852 | 263,411 | 209,258 | |||||||||||||||
| Convertible preferred stock dividends | — | — | — | (13,030 | ) | (24,467 | ) | |||||||||||||
| Net income available to common stockholders | $ | 59,273 | $ | 75,553 | $ | 267,852 | $ | 250,381 | $ | 184,791 | ||||||||||
| Item 7. | Management’s 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 Annual 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have the same meanings as in such Notes. See also the Glossary at the end of this Item 7 for definitions of selected terms used in this Annual Report.
Overview — Retail and Other Segment
Our primary business is acquiring, owning, managing, leasing and developing retail rental property, primarily shopping centers. The majority of our properties are located in the United States, but we also have retail operations and property management activities, through unconsolidated joint ventures, in Brazil and Turkey.
We provideon-site management and other services to substantially all of our properties, including properties which we own through joint venture arrangements and which are unconsolidated for GAAP purposes. Our management operating philosophies and strategies are generally the same whether the properties are consolidated or unconsolidated. As a result, we believe that financial information and operating statistics with respect to all properties, both consolidated and unconsolidated, provide important insights into our operating results. Collectively, we refer to our Consolidated and Unconsolidated Properties as our “Company Portfolio” and the retail portion of the Company Portfolio as the “Retail Company Portfolio.”
We seek to increase cash flow and real estate net operating income of our retail and office rental properties through proactive property management and leasing (including tenant remerchandising), operating cost reductions, physical expansions, redevelopments and capital reinvestment. Some of the actions that we take to increase productivity include changing the tenant mix, adding vendor carts or kiosks and full expansions or renovations of centers.
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We believe that the most significant operating factor affecting incremental cash flow and real estate net operating income is increased rents earned from tenants at our properties. These rental revenue increases are primarily achieved by:
| • | Renewing expiring leases and re-leasing existing space at rates higher than expiring or existing rates |
| • | Increasing occupancy at the properties so that more space is generating rent |
| • | Increased tenant sales in which we participate through overage rents |
The following table summarizes selected operating statistics. Unless noted, all information is as of December 31, 2006.
| Consolidated | Unconsolidated | Retail | ||||||||||
| Retail | Retail | Company | ||||||||||
| Properties | Properties | Portfolio | ||||||||||
Operating Statistics(a) | ||||||||||||
| Occupancy: | ||||||||||||
| December 31, 2006 | 93.4 | % | 94.2 | % | 93.6 | % | ||||||
| December 31, 2005 | 92.1 | 93.5 | 92.5 | |||||||||
| Trailing 12 month total tenant sales per sq. ft.(b) | $ | 443 | $ | 473 | $ | 453 | ||||||
| % change in total sales(b) | 5.6 | % | 4.5 | % | 5.2 | % | ||||||
| % change in comparable sales(b) | 2.5 | 2.6 | 2.5 | |||||||||
| Mall and freestanding GLA | ||||||||||||
| excluding space under redevelopment (in sq. ft.) | 42,818,331 | 19,038,590 | 61,856,921 | |||||||||
Certain Financial Information | ||||||||||||
| Average annualized in place rent per sq. ft. | $ | 34.29 | $ | 37.30 | ||||||||
| Average rent per sq. ft. for new/renewal leases | 34.99 | 39.76 | ||||||||||
| Average rent per sq. ft. for leases expiring in 2006 | 30.16 | 33.59 | ||||||||||
| (a) | Excludes properties currently being redevelopedand/or remerchandised and miscellaneous (non-mall) properties. | |
| (b) | Due to tenant sales reporting timelines, data presented is as of November. |
The expansion and renovation of a property may also result in increased cash flows and operating income as a result of increased customer traffic, trade area penetration and improved competitive position of the property. As of December 31, 2006, we had 17 major approved redevelopment projects underway (each with budgeted projected expenditures, at our ownership share, in excess of $10 million).
We also develop retail centers from theground-up. On October 4, 2006, we opened Pinnacle Hills Promenade in Rogers, Arkansas. This 980,000 square foot open-air center is anchored by Dillard’s, JCPenney and a12-screen theatre and includes retail, dining, entertainment, recreation and office space. Additionally, we opened Otay Ranch Town Center in Chula Vista (San Diego), California on October 27, 2006. This open-air center includes approximately 850,000 square feet of retail, dining and entertainment space. Anchors include AMC Theatres, Barnes & Noble, Macy’s and REI. Portions of Lincolnshire Commons in Lincolnshire (Chicago), Illinois opened throughout 2006 and Shopping Leblon in Rio de Janeiro, Brazil opened in November 2006. In September 2005, we opened the Shops at La Cantera in San Antonio, Texas. Nine additional domestic retail center development projects are currently under construction, and are expected to open in 2007 and 2008:
Consolidated Properties:
| • | Gateway Overlook in Columbia, Maryland |
| • | Parke West in Peoria, Arizona |
| • | The Shops at Fallen Timbers, Maumee (Toledo), Ohio |
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| • | Vista Commons in Las Vegas, Nevada |
Unconsolidated Properties:
| • | Bangu Shopping in Rio de Janeiro, Brazil |
| • | Espark in Eskisehir, Turkey |
| • | Natick West in Natick, Massachusetts |
| • | RiverCrossing in Macon, Georgia |
| • | Santana Parque Shopping in Santana (Sao Paulo), Brazil |
Total projected expenditures (including our share of the Unconsolidated Real Estate Affiliates) for these redevelopment and development projects were approximately $1.4 billion as of December 31, 2006.
We also have eight other potential new retail or mixed-use developments, including Phase II of the Shops at La Cantera which was opened in September 2005, that are currently projected to open in 2008 through 2010. In addition, we have agreed to acquire the new retail development at The Palazzo in Las Vegas, Nevada, upon opening. This is currently expected in early 2008, at an estimated acquisition cost of approximately $600 million.
Prior to 2005, acquisitions were also a significant factor affecting our cash flows and real estate net operating income. Acquisitions have included single centers, privately held portfolios andpublic-to-public purchases such as the $14 billion TRC Merger in November 2004. Acquisitions in 2006 and 2005, however, were not as significant and consisted primarily of additional interests in existing joint ventures and investments in new joint ventures.
Overview — Master Planned Communities Segment
Our Master Planned Communities business is the development and sale of residential and commercial land, primarily in large-scale projects in and around Columbia, Maryland; Houston, Texas; and Summerlin, Nevada. Residential sales include standard, custom and high density (i.e. condominium, town homes and apartments) parcels. Standard residential lots are designated for detached and attached single- and multi-family homes, ranging from entry-level to luxury homes. At our Summerlin project, we have further designated certain residential parcels as custom lots as their premium price reflects their larger size and other distinguishing features including gated communities, golf course access and higher elevations. Commercial sales include parcels designated for retail, office, services and other for-profit activities, as well as those parcels designated for use by government, schools and othernot-for-profit entities.
Revenues are derived primarily from the sale of finished lots, including infrastructure and amenities, and undeveloped property to both residential and commercial developers. Additional revenues are earned through participations with builders in their sales of finished homes to homebuyers. Revenues and net operating income are affected by such factors as the availability to purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidences, regional economic conditions in the areas surrounding the projects, levels of homebuilder inventory, other factors affecting the homebuilder business, availability of saleable land for particular uses and our decisions to sell, develop or retain land.
Our primary strategy in this segment is to develop and sell land in a manner that increases the value of the remaining land to be developed and sold and to provide current cash flows. Our Master Planned Communities projects are owned by taxable REIT subsidiaries and, as a result, are subject to income taxes. Cash requirements to meet federal income tax requirements will increase in future years as we exhaust certain net loss carry forwards and as certain master planned community developments are completed for tax purposes and, as a result, previously deferred taxes must be paid. Such cash requirements could be significant. Additionally, revenues from the sale of land at Summerlin are subject to the Contingent Stock Agreement as more fully described in Note 14.
As the new housing market softened throughout 2006, demand at our Summerlin, Columbia and Fairwood projects declined and a number of anticipated sales were cancelled by the builders. Unlike other markets in which builders have a significantly higher supply of unsold homes, demand at Woodlands and Bridgeland, which began sales in the first quarter of 2006, did not decline in 2006. We currently expect these trends to continue through 2007.
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Overview — Other
We believe changes in interest rates are the most significant external factor affecting our cash flows and net income. As detailed in our discussion of economic conditions and market risk (Item 7A), interest rates have risen during 2006 and could continue to rise in future periods. These increases have had, and may continue to have, an adverse impact on our cash flow and net income.
During 2006, we obtained approximately $9.4 billion of consolidated debt through new financings and refinancings. Our share of debt issued by our Unconsolidated Real Estate Affiliates totaled approximately $1.3 million during the same period. Proceeds from the issuances were used, in part, to repay $3.0 billion of variable-rate debt.
Seasonality
Although we have a year-long temporary leasing program, occupancies for short-term tenants and, therefore, rental income recognized, are higher during the second half of the year. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual overage rent amounts. Accordingly, overage rent thresholds and the related revenue recognition are most commonly achieved in the fourth quarter.
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 period. For example, significant 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, deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions, and cost ratios and completion percentages used for land sales. Actual results could differ from those estimates.
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 are those applicable to the following:
Initial valuations and estimated useful lives or amortization periods for property and intangibles. When we acquire a property, we make an initial assessment of the initial valuation and composition of the assets acquired and liabilities assumed. These assessments consider fair values of the respective assets and liabilities and are primarily determined based on estimated future cash flows using appropriate discount and capitalization rates, but may also be based on independent appraisals or other market data. The estimated future cash flows that are used for this analysis reflect the historical operations of the property, known trends and changes expected in current market and economic conditions which would impact the property’s operations, and our plans for such property. These estimates are particularly important as they are used for the allocation of purchase price between depreciable and non-depreciable real estate and other identifiable intangibles including above, below and at-market leases. Significant differences in annual depreciation or amortization expense may result from the differing amortization periods related to such purchased assets and liabilities. As a result, the impact of these estimates on our operations could be substantial.
Events or changes in circumstances concerning a property may occur which could indicate that the carrying values or amortization periods of the assets and liabilities may require adjustment. The resulting recovery analysis also depends on an analysis of future cash flows to be generated from a property’s assets and liabilities. Changes in our overall plans (for example, the extent and nature of a proposed redevelopment of a property) and our views on current market and economic conditions may have a significant impact on the resulting estimated future cash flows of a property that are analyzed for these purposes.
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Recoverable amounts of receivables and deferred taxes. We make periodic assessments of the collectibility of receivables (including those resulting from the difference between rental revenue recognized and rents currently due from tenants) and the recoverability of deferred taxes based on a specific review of the risk of loss on specific accounts or amounts. The receivable analysis places particular emphasis on past-due accounts and considers the nature and age of the receivables, the payment history and financial condition of the payee, the basis for any disputes or negotiations with the payee and other information which may impact collectibility. For straight-line rents, the analysis considers the probability of collection of the unbilled deferred rent receivable given our experience regarding such amounts. For deferred taxes, an assessment of the recoverability of the tax asset considers the current expiration periods of the prior net operating loss carryforwards and the estimated future taxable income of our taxable REIT subsidiaries. The resulting estimates of any allowance or reserve related to the recovery of these items is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on such payees and our taxable REIT subsidiaries.
Capitalization of development and leasing costs. We capitalize the costs of development and leasing activities of our properties. These costs are incurred both at the property location and at the regional and corporate office levels. The amount of capitalization depends, in part, on the identification and justifiable allocation of certain activities to specific projects and leases. Differences in methodologies of cost identification and documentation, as well as differing assumptions as to the time incurred on projects, can yield significant differences in the amounts capitalized and, as a result, the amount of depreciation recognized.
Revenue recognition and related matters. Minimum rent revenues are recognized on a straight-lined 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. Straight-line rents receivable represents the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases. Overage rents are recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds. Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.
Revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and our subsequent involvement with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances. For land sale transactions in which we are required to perform additional services and incur significant costs after title has passed, revenues and cost of sales are recognized on a percentage of completion basis.
Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each master planned community project. The cost ratios used are based on actual costs incurred and estimates of development costs and sales revenues for completion of each project. The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The increase in the basis of the land due to purchase price accounting adjustments has resulted in a significant increase in the cost ratios of our projects. The specific identification method is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for which development is complete at the date of acquisition.
Results of Operations
Our revenues are primarily received from tenants in the form of fixed minimum rents, overage rents and recoveries of operating expenses. We 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. In addition, other revenues are increased by the real estate net operating income of discontinued
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operations and are reduced by our consolidated minority interest venturers’ share of real estate net operating income. See Note 16 for additional information including reconciliations of our segment basis results to GAAP basis results.
Retail and Other Segment
2006 compared to 2005The following table compares major revenue and expense items for the years ended December 31, 2006 and 2005:
| $ Increase | % Increase | |||||||||||||||
| 2006 | 2005 | (Decrease) | (Decrease) | |||||||||||||
| (In thousands) | ||||||||||||||||
Property revenues: | ||||||||||||||||
| Minimum rents | $ | 2,181,845 | $ | 2,064,127 | $ | 117,718 | 5.7 | % | ||||||||
| Tenant recoveries | 960,816 | 936,029 | 24,787 | 2.6 | ||||||||||||
| Overage rents | 91,911 | 83,713 | 8,198 | 9.8 | ||||||||||||
| Other | 188,331 | 172,477 | 15,854 | 9.2 | ||||||||||||
| Total property revenues | 3,422,903 | 3,256,346 | 166,557 | 5.1 | ||||||||||||
Property operating expenses: | ||||||||||||||||
| Real estate taxes | 277,381 | 261,331 | 16,050 | 6.1 | ||||||||||||
| Repairs and maintenance | 242,846 | 238,703 | 4,143 | 1.7 | ||||||||||||
| Marketing | 61,810 | 78,227 | (16,417 | ) | (21.0 | ) | ||||||||||
| Other property operating costs | 527,030 | 510,432 | 16,598 | 3.3 | ||||||||||||
| Provision for doubtful accounts | 22,871 | 18,725 | 4,146 | 22.1 | ||||||||||||
| Total property operating expenses | 1,131,938 | 1,107,418 | 24,520 | 2.2 | ||||||||||||
Real estate property net operating income | $ | 2,290,965 | $ | 2,148,928 | $ | 142,037 | 6.6 | % | ||||||||
The increase in minimum rents is primarily attributable to the following:
| • | Higher minimum rents, especially at The Shops at La Cantera which opened in September 2005, and Ala Moana Center which was recently redeveloped |
| • | The acquisition of Whaler’s Village by one of our joint ventures, the acquisition of our partner’s share of GGP Ivanhoe IV, Inc. and the acquisition of Shopping Campina Grande as well as other properties in our Brazil joint venture |
| • | Higher specialty leasing and kiosk rents, especially at properties acquired in the 2004 TRC Merger, as well as higher termination income |
| • | Greater use of vacant space for temporary tenant rentals |
Tenant recoveries increased primarily as a result of higher operating costs, as discussed below, that are substantially recoverable from our tenants.
Historically, our leases have included 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 these leases attributable to real estate tax and operating expense recoveries are recorded as “Tenant recoveries.” Recently, however, we structured our new tenant leases such that a higher proportion of our rental revenues represent operating expense recoveries. This change has resulted in a shift between minimum rents and tenant recoveries.
The increase in overage rents is primarily attributed to The Grand Canal Shoppes and Fashion Show as the result of increased sales and occupancy compared to 2005.
Other revenues include all other property revenues including vending, parking, sponsorship and advertising revenues in addition to real estate property net operating income (“NOI”) of discontinued operations less NOI of
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minority interests in consolidated joint ventures. Increases in vending, parking, sponsorship and advertising revenues in 2006 were partially offset by higher minority interest allocations, especially at The Shops at La Cantera, which opened in September 2005. Nonrecurring activity included a gain on sale of an unconsolidated office property in 2006, a non-recurring reduction to income by an Unconsolidated Property in 2005, and NOI of discontinued operations in 2005.
Higher real estate taxes are primarily attributed to The Shops at La Cantera and Jordan Creek Town Center with substantially all of the remaining properties in the portfolio reporting individual minor increases.
The increase in repairs and maintenance is primarily attributed to Ala Moana Center, The Shops at La Cantera, Providence Place, the acquisition of Whaler’s Village and the acquisition of the remaining interest in GGP Ivanhoe IV, Inc.
Marketing expenses decreased at substantially all of our properties due to significant cost control initiatives.
Property operating expenses increased due to higher electric expense, security expense and insurance costs across the portfolio. Property operating expenses in 2005 include a non-recurring reduction to expenses by an Unconsolidated Property, which was acquired during the TRC Merger. Such increases were offset by decreases at Oakwood Center which is operating at substantially reduced capacity due to hurricane-related damage incurred in September 2005.
The increase in the provision for doubtful accounts is primarily due to Oakwood Center and Riverwalk Marketplace, which were damaged as discussed in Note 14. Although we may not collect all of these amounts from our tenants, we do believe that the remaining amounts will be recovered under our business interruption insurance coverage. Under GAAP, however, not all amounts which we expect to collect for business interruption coverage are currently recognizable. The increases were partially offset by non-recurring provisions in 2005 including an individual tenant bankruptcy.
2005 compared to 2004Acquisitions were the main reason for the increases in property revenues and expenses as detailed below:
| 2005 | 2004 | $ Increase | % Increase | |||||||||||||
| (In thousands) | ||||||||||||||||
Property revenues: | ||||||||||||||||
| Minimum rents | $ | 2,064,127 | $ | 1,351,907 | $ | 712,220 | 52.7 | % | ||||||||
| Tenant recoveries | 936,029 | 607,811 | 328,218 | 54.0 | ||||||||||||
| Overage rents | 83,713 | 65,065 | 18,648 | 28.7 | ||||||||||||
| Other | 172,477 | 86,380 | 86,097 | 99.7 | ||||||||||||
| Total property revenues | 3,256,346 | 2,111,163 | 1,145,183 | 54.2 | ||||||||||||
Property operating expenses: | ||||||||||||||||
| Real estate taxes | 261,331 | 167,660 | 93,671 | 55.9 | ||||||||||||
| Repairs and maintenance | 238,703 | 156,401 | 82,302 | 52.6 | ||||||||||||
| Marketing | 78,227 | 61,571 | 16,656 | 27.1 | ||||||||||||
| Other property operating costs | 510,432 | 282,498 | 227,934 | 80.7 | ||||||||||||
| Provision for doubtful accounts | 18,725 | 13,141 | 5,584 | 42.5 | ||||||||||||
| Total property operating expenses | 1,107,418 | 681,271 | 426,147 | 62.6 | ||||||||||||
Real estate property net operating income | $ | 2,148,928 | $ | 1,429,892 | $ | 719,036 | 50.3 | % | ||||||||
Minimum rents increased $670 million as a result of acquisitions and $42 million largely as a result of Jordan Creek Town Center which opened in August 2004 and Ala Moana Center which was recently redeveloped.
Tenant recoveries and overage rents increased primarily as a result of acquisitions.
Substantially all of the increases in real estate taxes, repairs and maintenance, marketing, other property operating costs and provision for doubtful accounts were attributable to acquisitions.
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Master Planned Communities Segment
| 2006 | 2005 | $ Increase | % Increase | |||||||||||||
| (In thousands) | ||||||||||||||||
| Land sales | $ | 508,744 | $ | 468,294 | $ | 40,450 | 8.6 | % | ||||||||
| Land sales operations | (378,757 | ) | (372,641 | ) | 6,116 | 1.6 | ||||||||||
| Real estate property net operating income | $ | 129,987 | $ | 95,653 | $ | 34,334 | 35.9 | % | ||||||||
The increase in land sales is substantially due to a single $123 million sale to a home builder at our Summerlin project in December 2006. The increase was offset by lower demand at our Columbia and Fairwood projects. See the table below for additional detail regarding the acres sold and the price per acre sold.
Both real estate property net operating income and real estate property net operating income as a percent of land sales increased over 2005. These increases are primarily due to an increase in the builder participation at our Summerlin development and to an increase in the margin between the cost and the sales prices for developed lots. Lots developed and sold since the TRC Merger have higher profit margins than lots which were finished at the time of the TRC Merger because all lots weremarked-to-market at the time of the TRC Merger.
As the new housing market softened throughout 2006, demand at our Summerlin, Columbia and Fairwood projects declined and a number of anticipated sales were cancelled by the builders. Unlike other markets in which builders have a significantly higher supply of unsold homes, demand at Woodlands and Bridgeland, which began sales in the first quarter of 2006, did not decline in 2006. We currently expect these trends to continue through 2007.
| Lot Sales and Pricing | Acreage | |||||||||||||||
| Remaining | ||||||||||||||||
| Total Gross | Saleable | |||||||||||||||
| 2006 | 2005 | Acres | Acres | |||||||||||||
| ($ in thousands) | ||||||||||||||||
Columbia: | ||||||||||||||||
| Residential: | ||||||||||||||||
| Acres sold | 12.6 | 28.6 | 80 | |||||||||||||
| Average price/acre | $ | 1,425 | $ | 1,194 | ||||||||||||
| Commercial: | ||||||||||||||||
| Acres sold | 51.7 | 50.3 | 337 | |||||||||||||
| Average price/acre | $ | 701 | $ | 438 | ||||||||||||
| Acreage | 18,000 | 417 | ||||||||||||||
Fairwood: | ||||||||||||||||
| Residential: | ||||||||||||||||
| Acres sold | 33.9 | 58.3 | 148 | |||||||||||||
| Average price/acre | $ | 796 | $ | 656 | ||||||||||||
| Commercial: | ||||||||||||||||
| Acres sold | 3.5 | — | 15 | |||||||||||||
| Average price/acre | $ | 389 | $ | — | ||||||||||||
| Acreage | 1,100 | 163 | ||||||||||||||
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| Lot Sales and Pricing | Acreage | |||||||||||||||
| Remaining | ||||||||||||||||
| Total Gross | Saleable | |||||||||||||||
| 2006 | 2005 | Acres | Acres | |||||||||||||
| ($ in thousands) | ||||||||||||||||
Summerlin(1): | ||||||||||||||||
| Residential: | ||||||||||||||||
| Acres sold | 251.2 | 269.7 | 5,527 | |||||||||||||
| Average price/acre | $ | 1,067 | $ | 860 | ||||||||||||
| Commercial: | ||||||||||||||||
| Acres sold | 22.5 | 10.0 | 888 | |||||||||||||
| Average price/acre | $ | 251 | (2) | $ | 511 | |||||||||||
| Acreage | 22,500 | 6,415 | ||||||||||||||
Bridgeland: | ||||||||||||||||
| Residential: | ||||||||||||||||
| Acres sold | 64.3 | — | 5,308 | |||||||||||||
| Average price/acre | $ | 222 | $ | — | ||||||||||||
| Commercial: | ||||||||||||||||
| Acres sold | — | — | 1,211 | |||||||||||||
| Average price/acre | $ | — | $ | — | ||||||||||||
| Acreage | 10,200 | 6,519 | ||||||||||||||
Woodlands(3): | ||||||||||||||||
| Residential: | ||||||||||||||||
| Acres sold | 288.1 | 337.3 | 1,814 | |||||||||||||
| Average price/acre | $ | 374 | $ | 312 | ||||||||||||
| Commercial: | ||||||||||||||||
| Acres sold | 96.0 | 109.9 | 1,188 | |||||||||||||
| Average price/acre | $ | 397 | $ | 372 | ||||||||||||
| Acreage | 28,400 | 3,002 | ||||||||||||||
| (1) | Summerlin — Does not reflect impact of CSA (Note 14). Average price per acre includes assumption of Special Improvement District financing. | |
| (2) | Summerlin — Includes the effect of a single sale of a 19.1 acre parcel to a school at a price of $25 thousand per acre. | |
| (3) | Woodlands — Shown at 100%. Our share of The Woodlands is 52.5%. |
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Average Price per Acre is the aggregate contract price paid for all parcels sold, divided by the relevant number of acres sold and is based on sales closed. This average price can fluctuate widely, depending on location of the parcels within a community and the unit price and density of what is sold. The average price per acre does not include payments received under builders’ price participation agreements, where we may receive additional proceeds post-sale and record those revenues at that later date, based on the final selling price of the home. In some cases, these payments have been significant with respect to the initial lot price. In addition, there will be other timing differences between lot sales and reported revenue due to timing of revenue recognition under generally accepted accounting principles. The above pricing data also does not reflect the impact of income taxes and the CSA (Note 14), which can have a material impact on results.
Residential Acreage includes standard, custom and high density residential land parcels. Standard residential lots are designated for detached and attached single- and multi-family homes, of a broad range, from entry-level to luxury homes. At Summerlin, we have designated certain residential parcels as custom lots as their premium price reflects their larger size and other distinguishing features, such as being within a gated community, having golf course access or being located at higher elevations. High density residential includes townhomes, apartments and condos.
Commercial Acreage is designated for retail, office, services and other for-profit activities, as well as those parcels allocated for use by government, schools, houses of worship and othernot-for-profit entities.
Gross Acres encompasses all of the land located within the borders of the Master Planned Community, including parcels already sold, saleable parcels and non-saleable areas, such as roads, parks and recreation and conservation areas.
Remaining Saleable Acres includes only parcels that are intended for sale. The mix of intended use, as well as amount of remaining saleable acres, is likely to change over time as the master plan for a particular project is developed over time.
2005 compared to 2004
Acquisitions were the reason for the increases in the table below as the properties included in this segment were acquired in the TRC Merger in November 2004.
| 2005 | 2004 | $ Increase | �� | % Increase | ||||||||||||
| (In thousands) | ||||||||||||||||
| Land sales | $ | 468,294 | $ | 105,813 | $ | 362,481 | 342.6 | % | ||||||||
| Land sales operations | (372,641 | ) | (103,325 | ) | 269,316 | 260.6 | ||||||||||
| Real estate property net operating income | $ | 95,653 | $ | 2,488 | $ | 93,165 | 3,744.6 | % | ||||||||
Certain Significant Consolidated Revenues and Expenses
| $ Increase | % Increase | |||||||||||||||
| 2006 | 2005 | (Decrease) | (Decrease) | |||||||||||||
| (In thousands) | ||||||||||||||||
| Tenant rents | $ | 2,602,487 | $ | 2,494,851 | $ | 107,636 | 4.3 | % | ||||||||
| Land sales | 423,183 | 385,205 | 37,978 | 9.9 | ||||||||||||
| Property operating expenses | 861,351 | 868,926 | (7,575 | ) | (0.9 | ) | ||||||||||
| Land sales operations | 316,453 | 311,815 | 4,638 | 1.5 | ||||||||||||
| Management and other fees | 115,798 | 91,022 | 24,776 | 27.2 | ||||||||||||
| Property management and other costs | 184,705 | 147,012 | 37,693 | 25.6 | ||||||||||||
| Depreciation and amortization | 690,194 | 672,914 | 17,280 | 2.6 | ||||||||||||
| Interest expense | 1,117,437 | 1,031,241 | 86,196 | 8.4 | ||||||||||||
| Provision for income taxes | 98,984 | 51,289 | 47,695 | 93.0 | ||||||||||||
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Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and overage rents), land sales, property operating expenses and land sales operations were attributable to the same items discussed above in our segment basis results except for items related to our Unconsolidated Properties.
Management and other fees increased as a result of higher development fees earned as a result of the increased level of expansion and redevelopment activity in 2006. The increase was also attributed to higher management fees earned from our joint venture partners due to acquisitions and openings of ground up developments.
Property management and other costs increased primarily as a result of higher personnel and personnel-related costs in 2006. These increases were primarily attributable to revised allocations between our operating properties and management cost centers.
The increase in depreciation and amortization is primarily due to an increase in depreciation and amortization as a result of redevelopments, the opening of The Shops at La Cantera in September 2005, acquisition of the remaining interest in GGP Ivanhoe IV, Inc. and a change in depreciable life at one of our properties (Note 2).
The net increase in interest expense is primarily attributable to the following:
| • | Increase in interest rates both on new fixed-rate financings and variable-rate debt as a result of increases in the LIBOR rate |
| • | Lower amortization of purchase accountingmark-to-market adjustments (which reduce interest expense). This amortization is reduced as debt is repaid and refinanced |
| • | Increased amortization of deferred finance costs as a result of finance costs incurred in conjunction with the 2006 Credit Facility |
These increases were partially offset by lower interest expense on our corporate and other unsecured term loans as a result of refinancing activity in February and August 2006 and increased capitalized interest (which reduces interest expense). See Liquidity and Capital Resources for information regarding 2006 financing activity and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” for additional information regarding the potential impact of future interest rate increases.
The increase in the provision for income taxes is attributable to higher pre-tax book income subject to taxes at our TRS entities, especially at the properties included in our Master Planned Communities segment. The increase in the provision for income taxes is more significant than the increase in net operating income generated by this segment as certain expenses, including participation expense, are not deductible for tax purposes and the tax basis of properties sold is, generally, significantly lower than the cost of properties sold for financial reporting purposes.
During the first quarter of 2007, we expect to complete an internal restructuring of certain of our operating properties that are currently owned by TRS entities. We currently estimate that the restructuring will reduce our deferred tax liability by approximately $300 million.
| 2005 | 2004 | $ Increase | % Increase | |||||||||||||
| (In thousands) | ||||||||||||||||
| Tenant rents | $ | 2,494,851 | $ | 1,585,087 | $ | 909,764 | 57.4 | % | ||||||||
| Land sales | 385,205 | 68,643 | 316,562 | 461.2 | ||||||||||||
| Property operating expenses | 868,926 | 517,869 | 351,057 | 67.8 | ||||||||||||
| Land sales operations | 311,815 | 66,100 | 245,715 | 371.7 | ||||||||||||
| Management and other fees | 91,022 | 82,896 | 8,126 | 9.8 | ||||||||||||
| Property management and other costs | 147,012 | 100,267 | 46,745 | 46.6 | ||||||||||||
| Depreciation and amortization | 672,914 | 364,854 | 308,060 | 84.4 | ||||||||||||
| Interest expense | 1,031,241 | 472,185 | 559,056 | 118.4 | ||||||||||||
| Provision for income taxes | 51,289 | 2,383 | 48,906 | 2,052.3 | ||||||||||||
Substantially all of the increases in tenant rents (which includes minimum rents, tenant recoveries and overage rents), land sales, property operating expenses and land sales operations was attributable to acquisitions.
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The increase in management and other fees for 2005, as a result of acquisitions, was offset by the loss of fees resulting from our acquisition of the remaining 50% interest in Town East Mall in March 2004. As Town East Mall is now wholly-owned and consolidated in our results of operations, we no longer receive management or other fees from this property.
Property management and other costs and depreciation and amortization increased in 2005 as compared to 2004 primarily as a result of acquisitions. Because acquisitions are initially recorded at fair value, the depreciable basis and the corresponding depreciation expense for recent acquisitions are generally higher than for properties that we have owned for a longer period of time.
Interest expense increased $496.5 million in 2005 as compared to 2004 as a result of increased debt associated with acquisitions and $62.6 million as a result of higher debt levels primarily as a result of redevelopments, working capital requirements and higher average interest rates during the current year. These increases were partially offset by lower debt extinguishment costs in 2005 as a result of deferred finance cost write-offs in 2004 resulting from TRC Merger funding. The weighted average interest rate on our outstanding debt was 5.64% at December 31, 2005 compared to approximately 5.16% at December 31, 2004. Amortization of purchase accounting adjustments, which increased the fair value of our debt acquired in the TRC Merger, decreased interest expense by approximately $51 million in 2005 and $1 million in 2004.
The increase in the provision for income taxes for 2005 primarily relates to operations acquired in the TRC Merger, including the Master Planned Communities segment, which are conducted by various TRS entities.
Liquidity and Capital Resources
Our primary uses and sources of our consolidated cash are as follows:
Uses | Sources | |
Short-term: | ||
• Tenant construction allowances • Minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants • Dividend payments • Debt repayment requirements, including both principal and interest • Stock repurchases • Corporate and administrative expenses | • Operating cash flow, including the distributions of our share of cash flow produced by our Unconsolidated Real Estate Affiliates • Land sales from the Master Planned Communities segment • Borrowings under revolving credit facilities | |
Longer-term: | ||
| • Acquisitions, including Anchor stores available as a result of consolidations• New development, including the Master Planned Communities segment • Major redevelopment, renovation or expansion programs at individual properties • Debt repayment requirements, including both principal and interest • Income tax payments • International expansion | • Secured loans collateralized by individual properties • Unsecured loans at either a venture or company level • Construction loans • Mini-permanent loans • Long-term project financing • Joint venture financing with institutional partners • Equity securities • Asset sales |
The sources and uses of cash have generally been the same over the past several years. The decrease in the amount of funds necessary for acquisitions in 2006 and 2005 has been partially offset by the increase in the amount of funds necessary for developments and redevelopments.
Cash Flows from Operating Activities
Net cash provided by operating activities was $816.4 million in 2006, $842.0 million in 2005 and $719.4 million in 2004.
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Land development and acquisitions expenditures, which are related to our Master Planned Communities segment, were $184.3 million in 2006, $140.8 million in 2005 and $27.6 million in 2004. These expenditures will vary from year to year based on the pace of development and expected sales. As discussed above, demand at our Summerlin, Columbia and Fairwood projects declined in 2006 and we expect this trend to continue into 2007. As a result, land development and acquisitions expenditures are also expected to decline in 2007. Expenditures for 2004 reflect only the six week period subsequent to the November 2004 TRC Merger.
Net cash used for working capital needs totaled $72.1 million in 2006, $71.4 million in 2005 and $47.1 million in 2004.
These items were partially offset by higher net income after adjustments to reconcile to net cash provided by operating activities. The increase in 2006 compared to 2005 is primarily attributable to higher real estate net operating income in both our Retail and Other and Master Planned Communities segments, partially offset by higher interest expense and current provision for income taxes. The increase in 2005 compared to 2004 is primarily attributable to acquisitions.
Cash Flows from Investing Activities
Net cash used in investing activities was $210.4 million in 2006, $154.2 million in 2005 and $9.0 billion in 2004.
Net investing cash provided by (used in) our unconsolidated affiliates was $409.9 million in 2006, $191.5 million in 2005 and ($86.0) million in 2004. The changes are primarily attributable to distributions resulting from financing activities by our unconsolidated affiliates.
Cash used for acquisition/development of real estate and property additions/improvements was $699.4 million in 2006, $498.0 million in 2005 and $9.0 billion in 2004. Unlike 2004 which included significant acquisitions, including the TRC Merger, expenditures in 2006 and 2005 were primarily related to development and redevelopment activity. As of December 31, 2006, we had 17 major approved redevelopment projects underway (each with budgeted projected expenditures, at our ownership share, in excess of $10 million) and nine new retail center development projects under construction. Total projected expenditures (including our share of the Unconsolidated Real Estate Affiliates) for these projects were approximately $1.4 billion as of December 31, 2006. We also have eight potential new retail or mixed-use developments.
Cash Flows from Financing Activities
Net cash (used in) provided by financing activities was ($611.6) million in 2006, ($624.6) million in 2005 and $8.3 billion in 2004.
Distributions to common stockholders, holders of Common Units and holders of perpetual and convertible preferred units totaled $510.4 million in 2006, $461.9 million in 2005 and $382.4 million in 2004. Dividends paid per common share were $1.68 in 2006, $1.49 in 2005 and $1.26 in 2004.
On November 17, 2004, we sold 15.9 million shares of our common stock for $512.7 million pursuant to a warrant offering.
On August 3, 2005, we announced that our Board of Directors authorized, effective immediately, a $200 million per fiscal year common stock repurchase program. Stock repurchases under this program may be made through open market or privately negotiated transactions through 2009, unless the program is earlier terminated. The repurchase program gives us the ability to acquire some or all of the shares of common stock to be issued upon the exercise of certain employee stock options and pursuant to the CSA. We repurchased 1.9 million shares for $85.9 million under this program in 2006 and 2.2 million shares for $98.9 million in 2005.
We redeemed perpetual preferred units totaling $183.0 million in 2005 and $107.9 million in 2004.
Principal payments on our debt exceeded new financings by $17.2 million in 2006 whereas new financings exceeded principal payments by $115.3 million in 2005 and $8.3 billion in 2004. The net financing activity in 2004 reflects funding for the TRC Merger.
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Our consolidated debt and our pro rata share of the debt of our Unconsolidated Real Estate Affiliates, after giving effect to interest rate swap agreements, were as follows:
| December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In millions) | ||||||||||||
Consolidated: | ||||||||||||
| Fixed-rate debt | $ | 17,838 | $ | 14,789 | $ | 11,860 | ||||||
| Variable-rate debt: | ||||||||||||
| Corporate and other unsecured | 2,491 | 4,875 | 6,200 | |||||||||
| Other variable-rate debt | 193 | 755 | 2,251 | |||||||||
| Total variable-rate debt | 2,684 | 5,630 | 8,451 | |||||||||
| Total consolidated | $ | 20,522 | $ | 20,419 | $ | 20,311 | ||||||
| Weighted-average interest rate (excluding deferred finance costs) | 5.70 | % | 5.64 | % | 5.16 | % | ||||||
Unconsolidated: | ||||||||||||
| Fixed-rate debt | $ | 3,588 | $ | 2,788 | $ | 2,112 | ||||||
| Variable-rate debt | 296 | 455 | 723 | |||||||||
| Total Unconsolidated Real Estate Affiliates | $ | 3,884 | $ | 3,243 | $ | 2,835 | ||||||
| Weighted-average interest rate (excluding deferred finance costs) | 5.66 | % | 5.56 | % | 5.16 | % | ||||||
On February 24, 2006, we amended the 2004 Credit Facility, which was entered into to fund the TRC Merger, and entered into a Second Amended and Restated Credit Agreement (the “2006 Credit Facility”). The 2006 Credit Facility provides for a $2.85 billion term loan (the “Term Loan”) and a $650 million revolving credit facility. As of December 31, 2006, $590 million is available to be drawn on the revolving credit facility.
The 2006 Credit Facility has a four year term, with a one year extension option. The interest rate ranges from LIBOR plus 1.15% to LIBOR plus 1.5%, depending on our leverage ratio and assuming we maintain our election to have these loans designated as Eurodollar loans. The interest rate, as of December 31, 2006, was LIBOR plus 1.25%. Quarterly principal payments on the Term Loan of $12.5 million begin March 31, 2007, with the balance due at maturity.
Under the terms of the 2006 Credit Facility, we are subject to customary affirmative and negative covenants. If a default occurs, the lenders will have the option of declaring all outstanding amounts immediately due and payable. Events of default include a failure to maintain our REIT status under the Internal Revenue Code, a failure to remain listed on the New York Stock Exchange and such customary events as nonpayment of principal, interest, fees or other amounts, breach of representations and warranties, breach of covenant, cross-default to other indebtedness and certain bankruptcy events.
Concurrently with the 2006 Credit Facility transaction, we also entered into a $1.4 billion term loan (the “Short Term Loan”) and TRCLP entered into a $500 million term loan (the “Bridge Loan”). The Short Term Loan was repaid in August 2006 as part of various refinancing transactions including the GGP MPTC. The Bridge Loan was fully repaid in May 2006 with a portion of the proceeds obtained from the sale of $800 million of senior unsecured notes which were issued by TRCLP. These notes provide for semi-annual, interest-only payments at a rate of 6.75% and payment of the principal in full on May 1, 2013.
Also concurrently with the 2006 Credit Facility transaction, GGP Capital Trust I, a Delaware statutory trust (the “Trust”) and a wholly-owned subsidiary of GGPLP, completed a private placement of $200 million of trust preferred securities (“TRUPS”). The Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036. The TRUPS require distributions 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%.
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Although agreements to refinance debt maturing in 2007 have not yet been reached, we currently anticipate that all of our debt will be repaid or refinanced on a timely basis. We believe that we have sufficient sources of funds to meet our cash needs and that covenants in the 2006 Credit Facility will not materially impact our liquidity or our ability to operate our business. However, there can be no assurance that we can obtain such financing on satisfactory terms. We will continue to monitor our capital structure, investigate potential investments or joint venture partnership arrangements and purchase additional properties if they can be acquired and financed on terms that we reasonably believe will enhance long-term stockholder value.
Certain properties are subject to financial performance covenants, primarily debt service coverage ratios. We believe we are in compliance with all such covenants as of December 31, 2006.
We have not generally guaranteed the debt of the Unconsolidated Real Estate Affiliates, however, certain Consolidated Properties are cross-collateralized with Unconsolidated Properties (Note 5) and we have retained or agreed to be responsible for a portion of certain debt of the Unconsolidated Real Estate Affiliates (Note 5).
Contractual Cash Obligations and Commitments
The following table aggregates our contractual cash obligations and commitments subsequent to December 31, 2006:
| 2007 | 2008 | 2009 | 2010 | 2011 | Subsequent | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Long-term debt-principal(1) | $ | 1,300,937 | $ | 2,037,804 | $ | 3,230,677 | $ | 3,746,780 | $ | 6,535,402 | $ | 3,556,414 | $ | 20,408,014 | ||||||||||||||
| Interest payments(2) | 1,161,297 | 1,040,632 | 896,543 | 714,977 | 385,247 | 779,363 | 4,978,059 | |||||||||||||||||||||
| Retained debt-principal | 6,847 | 2,446 | 2,606 | 119,694 | 775 | 37,742 | 170,110 | |||||||||||||||||||||
| Ground lease payments(1) | 13,250 | 13,293 | 13,317 | 13,325 | 13,186 | 476,762 | 543,133 | |||||||||||||||||||||
| Committed real estate acquisition contracts(3) | — | 250,000 | — | — | — | — | 250,000 | |||||||||||||||||||||
| Purchase obligations(4) | 135,933 | — | — | — | — | — | 135,933 | |||||||||||||||||||||
| Other long-term liabilities(5) | — | — | — | — | — | — | — | |||||||||||||||||||||
| Total | $ | 2,618,264 | $ | 3,344,175 | $ | 4,143,143 | $ | 4,594,776 | $ | 6,934,610 | $ | 4,850,281 | $ | 26,485,249 | ||||||||||||||
| (1) | Excludes non-cash purchase accounting adjustments. | |
| (2) | Based on rates as of December 31, 2006. Variable rates are based on a LIBOR rate of 5.35%. | |
| (3) | Reflects $250 million minimum purchase price of the Palazzo (Note 14). We currently expect the actual purchase price to be approximately $600 million. | |
| (4) | Reflects accrued and incurred construction costs payable in our Retail and Other and Master Planned Communities segments. Routine trade payables have been excluded. We expect development and redevelopment expenditures of approximately $1 billion in 2007. | |
| (5) | Other long-term liabilities related to ongoing real estate taxes have not been included in the table as such amounts depend upon future applicable real estate tax rates. Real estate tax expense was $218.5 million in 2006, $206.2 million in 2005 and $128.3 million in 2004. |
We anticipate that all of our debt will be repaid or refinanced on a timely basis. Other than as previously discussed or in conjunction with possible future new developments or acquisitions, there are no current plans to incur additional debt, increase the amounts available under our credit facilities or raise equity capital.
We believe that we have adequate sources of funds if additional capital is required for any of the above listed obligations or for other purposes. However, there can be no assurance that we can obtain such financing on satisfactory terms.
In conjunction with the TRC Merger, we assumed TRC’s obligations under a Contingent Stock Agreement (“CSA”). TRC entered into the CSA in 1996 when they acquired The Hughes Corporation (“Hughes”). This acquisition included various assets, including Summerlin (the “CSA Assets”), a project in our Master Planned Communities segment. We agreed that the TRC Merger would not have a prejudicial effect on the former Hughes
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owners or their successors (the “Beneficiaries”) with respect to their receipt of securities pursuant to the CSA. We further agreed to indemnify and hold harmless the Beneficiaries against losses arising out of any breach by us of these covenants.
Under the CSA, we are required to issue shares of our common stock semi-annually (February and August) to the Beneficiaries. The number of shares to be issued is based on cash flows from the developmentand/or sale of the CSA Assets and our stock price. We account for the Beneficiaries’ share of earnings from the CSA Assets as an operating expense. We delivered 1.8 million shares of our common stock (including 1.7 million treasury shares) to the Beneficiaries in 2006 and 1.6 million (including 1.0 million treasury shares) in 2005.
We are also required to make a final distribution to the Beneficiaries in 2009. The amount of this distribution will be based on the appraised values of the CSA Assets and is expected to be significant. We will account for this distribution as additional investments in the related assets (that is, contingent consideration).
The issuance of shares pursuant to any of the semi-annual or final distributions could be dilutive to our existing stockholders if we issue new shares rather than treasury shares or shares purchased on the open market.
Off-Balance Sheet Financing Arrangements
We do not have any off-balance sheet financing arrangements.
REIT Requirements
In order to remain qualified as a real estate investment trust for federal income tax purposes, we must distribute or pay tax on 100% of our capital gains and at least 90% of our ordinary taxable income to stockholders. In determining distributions, the Board of Directors considers operating cash flow.
We anticipate that our operating cash flow and potential new debt or equity will provide adequate liquidity to conduct our operations, fund general and administrative expenses, fund operating costs and interest payments and allow distributions to our stockholders in accordance with the requirements of the Code.
Recently Issued Accounting Pronouncements and Developments
As described in Note 15, new accounting pronouncements have been issued which are effective for the current or subsequent year.
Inflation
Substantially all of our tenant leases contain provisions designed to partially mitigate the negative impact of inflation. Such provisions include clauses enabling us to receive overage rents based on tenants’ gross sales, which generally increase as prices rise,and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases expire each year which may enable us to replace or renew such expiring leases with new leases at higher rents. Finally, many of the existing leases require the tenants to pay amounts related to all, or substantially all, of their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby partially reducing our exposure to increases in costs and operating expenses resulting from inflation. In general, these amounts either vary annually based on actual expenditures or are set on an initial share of costs with provisions for annual increases.
Inflation also poses a risk to us due to the probability of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable-rate debt. We have limited our exposure to interest rate fluctuations related to a portion of our variable-rate debt by the use of interest rate cap and swap agreements. Finally, subject to current market conditions, we have a policy of replacing variable-rate debt with fixed-rate debt. However, in an increasing interest rate environment the fixed rates we can obtain with such replacement fixed-rate debt will also continue to increase.
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GLOSSARY
Anchor: A department store or other large retail store with gross leaseable area greater than 30,000 square feet.
Code: The Internal Revenue Code of 1986, as amended.
Common Units: The common units of GGP Limited Partnership held by limited partners.
Company Portfolio: Includes both the Unconsolidated Properties and the Consolidated Properties.
Consolidated Properties: Properties in which we own either a majority or a controlling interest and, as a result, are consolidated under GAAP.
CSA: The Contingent Stock Agreement under which we assumed the obligations of TRC to issue shares of common stock to the beneficiaries thereunder.
Exchange Act: Securities Exchange Act of 1934, as amended.
Freestanding GLA: The gross leaseable area of freestanding retail stores in locations that are not attached to the primary complex of buildings that comprise a shopping center, measured in square feet.
Funds From Operations or FFO: A supplemental measure of operating performance defined by NAREIT as net income (loss) (computed in accordance with GAAP), excluding gains or losses from cumulative effects of accounting changes, extraordinary items and sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
GAAP: Accounting principles generally accepted in the United States of America.
GGMI: General Growth Management, Inc., which manages, leases, and performs various services for some of our Unconsolidated Real Estate Affiliates and approximately 30 properties owned by unaffiliated third parties, all located in the United States. GGMI also performs marketing and strategic partnership services at all of our Consolidated Properties.
GGPLP: GGP Limited Partnership, also referred to as the Operating Partnership, the partnership through which substantially all of our business is conducted.
Gross Leaseable Area or GLA: Gross leaseable retail space, including Anchors and all other leaseable areas, measured in square feet.
LIBOR: London Interbank Offered Rate. A widely quoted market rate which is frequently the index used to determine the rate at which we borrow funds.
Mall GLA: Gross leaseable retail space, excluding both Anchors and Freestanding GLA, measured in square feet.
Mall Stores: Stores (other than Anchors) that are typically specialty retailers who lease space in the structure including, or attached to, the primary complex of buildings that comprise a shopping center.
MD&A: The Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Annual Report onForm 10-K.
NAREIT: The National Association of Real Estate Investment Trusts.
NOI: Real estate property net operating income, the measure of property operating performance used by management. NOI represents the operating revenues of the properties less property operating expenses, exclusive of depreciation and amortization.
Operating Partnership: GGP Limited Partnership, also referred to as GGPLP, the partnership through which substantially all of our business is conducted.
Overage rent: Rent paid by the tenant if its sales exceed an agreed upon minimum amount. The amount is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the applicable lease.
REIT: A real estate investment trust.
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Remaining Saleable Acres: Includes only parcels within our Master Planned Communities segment which are intended for sale.
Retail Portfolio: The retail centers and mixed-use and other properties within our Retail and Other segment.
SEC: The United States Securities and Exchange Commission.
Significant Tenants: Any tenant at a community/strip center with gross leaseable area greater than 10,000 square feet.
Total GLA: The gross leaseable area of Anchor stores plus Mall GLA and Freestanding GLA.
Total Gross Acres: Includes all of the land located within the borders of the Master Planned Community, including parcels already sold, saleable parcels, and non-saleable areas such as roads, parks and recreation and conservation areas.
Total Mall Stores Sales: The gross revenue from product sales to customers generated by the Mall Stores.
TRC Merger: The transaction in which we acquired The Rouse Company, a real estate development and management company, on November 12, 2004.
TRCLP: The Rouse Company LP.
TRS: An entity that has elected to be treated as taxable REIT subsidiary.
Unconsolidated Properties: Properties owned by Unconsolidated Real Estate Affiliates and which are unconsolidated under GAAP.
Unconsolidated Real Estate Affiliates: Joint venture entities in which we own a non-controlling interest.
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| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions. As of December 31, 2006, we had consolidated debt of $20.5 billion, including $3.5 billion of variable-rate debt of which approximately $820.0 million was subject to interest rate swap agreements, which fixed the interest rate we are required to pay on such debt at approximately 4.27% per annum (excluding the impact of deferred finance costs). Although the majority of the remaining variable-rate debt is subject to interest rate cap agreements pursuant to the loan agreements and financing terms, such interest rate caps generally limit our interest rate exposure only if LIBOR exceeds a rate per annum significantly higher (generally above 8% per annum) than current LIBOR rates (5.35% at December 31, 2006). A 25 basis point movement in the interest rate on the $2.7 billion of variable-rate debt which is not subject to interest rate swap agreements would result in an approximately $6.7 million annualized increase or decrease in consolidated interest expense and operating cash flows.
In addition, we are subject to interest rate exposure as a result of variable-rate debt collateralized by the Unconsolidated Properties for which similar interest rate swap agreements have not been obtained. Our share (based on our respective equity ownership interests in the Unconsolidated Real Estate Affiliates) of such remaining variable-rate debt was approximately $295.6 million at December 31, 2006. A similar 25 basis point annualized movement in the interest rate on the variable-rate debt of the Unconsolidated Real Estate Affiliates would result in an approximately $0.7 million annualized increase or decrease in our equity in the income and operating cash flows from Unconsolidated Real Estate Affiliates.
We are further subject to interest rate risk with respect to our fixed-rate financing in that changes in interest rates will impact the fair value of our fixed-rate financing. To determine fair value, the fixed-rate debt is discounted at a rate based on an estimate of current lending rates, assuming the debt is outstanding through maturity and considering the collateral. At December 31, 2006, the fair value of our debt is estimated to be approximately $150 million lower than the carrying value of $20.5 billion. If LIBOR were to increase by 25 basis points, the fair value of our debt would be approximately $320 million lower than the carrying value and the fair value of our swap agreements would increase by approximately $0.9 million. For additional information concerning our debt, reference is made to Item 7, Liquidity and Capital Resources and Note 6.
We have not entered into any transactions using derivative commodity instruments.
| Item 8. | Financial Statements and Supplementary Data |
Reference is made to the Consolidated Financial Statements and Consolidated Financial Statement Schedule beginning onpage F-1 for the required information.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | 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 inRules 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 to ensure that information that we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
Internal Controls over Financial Reporting During the fourth quarter, we completed the remediation of the material weaknesses in internal control relating to our financial close process and accounting for income taxes identified as of December 31, 2005. There have been no other changes in our internal controls during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our
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internal control over financial reporting or in other factors that could significantly affect internal controls subsequent to the end of the period covered by this report.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles in the U.S.
As of December 31, 2006, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Controls — Integrated Framework.” Based on this assessment, management believes that, as of December 31, 2006, the Company maintained effective internal controls over financial reporting.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, audited management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and, based on that audit, issued the report set forth herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
General Growth Properties, Inc.
Chicago, Illinois
General Growth Properties, Inc.
Chicago, Illinois
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that General Growth Properties, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and consolidated financial statement schedule as of and for the year ended December 31, 2006 of the Company and our reports dated February 28, 2007 expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule.
Deloitte & Touche LLP
Chicago, Illinois
February 28, 2007
February 28, 2007
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| Item 9B. | Other Information |
Not applicable.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information which appears under the captions “Election of Class III Directors,” “Executive Officers,” “Corporate Governance-Committees of the Board of Directors-Audit Committee” and “-Nominating & Governance Committee” and “Other Information-Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement for our 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 10.
We have a Code of Business Conduct and Ethics which applies to all of our employees, officers and directors, including our Chairman, Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct and Ethics is available on the Corporate Governance page of our website atwww.ggp.com and we will provide a copy of the Code of Business Conduct and Ethics without charge to any person who requests it in writing to: General Growth Properties, Inc., 110 N. Wacker Dr., Chicago, IL 60606, Attn: Director of Investor Relations. We will post on our website amendments to or waivers of our Code of Ethics for executive officers, in accordance with applicable laws and regulations.
Our Chief Executive Officer and Chief Financial Officer have signed certificates under Sections 302 and 906 of the Sarbanes-Oxley Act, which are filed as Exhibits 31.1 and 31.2 and 32.1 and 32.2, respectively, to this Annual Report. In addition, our Chief Executive Officer submitted his most recent annual certification to the NYSE pursuant to Section 303A 12(a) of the NYSE listing standards on May 17, 2006, in which he indicated that he was not aware of any violations of NYSE corporate governance listing standards.
| Item 11. | Executive Compensation |
The information which appears under the caption “Executive Compensation” in our proxy statement for our 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 11; provided, however, that the Report of the Compensation Committee of the Board of Directors on Executive Compensation shall not be incorporated by reference herein, in any of our previous filings under the Securities Act of 1933, as amended, or the Exchange Act, or in any of our future filings.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information which appears under the captions “Executive Officer and Beneficial Owner Information — Stock Ownership” in our proxy statement for our 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 12.
The following table sets forth certain information with respect to shares of our common stock that may be issued under our equity compensation plans as of December 31, 2006.
| (c) | ||||||||||||
| Number of Securities | ||||||||||||
| (a) | (b) | Remaining Available for | ||||||||||
| Number of Securities to | Weighted-Average | Future Issuance Under | ||||||||||
| be Issued upon Exercise | Exercise Price of | Equity Compensation Plans | ||||||||||
| of Outstanding Options, | Outstanding Options, | (Excluding Securities | ||||||||||
Plan Category | Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | |||||||||
| Equity compensation plans approved by security holders(1) | 4,796,839 | $ | 40.83 | 9,851,161 | (2) | |||||||
| Equity compensation plans not approved by security holders(3) | N/A | N/A | 122,104 | |||||||||
| Total | 4,796,839 | $ | 40.83 | 9,973,265 | ||||||||
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| (1) | Includes shares of common stock under the 1993 Stock Incentive Plan (which terminated on April 4, 2003), the 1998 Incentive Stock Plan and the 2003 Incentive Stock Plan. | |
| (2) | Includes 5,531,500 shares of common stock available for issuance under the 2003 Incentive Stock Plan and 4,319,661 shares of common stock available for issuance under the 1998 Incentive Stock Plan. | |
| (3) | Represents shares of common stock under our Employee Stock Purchase Plan, which was adopted by the Board of Directors in November 1998. Under the Employee Stock Purchase Plan, eligible employees make payroll deductions over a six-month period, at which time the amounts withheld are used to purchase shares of common stock at a purchase price equal to 85% of the lesser of the closing price of a share of common stock on the first or last trading day of the purchase period. Purchases of common stock under the Employee Stock Purchase Plan are made on the first business day of the next month after the close of the purchase period. Under New York Stock Exchange rules then in effect, stockholder approval was not required for the Employee Stock Purchase Plan because it is a broad-based plan available generally to all employees. |
| Item 13. | Certain Relationships, Related Transactions and Director Independence |
The information which appears under the caption “Corporate Governance — Director Independence,” “— Certain Relationships,” and “— Related Party Transactions,” in our proxy statement for our 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 13.
| Item 14. | Principal Accounting Fees and Services |
The information which appears under the caption “Audit Related Matters — Audit Fees and Services” and “— Audit Committee’s Pre-Approval Policies and Procedures” in our proxy statement for our 2007 Annual Meeting of Stockholders is incorporated by reference into this Item 14.
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
(a) Financial Statements and Financial Statement Schedules.
The consolidated financial statements and schedule listed in the accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule are filed as part of this Annual Report.
(b) Exhibits.
See Exhibit Index onpage S-1.
(c) Separate financial statements.
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ John Bucksbaum |
John Bucksbaum
Chief Executive Officer
February 28, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||
/s/ Matthew Bucksbaum Matthew Bucksbaum | Chairman of the Board | February 28, 2007 | ||||
/s/ John Bucksbaum John Bucksbaum | Director and Chief Executive Officer (Principal Executive Officer) | February 28, 2007 | ||||
/s/ Robert Michaels Robert Michaels | Director, President and Chief Operating Officer | February 28, 2007 | ||||
/s/ Bernard Freibaum Bernard Freibaum | Director, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | February 28, 2007 | ||||
/s/ Alan Cohen Alan Cohen | Director | February 28, 2007 | ||||
/s/ Anthony Downs Anthony Downs | Director | February 28, 2007 | ||||
/s/ Adam Metz Adam Metz | Director | February 28, 2007 | ||||
/s/ Thomas Nolan, Jr. Thomas Nolan, Jr. | Director | February 28, 2007 | ||||
/s/ John Riordan John Riordan | Director | February 28, 2007 | ||||
/s/ Beth Stewart Beth Stewart | Director | February 28, 2007 | ||||
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements and consolidated financial statement schedule are included in Item 8 of this Annual Report onForm 10-K:
| Page | ||||
Number | ||||
Consolidated Financial Statements | ||||
| Reports of Independent Registered Public Accounting Firms: | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
| F-9 | ||||
| F-11 | ||||
| F-12 | ||||
| F-20 | ||||
| F-21 | ||||
| F-21 | ||||
| F-32 | ||||
| F-34 | ||||
| F-37 | ||||
| F-37 | ||||
| F-37 | ||||
| F-41 | ||||
| F-42 | ||||
| F-44 | ||||
| F-44 | ||||
| F-45 | ||||
| F-47 | ||||
| F-52 | ||||
Consolidated Financial Statement Schedule | ||||
| F-54 | ||||
| F-55 | ||||
All other schedules are omitted since the required information is either not present in any amounts, is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and related notes.
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
General Growth Properties, Inc.
Chicago, Illinois
General Growth Properties, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of GGP/Homart, Inc., GGP/Homart II L.L.C., and GGP-TRS L.L.C., the Company’s investments in which are accounted for by use of the equity method. The Company’s equity (deficit) of $(104,853,000) and $70,175,000 in GGP/Homart, Inc.’s net assets as of December 31, 2006 and 2005, respectively, and of $30,204,000, $31,425,000, and $21,148,000 in GGP/Homart, Inc.’s net income for each of the three years in the respective period ended December 31, 2006 are included in the accompanying financial statements. The Company’s equity of $81,926,000 and $259,716,000 in GGP/Homart II L.L.C.’s net assets as of December 31, 2006 and 2005, respectively, and of $16,839,000, $33,849,000, and $36,724,000 in GGP/Homart II L.L.C.’s net income for each of the three years in the respective period ended December 31, 2006 are included in the accompanying financial statements. The Company’s equity (deficit) of $(30,170,000) and $3,764,000 in GGP-TRS L.L.C.’s net assets as of December 31, 2006 and 2005, respectively, and of $15,004,000 and $19,308,000 in GGP-TRS L.L.C.’s net income for each of the two years in the respective period ended December 31, 2006 are included in the accompanying financial statements. The financial statements of GGP/Homart, Inc., GGP/Homart II L.L.C., and GGP-TRS L.L.C. were audited by other auditors related to the periods listed above whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of General Growth Properties, Inc. and subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting based on our audits.
Deloitte & Touche LLP
Chicago, Illinois
February 28, 2007
February 28, 2007
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders
GGP/Homart, Inc.:
GGP/Homart, Inc.:
We have audited the consolidated balance sheets of GGP/Homart, Inc. (a Delaware Corporation) and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2006 (not presented separately herein). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GGP/Homart, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 27, 2007
February 27, 2007
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Members
GGP/Homart II L.L.C.:
GGP/Homart II L.L.C.:
We have audited the consolidated balance sheets of GGP/Homart II L.L.C. (a Delaware Limited Liability Company) and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income and comprehensive income, changes in members’ capital, and cash flows for each of the years in the three-year period ended December 31, 2006 (not presented separately herein). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GGP/Homart II L.L.C. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 27, 2007
February 27, 2007
F-4
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Members GGP-TRS L.L.C.:
We have audited the consolidated balance sheets of GGP — TRS L.L.C. (a Delaware limited liability company) and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in members’ capital, and cash flows for the years then ended (not presented separately herein). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GGP — TRS L.L.C. and subsidiaries as of December 31, 2006 and 2005, and the result of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 27, 2007
February 27, 2007
F-5
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (Dollars in thousands) | ||||||||
Assets | ||||||||
| Investment in real estate: | ||||||||
| Land | $ | 2,952,477 | $ | 2,826,766 | ||||
| Buildings and equipment | 19,379,386 | 18,739,445 | ||||||
| Less accumulated depreciation | (2,766,871 | ) | (2,104,956 | ) | ||||
| Developments in progress | 673,900 | 369,520 | ||||||
| Net property and equipment | 20,238,892 | 19,830,775 | ||||||
| Investment in and loans to/from Unconsolidated Real Estate Affiliates | 1,499,036 | 1,818,097 | ||||||
| Investment land and land held for development and sale | 1,655,838 | 1,651,063 | ||||||
| Net investment in real estate | 23,393,766 | 23,299,935 | ||||||
| Cash and cash equivalents | 97,139 | 102,791 | ||||||
| Accounts and notes receivable, net | 328,890 | 293,351 | ||||||
| Insurance recovery receivable | 14,952 | 63,382 | ||||||
| Goodwill | 371,674 | 420,624 | ||||||
| Deferred expenses, net | 252,190 | 209,825 | ||||||
| Prepaid expenses and other assets | 782,834 | 917,111 | ||||||
| Total assets | $ | 25,241,445 | $ | 25,307,019 | ||||
Liabilities and Stockholders’ Equity | ||||||||
| Mortgage notes and other property debt payable | $ | 20,521,967 | $ | 20,418,875 | ||||
| Investment in and loans to/from Unconsolidated Real Estate Affiliates | 172,421 | 17,971 | ||||||
| Deferred tax liabilities | 1,302,205 | 1,286,576 | ||||||
| Accounts payable and accrued expenses | 1,050,192 | 1,014,443 | ||||||
| Total liabilities | 23,046,785 | 22,737,865 | ||||||
| Minority interests: | ||||||||
| Preferred | 182,828 | 205,944 | ||||||
| Common | 347,753 | 430,292 | ||||||
| Total minority interests | 530,581 | 636,236 | ||||||
| Commitments and Contingencies | ||||||||
| Preferred Stock: $100 par value; 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock: $.01 par value; 875,000,000 shares authorized, 242,357,416 and 239,865,045 shares issued as of December 31, 2006 and 2005, respectively | 2,424 | 2,399 | ||||||
| Additional paid-in capital | 2,536,112 | 2,469,262 | ||||||
| Retained earnings (accumulated deficit) | (868,391 | ) | (518,555 | ) | ||||
| Unearned compensation-restricted stock | (2,214 | ) | (280 | ) | ||||
| Accumulated other comprehensive income | 9,582 | 10,454 | ||||||
| Less common stock in treasury, 290,787 and 668,396 shares, at cost at December 31, 2006 and 2005, respectively | (13,434 | ) | (30,362 | ) | ||||
| Total stockholders’ equity | 1,664,079 | 1,932,918 | ||||||
| Total liabilities and stockholders’ equity | $ | 25,241,445 | $ | 25,307,019 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (Dollars in thousands, except for per share amounts) | ||||||||||||
| Revenues: | ||||||||||||
| Minimum rents | $ | 1,753,508 | $ | 1,670,387 | $ | 1,058,732 | ||||||
| Tenant recoveries | 773,034 | 754,836 | 472,250 | |||||||||
| Overage rents | 75,945 | 69,628 | 54,105 | |||||||||
| Land sales | 423,183 | 385,205 | 68,643 | |||||||||
| Management and other fees | 115,798 | 91,022 | 82,896 | |||||||||
| Other | 114,815 | 101,626 | 63,255 | |||||||||
| Total revenues | 3,256,283 | 3,072,704 | 1,799,881 | |||||||||
| Expenses: | ||||||||||||
| Real estate taxes | 218,549 | 206,193 | 128,114 | |||||||||
| Repairs and maintenance | 199,078 | 195,292 | 123,251 | |||||||||
| Marketing | 48,626 | 63,522 | 48,220 | |||||||||
| Other property operating costs | 373,020 | 390,051 | 207,909 | |||||||||
| Land sales operations | 316,453 | 311,815 | 66,100 | |||||||||
| Provision for doubtful accounts | 22,078 | 13,868 | 10,375 | |||||||||
| Property management and other costs | 184,705 | 147,012 | 100,267 | |||||||||
| General and administrative | 15,128 | 13,053 | 9,499 | |||||||||
| Depreciation and amortization | 690,194 | 672,914 | 364,854 | |||||||||
| Total expenses | 2,067,831 | 2,013,720 | 1,058,589 | |||||||||
| Operating income | 1,188,452 | 1,058,984 | 741,292 | |||||||||
| Interest income | 11,585 | 10,416 | 3,227 | |||||||||
| Interest expense | (1,117,437 | ) | (1,031,241 | ) | (472,185 | ) | ||||||
| Income before income taxes, minority interest and equity in income of unconsolidated affiliates | 82,600 | 38,159 | 272,334 | |||||||||
| Provision for income taxes | (98,984 | ) | (51,289 | ) | (2,383 | ) | ||||||
| Minority interest | (37,761 | ) | (43,989 | ) | (105,274 | ) | ||||||
| Equity in income of unconsolidated affiliates | 114,241 | 120,986 | 88,191 | |||||||||
| Income from continuing operations | 60,096 | 63,867 | 252,868 | |||||||||
| Discontinued operations, net of minority interests: | ||||||||||||
| Income from operations | — | 6,568 | 3,813 | |||||||||
| Gains (losses) on dispositions | (823 | ) | 5,118 | 11,171 | ||||||||
| Income (loss) from discontinued operations | (823 | ) | 11,686 | 14,984 | ||||||||
| Net income | $ | 59,273 | $ | 75,553 | $ | 267,852 | ||||||
Basic Earnings Per Share: | ||||||||||||
| Continuing operations | $ | 0.25 | $ | 0.27 | $ | 1.15 | ||||||
| Discontinued operations | — | 0.05 | 0.07 | |||||||||
| Total basic earnings per share | $ | 0.25 | $ | 0.32 | $ | 1.22 | ||||||
Diluted Earnings Per Share: | ||||||||||||
| Continuing operations | $ | 0.24 | $ | 0.27 | $ | 1.15 | ||||||
| Discontinued operations | — | 0.05 | 0.06 | |||||||||
| Total diluted earnings per share | $ | 0.24 | $ | 0.32 | $ | 1.21 | ||||||
Comprehensive Income, Net: | ||||||||||||
| Net income | $ | 59,273 | $ | 75,553 | $ | 267,852 | ||||||
| Other comprehensive income, net of minority interest: | ||||||||||||
| Net unrealized gains (losses) on financial interests | (3,316 | ) | 9,554 | 10,992 | ||||||||
| Accrued pension adjustment | (2 | ) | (374 | ) | 102 | |||||||
| Foreign currency translation | 2,728 | 4,920 | 1,590 | |||||||||
Unrealized gains (losses) onavailable-for-sale securities | (282 | ) | 39 | (94 | ) | |||||||
| Total other comprehensive income (loss), net of minority interest | (872 | ) | 14,139 | 12,590 | ||||||||
| Comprehensive income, net | $ | 58,401 | $ | 89,692 | $ | 280,442 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
| Notes | ||||||||||||||||||||||||||||||||
| Retained | Receivable- | Unearned | Accumulated | |||||||||||||||||||||||||||||
| Additional | Earnings | Common | Compensation | Other | Total | |||||||||||||||||||||||||||
| Common | Paid-In | (Accumulated | Stock | Restricted | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||||||
| Stock | Capital | Deficit) | Purchase | Stock | Income (Loss) | Stock | Equity | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
Balance, January 1, 2004 | $ | 2,173 | $ | 1,913,447 | $ | (220,512 | ) | $ | (6,475 | ) | $ | (1,949 | ) | $ | (16,275 | ) | $ | — | $ | 1,670,409 | ||||||||||||
| Net income | 267,852 | 267,852 | ||||||||||||||||||||||||||||||
| Cash distributions declared ($1.26 per share) | (274,851 | ) | (274,851 | ) | ||||||||||||||||||||||||||||
| Conversion of operating partnership units to common stock (179,987 common shares) | 2 | 1,371 | 1,373 | |||||||||||||||||||||||||||||
| Conversion of convertible preferred units to common stock (456,463 common shares) | 4 | 9,297 | 9,301 | |||||||||||||||||||||||||||||
| Issuance of common stock, net of employee stock option loan/repayments (16,793,656 common shares) | 168 | 530,920 | 1,297 | 532,385 | ||||||||||||||||||||||||||||
| Restricted stock grant, net of compensation expense | 889 | 889 | ||||||||||||||||||||||||||||||
| Other comprehensive income | 12,590 | 12,590 | ||||||||||||||||||||||||||||||
| Adjustment for minority interest in operating partnership | (76,798 | ) | (76,798 | ) | ||||||||||||||||||||||||||||
Balance, December 31, 2004 | $ | 2,347 | $ | 2,378,237 | $ | (227,511 | ) | $ | (5,178 | ) | $ | (1,060 | ) | $ | (3,685 | ) | $ | — | 2,143,150 | |||||||||||||
| Net income | 75,553 | 75,553 | ||||||||||||||||||||||||||||||
| Cash distributions declared ($1.49 per share) | (353,665 | ) | (353,665 | ) | ||||||||||||||||||||||||||||
| Conversion of operating partnership units to common stock (2,470,368 common shares) | 25 | 23,907 | 23,932 | |||||||||||||||||||||||||||||
| Conversion of convertible preferred units to common stock (729,890 common shares) | 7 | 14,330 | 14,337 | |||||||||||||||||||||||||||||
| Issuance of common stock, net of employee stock option loan/repayments (1,322,720 common shares) (545,204 treasury shares) | 13 | 40,135 | (7,892 | ) | 5,178 | 24,522 | 61,956 | |||||||||||||||||||||||||
| Tax benefit from stock option exercises | 3,328 | 3,328 | ||||||||||||||||||||||||||||||
| Shares issued pursuant to CSA (551,985 common shares) (1,000,400 treasury shares) | 6 | 19,393 | (5,040 | ) | 44,696 | 59,055 | ||||||||||||||||||||||||||
| Restricted stock grant, net of compensation expense (66,000 common shares) | 1 | 2,336 | 780 | 3,117 | ||||||||||||||||||||||||||||
| Purchase of treasury stock (2,214,000 treasury shares) | (99,580 | ) | (99,580 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income | 14,139 | 14,139 | ||||||||||||||||||||||||||||||
| Adjustment for minority interest in operating partnership | (12,404 | ) | (12,404 | ) | ||||||||||||||||||||||||||||
Balance, December 31, 2005 | $ | 2,399 | $ | 2,469,262 | $ | (518,555 | ) | $ | — | $ | (280 | ) | $ | 10,454 | $ | (30,362 | ) | $ | 1,932,918 | |||||||||||||
| Net income | 59,273 | 59,273 | ||||||||||||||||||||||||||||||
| Cash distributions declared ($1.68 per share) | (403,831 | ) | (403,831 | ) | ||||||||||||||||||||||||||||
| Conversion of operating partnership units to common stock (808,173 common shares) | 8 | 5,784 | 5,792 | |||||||||||||||||||||||||||||
| Conversion of convertible preferred units to common stock (526,464 common shares) | 5 | 10,021 | 10,026 | |||||||||||||||||||||||||||||
| Issuance of common stock (971,238 common shares) (563,185 treasury shares) | 10 | 34,333 | (5,278 | ) | 26,018 | 55,083 | ||||||||||||||||||||||||||
| Tax benefit from stock option exercises | 267 | 267 | ||||||||||||||||||||||||||||||
| Shares issued pursuant to CSA (87,495 common shares) (1,727,524 treasury shares) | 1 | 4,895 | 76,835 | 81,731 | ||||||||||||||||||||||||||||
| Restricted stock grant, net of compensation expense (99,000 common shares) | 1 | 4,741 | (1,934 | ) | 2,808 | |||||||||||||||||||||||||||
| Purchase of treasury stock (1,913,100 treasury shares) | (85,925 | ) | (85,925 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income | (872 | ) | (872 | ) | ||||||||||||||||||||||||||||
| Adjustment for minority interest in operating partnership | 6,809 | 6,809 | ||||||||||||||||||||||||||||||
Balance, December 31, 2006 | $ | 2,424 | $ | 2,536,112 | $ | (868,391 | ) | $ | — | $ | (2,214 | ) | $ | 9,582 | $ | (13,434 | ) | $ | 1,664,079 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
| Net income | $ | 59,273 | $ | 75,553 | $ | 267,852 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Minority interests, including discontinued operations | 37,761 | 45,488 | 106,233 | |||||||||
| Equity in income of unconsolidated affiliates | (114,241 | ) | (120,986 | ) | (88,191 | ) | ||||||
| Provision for doubtful accounts, including discontinued operations | 22,078 | 13,876 | 10,375 | |||||||||
| Distributions received from unconsolidated affiliates | 111,864 | 119,602 | 87,906 | |||||||||
| Depreciation, including discontinued operations | 663,523 | 657,358 | 348,303 | |||||||||
| Amortization, including discontinued operations | 42,750 | 30,536 | 28,753 | |||||||||
| Amortization of debt market rate adjustment | (32,153 | ) | (47,015 | ) | (1,026 | ) | ||||||
| (Gain) loss on disposition | 823 | (5,118 | ) | (11,171 | ) | |||||||
| Participation expense pursuant to Contingent Stock Agreement | 110,740 | 106,285 | 8,513 | |||||||||
| Land development and acquisitions expenditures | (184,302 | ) | (140,823 | ) | (27,563 | ) | ||||||
| Cost of land sales | 175,184 | 181,301 | 51,659 | |||||||||
| Debt assumed by purchasers of land | (5,640 | ) | (11,371 | ) | (318 | ) | ||||||
| Deferred income taxes | 58,252 | 28,596 | 1,993 | |||||||||
| Proceeds from the sale of marketable securities | 4,982 | 27,740 | 7,954 | |||||||||
| Straight-line rent amortization | (34,176 | ) | (33,994 | ) | (14,810 | ) | ||||||
| Above and below market tenant lease amortization, including discontinued operations | (39,661 | ) | (34,304 | ) | (27,592 | ) | ||||||
| Other intangible amortization | 6,568 | 10,683 | 1,650 | |||||||||
| Net changes: | ||||||||||||
| Accounts and notes receivable | (23,091 | ) | (51,131 | ) | (6,367 | ) | ||||||
| Prepaid expenses and other assets | 28,165 | (69,379 | ) | 15,962 | ||||||||
| Deferred expenses | (46,741 | ) | (73,048 | ) | (43,485 | ) | ||||||
| Accounts payable and accrued expenses | (30,434 | ) | 122,208 | (13,171 | ) | |||||||
| Other, net | 4,827 | 9,921 | 15,917 | |||||||||
| Net cash provided by operating activities | 816,351 | 841,978 | 719,376 | |||||||||
Cash Flows from Investing Activities: | ||||||||||||
| Acquisition/development of real estate and property additions/improvements | (699,403 | ) | (497,977 | ) | (9,000,108 | ) | ||||||
| Proceeds from sales of investment properties | 23,117 | 143,543 | 65,268 | |||||||||
| Increase in investments in unconsolidated affiliates | (285,747 | ) | (195,642 | ) | (211,247 | ) | ||||||
| (Increase) decrease in restricted cash | 12,017 | (22,950 | ) | (1,951 | ) | |||||||
| Insurance recoveries | 28,359 | 5,000 | — | |||||||||
| Distributions received from unconsolidated affiliates in excess of income | 627,869 | 260,639 | 134,116 | |||||||||
| Loans from unconsolidated affiliates, net | 67,821 | 126,500 | (8,884 | ) | ||||||||
| Other, net | 15,567 | 26,690 | 1,991 | |||||||||
| Net cash used in investing activities | (210,400 | ) | (154,197 | ) | (9,020,815 | ) | ||||||
Cash Flows from Financing Activities: | ||||||||||||
| Cash distributions paid to common stockholders | (403,831 | ) | (353,665 | ) | (274,851 | ) | ||||||
| Cash distributions paid to holders of Common Units | (88,992 | ) | (80,885 | ) | (70,412 | ) | ||||||
| Cash distributions paid to holders of perpetual and convertible preferred units | (17,546 | ) | (27,329 | ) | (37,152 | ) | ||||||
| Proceeds from issuance of common stock, including from common stock plans | 49,267 | 45,208 | 531,976 | |||||||||
| Purchase of treasury stock | (85,925 | ) | (98,939 | ) | — | |||||||
| Redemption of preferred minority interests | — | (183,000 | ) | (107,923 | ) | |||||||
| Proceeds from issuance of mortgage notes and other property debt payable | 9,366,183 | 3,907,254 | 12,733,339 | |||||||||
| Principal payments on mortgage notes and other property debt payable | (9,383,378 | ) | (3,791,978 | ) | (4,430,532 | ) | ||||||
| Deferred financing costs | (38,916 | ) | (6,984 | ) | (13,408 | ) | ||||||
| Other, net | (8,465 | ) | (34,253 | ) | (694 | ) | ||||||
| Net cash (used in) provided by financing activities | (611,603 | ) | (624,571 | ) | 8,330,343 | |||||||
| Net change in cash and cash equivalents | (5,652 | ) | 63,210 | 28,904 | ||||||||
| Cash and cash equivalents at beginning of period | 102,791 | 39,581 | 10,677 | |||||||||
| Cash and cash equivalents at end of period | $ | 97,139 | $ | 102,791 | $ | 39,581 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
| Interest paid | $ | 1,170,929 | $ | 1,074,874 | $ | 424,380 | ||||||
| Interest capitalized | 58,019 | 54,260 | 11,272 | |||||||||
| Taxes paid | 34,743 | 8,170 | 390 | |||||||||
Non-Cash Investing and Financing Activities: | ||||||||||||
| Common stock issued in exchange for Operating Partnership Units | $ | 5,792 | $ | 23,932 | $ | 1,373 | ||||||
| Common stock issued in exchange for convertible preferred units | 10,026 | 14,337 | 9,301 | |||||||||
| Assumption of debt in conjunction with acquisition of property | — | — | 134,902 | |||||||||
| Common stock issued pursuant to Contingent Stock Agreement | 81,731 | 59,055 | — | |||||||||
| Operating Partnership Units issued as consideration for purchase of real estate | — | — | 25,132 | |||||||||
| Acquisitions: | ||||||||||||
| Fair value of assets acquired | 169,415 | (134,166 | ) | 14,327,519 | ||||||||
| Liabilities assumed | 169,415 | (125,925 | ) | 7,176,675 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note 1 | Organization |
General
General Growth Properties, Inc. (“GGP”), a Delaware corporation, is a self-administered and self-managed real estate investment trust, referred to as a “REIT.” GGP was organized in 1986 and through its subsidiaries and affiliates operates, develops and manages retail and other rental properties, primarily shopping centers, which are located primarily throughout the United States. As of December 31, 2006, GGP also has international investments through unconsolidated real estate affiliates in Brazil, Turkey and Costa Rica totaling approximately $128.0 million. Additionally, GGP develops and sells land for residential, commercial and other uses primarily in large-scale, long-term master planned communities projects in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. In these notes, the terms “we,” “us” and “our” refer to GGP and its subsidiaries (the “Company”).
Substantially all of our business is conducted through GGP Limited Partnership (the “Operating Partnership” or “GGPLP”). As of December 31, 2006, ownership of the Operating Partnership was as follows:
| 82 | % | General Growth, as sole general partner | ||
| 16 | Limited partners that indirectly include family members of the original stockholders of the Company. Represented by common units of limited partnership interest (the “Common Units”) | |||
| 2 | Limited partners that include subsequent contributors of properties to the Operating Partnership which are also represented by Common Units | |||
| 100 | % | |||
The Operating Partnership also has preferred units of limited partnership interest (the “Preferred Units”) outstanding. Under certain circumstances, the Preferred Units are convertible into Common Units which are redeemable for shares of GGP common stock on aone-for-one basis.
In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through the following subsidiaries:
| • | GGPLP L.L.C., a Delaware limited liability company (the “LLC”), has ownership interests in the majority of our Consolidated Properties (as defined below) (other than those acquired in The Rouse Company merger (the “TRC Merger”). |
| • | The Rouse Company LP (“TRCLP”), successor to The Rouse Company (“TRC”), which includes both REIT and taxable REIT subsidiaries (“TRSs”), has ownership interests in Consolidated Properties and Unconsolidated Properties (each as defined below). |
| • | General Growth Management, Inc. (“GGMI”), a TRS, manages, leases, and performs various other services for most of our Unconsolidated Real Estate Affiliates (as defined below) and approximately 30 properties owned by unaffiliated third parties. Effective July 1, 2006, GGMI also performs tenant related marketing and strategic partnership services at all of our Consolidated Properties. |
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 non-controlling 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.
Shareholder Rights Plan
We have a shareholder rights plan which will impact a potential acquirer unless the acquirer negotiates with our Board of Directors and the Board of Directors approves the transaction. Pursuant to this plan, one preferred share purchase right (a “Right”) is attached to each currently outstanding or subsequently issued share of our common
F-11
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock. Prior to becoming exercisable, the Rights trade together with our common stock. In general, the Rights will become exercisable if a person or group acquires or announces a tender or exchange offer for 15% or more of our common stock. Each Right will initially entitle the holder to purchase from GGP one-third of one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $100 per share (the “Preferred Stock”), at an exercise price of $148 per one one-thousandth of a share, subject to adjustment. If a person or group acquires 15% or more of our common stock, each Right will entitle the holder (other than the acquirer) to purchase shares of our common stock (or, in certain circumstances, cash or other securities) having a market value of twice the exercise price of a Right at such time. Under certain circumstances, each Right will entitle the holder (other than the acquirer) to purchase the common stock of the acquirer having a market value of twice the exercise price of a Right at such time. In addition, under certain circumstances, our Board of Directors may exchange each Right (other than those held by the acquirer) for one share of our common stock, subject to adjustment. If the Rights become exercisable, holders of common units of partnership interest in the Operating Partnership, other than GGP, will receive the number of Rights they would have received if their units had been redeemed and the purchase price paid in our common stock. The Rights expire on November 18, 2008, but may be extended or redeemed earlier by our Board of Directors for one-third of $0.01 per Right.
| Note 2 | Summary of Significant Accounting Policies |
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 non-controlling partner’s share of operations (generally computed as the joint venture partner’s ownership percentage) is included in Minority Interest. All significant intercompany balances and transactions have been eliminated.
Properties
Real estate assets are stated at cost. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized to the extent the total carrying value of the property does not exceed the estimated fair value of the completed property. Real estate taxes and interest costs incurred during construction periods are capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period. Capitalized real estate taxes and interest costs are amortized over lives which are consistent with the constructed assets.
Pre-development costs, which generally include legal and professional fees and other directly-related third-party costs, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are expensed.
Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the average lease term. Maintenance and repairs are charged to expense when incurred. Expenditures for significant betterments and improvements are capitalized.
Our real estate assets, including developments in progress, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. A real estate asset is considered to be impaired when the estimated future undiscounted operating cash flow is less than its carrying value. To the extent an impairment has occurred, the excess of the carrying value of the asset over its estimated fair value will be expensed to operations.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:
| Years | ||||
| Buildings and improvements | 40-45 | |||
| Equipment, tenant improvements and fixtures | 5-10 | |||
Acquisitions of Operating Properties
Acquisitions of properties are accounted for utilizing the purchase method and, accordingly, the results of operations of acquired properties are included in our results of operations from the respective dates of acquisition. Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment and identifiable intangible assets and liabilities such as amounts related to in-place at-market tenant leases, acquired above and below-market tenant and ground leases and tenant relationships. Initial valuations are subject to change until such information is finalized no later than 12 months from the acquisition date.
The fair values of tangible assets are determined on an “if-vacant” basis. The “if-vacant” fair value is allocated to land, where applicable, buildings, tenant improvements and equipment based on comparable sales and other relevant information obtained in connection with the acquisition of the property.
The estimated fair value of acquired in-place at-market tenant leases are the costs we would have incurred to lease the property to the occupancy level of the property at the date of acquisition. Such estimate includes the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during thelease-up period, which generally ranges up to one year. Acquired in-place at-market tenant leases are amortized over the average lease term.
Intangible assets and liabilities are also recorded for above-market and below-market in-place tenant and ground leases where we are either the lessor or the lessee. Above-market and below-market in-place tenant and ground lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received or paid pursuant to the in-place leases and our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the leases. Above and below-market lease values are amortized over the remaining non-cancelable terms of the respective leases (approximately five years for tenant leases and approximately 50 years for ground leases).
Due to existing contacts and relationships with tenants at our currently owned properties and at properties currently managed for others, no significant value has been ascribed to the tenant relationships at the acquired properties.
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 is recorded as goodwill. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. An impairment loss for an asset group is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets, unless the fair value of specific components of the reporting group are determinable without undue cost and effort.
Investments in Unconsolidated Real Estate Affiliates
We account for investments in joint ventures where we own a non-controlling joint interest using the equity method. Under the equity method, the cost of our investment is adjusted for our share of the equity in earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition and reduced by distributions received. Generally,
F-13
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the operating agreements with respect to our Unconsolidated Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages. Therefore, we generally also share in the profit and losses, cash flows and other matters relating to our Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. Except for Retained Debt (as described in Note 5), differences between the carrying value of our investment in the Unconsolidated Real Estate Affiliates and our share of the underlying equity of such Unconsolidated Real Estate Affiliates are amortized over lives ranging from five to forty years.
When cumulative distributions, which are primarily from financing proceeds, exceed our investment in the joint venture, the investment is reported as a liability in our Consolidated Balance Sheets.
For those joint ventures where we own less than a 5% interest and have virtually no influence on the joint venture’s operating and financial policies, we account for our investments using the cost method.
Cash and Cash Equivalents
Highly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.
Investments in Marketable Securities
Most investments in marketable securities are held in an irrevocable trust for participants in qualified defined contribution plans which were acquired with the TRC Merger, are classified as trading securities and are carried at fair value with changes in values recognized in earnings. Investments in marketable securities with maturities at dates of purchase in excess of three months are carried at amortized cost as it is our intention to hold these investments until maturity. Other investments in marketable equity securities subject to significant restrictions on sale or transfer are classified asavailable-for-sale and are carried at fair value with unrealized changes in values recognized in other comprehensive income.
Leases
Leases which transfer substantially all the risks and benefits of ownership to tenants are considered finance leases and the present values of the minimum lease payments and the estimated residual values of the leased properties, if any, are accounted for as receivables. Leases which transfer substantially all the risks and benefits of ownership to us are considered capital leases and the present values of the minimum lease payments are accounted for as assets and liabilities.
Deferred Expenses
Deferred expenses consist principally of financing fees and leasing costs and commissions. Deferred financing fees are amortized to interest expense using the interest method (or other methods which approximate the interest method) over the terms of the respective agreements. Deferred leasing costs and commissions are amortized using the straight-line method over the average life of the tenant leases. Deferred expenses in our Consolidated Balance Sheets are shown at cost, net of accumulated amortization of $151.0 million as of December 31, 2006 and $147.5 million as of December 31, 2005.
Minority Interests — Common (Note 12)
Minority Interests — Common includes income allocated to holders of the Common Units (the “OP Minority Interests”) as well as to minority interest venture partners in consolidated joint ventures. Income is allocated to the OP Minority Interests based on their ownership percentage of the Operating Partnership. This ownership percentage, as well as the total net assets of the Operating Partnership, changes when additional shares of our common stock or Common Units are issued. Such changes result in an allocation between stockholders’ equity and
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Minority Interests-Common in the Consolidated Balance Sheets. Due to the number of such capital transactions that occur each period, we have presented a single net effect of all such allocations for the period as the “Adjustment for Minority Interest in Operating Partnership” in our Consolidated Statements of Stockholders’ Equity (rather than separately allocating the minority interest for each individual capital transaction).
Treasury Stock
We account for repurchases of common stock using the cost method with common stock in treasury classified in the Consolidated Balance Sheets as a reduction of stockholders’ equity. Treasury stock is reissued at average cost.
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.
Straight-line rents receivable, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases, of approximately $159.2 million as of December 31, 2006 and $124.8 million as of December 31, 2005 are included in Accounts and notes receivable, net in our Consolidated Balance Sheets.
We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience. We also evaluate the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long-term nature of our leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until many years into the future. Our experience relative to unbilled deferred rent receivable is that a certain portion of the amounts straight-lined into revenue are never collected from (or billed to) the tenant due to early lease terminations. For that portion of the otherwise recognizable deferred rent that is not deemed to be probable of collection, no revenue is recognized. Accounts receivable in our Consolidated Balance Sheets are shown net of an allowance for doubtful accounts of $56.9 million as of December 31, 2006 and $58.5 million as of December 31, 2005.
Overage rents are recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds. Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.
Management and other fees primarily represent management and leasing fees, construction fees, financing fees and fees for other ancillary services performed for the benefit of the Unconsolidated Real Estate Affiliates and for properties owned by third parties. Such fees are recognized as revenue when earned.
Revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and our subsequent involvement with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances. For land sale transactions in which we are required to perform additional services and incur significant costs after title has passed, revenues and cost of sales are recognized on a percentage of completion basis.
Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each community development project. The cost ratios used are based on actual costs incurred and estimates of future development costs and sales revenues to completion of each project. The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The specific identification method is used to determine cost of sales for certain parcels of land,
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
including acquired parcels we do not intend to develop or for which development is complete at the date of acquisition.
Income Taxes (Note 7)
Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. An increase or decrease in the deferred tax liability that results from a change in circumstances, and which causes a change in our judgment about expected future tax consequences of events, is included in the current tax provision. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision.
In many of our Master Planned Communities, gains with respect to sales of land for commercial use, condominiums or apartments are reported for tax purposes on the percentage of completion method. Under the percentage of completion method, gain is recognized for tax purposes as costs are incurred in satisfaction of contractual obligations. In contrast, gains with respect to sales of land for single family residences are reported for tax purposes under the completed contract method. Under the completed contract method, gain is recognized for tax purposes when 95% of the costs of our contractual obligations are incurred.
Earnings Per Share (“EPS”)
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effects of convertible securities are computed using the “if-converted” method and the dilutive effects of options, warrants and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans) are computed using the “treasury stock” method.
Dilutive EPS excludes anti-dilutive options where the exercise price was higher than the average market price of our common stock and options for which conditions for issuance were not achieved. Such options totaled 2,250,227 in 2006, 1,026,777 in 2005 and 1,590,974 in 2004. Outstanding Common Units have also been excluded from the diluted earnings per share calculation because there would be no effect on EPS as the minority interests’ share of income would also be added back to net income.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Information related to our EPS calculations is summarized as follows:
| Years Ended December 31, | ||||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Numerators: | ||||||||||||||||||||||||
| Income from continuing operations | $ | 60,096 | $ | 60,096 | $ | 63,867 | $ | 63,867 | $ | 252,868 | $ | 252,868 | ||||||||||||
| Discontinued operations, net of minority interests | (823 | ) | (823 | ) | 11,686 | 11,686 | 14,984 | 14,984 | ||||||||||||||||
| Net income available to common stockholders | $ | 59,273 | $ | 59,273 | $ | 75,553 | $ | 75,553 | $ | 267,852 | $ | 267,852 | ||||||||||||
| Denominators: | ||||||||||||||||||||||||
| Weighted average number of common shares outstanding — basic | 241,222 | 241,222 | 237,673 | 237,673 | 220,149 | 220,149 | ||||||||||||||||||
| Effect of dilutive securities — options | — | 832 | — | 796 | — | 680 | ||||||||||||||||||
| Weighted average number of common shares outstanding — diluted | 241,222 | 242,054 | 237,673 | 238,469 | 220,149 | 220,829 | ||||||||||||||||||
Derivative Financial Instruments
We use derivative financial instruments to reduce risk associated with movements 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 borrowingsand/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.
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. Under interest rate swap agreements, we and the counterparties agree to exchange the difference between fixed-rate and variable-rate interest amounts calculated by reference to specified notional principal amounts 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.
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 highly-rated financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and expect that all counterparties will meet their obligations.
Substantially all of our interest rate swap and other derivative financial instruments qualify as cash flow hedges and hedge our exposure to forecasted interest payments on variable-rate LIBOR-based debt. Accordingly, the effective portion of the instruments’ gains or losses is reported as a component of other comprehensive income and reclassified into earnings when the related forecasted transactions affect earnings. If we discontinue a cash flow hedge because it is no longer probable that the original forecasted transaction will occur or if a hedge is deemed no longer effective, the net gain or loss in accumulated other comprehensive income (loss) is immediately reclassified into earnings.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 and ineffective hedges was insignificant for 2006, 2005 and 2004.
Amounts receivable or payable under interest rate cap and swap agreements are accounted for as adjustments to interest expense on the related debt.
Fair Value of Financial Instruments
The fair values of our financial instruments approximate their carrying value in our financial statements except for debt. We estimated the fair value of our debt based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assume the debt is outstanding through maturity and consider the debt’s collateral (if applicable). We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument.
| 2006 | 2005 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Amount | Fair Value | Amount | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
| Fixed-rate debt | $ | 17,018 | $ | 16,854 | $ | 13,906 | $ | 13,960 | ||||||||
| Variable-rate debt | 3,504 | 3,518 | 6,513 | 6,430 | ||||||||||||
| $ | 20,522 | $ | 20,372 | $ | 20,419 | $ | 20,390 | |||||||||
| Stock-Based Compensation Expense |
On January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of Income and Comprehensive Income. SFAS 123(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) which we adopted in the second quarter of 2002. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).
We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. Our Consolidated Financial Statements as of and for the year ended December 31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Because we had previously adopted SFAS 123, the impact of the adoption of SFAS 123(R) was not significant to our Consolidated Financial Statements. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Under SFAS 123, we did not estimate forfeitures for options issued pursuant to our Incentive Stock Plans. The cumulative effect of estimating forfeitures for these plans decreased compensation expense by approximately $150 thousand and has been reflected in our Consolidated Statements of Income and Comprehensive Income in 2006.
Prior to the adoption of SFAS 123 in the second quarter of 2002, we accounted for stock-based awards using the intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under the intrinsic value method, compensation cost is recognized for common stock awards or stock options only if the quoted market price of the
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock as of the grant date (or other measurement date, if later) is greater than the amount the grantee must pay to acquire the stock. Because the exercise price of stock options and the fair value of restricted stock grants equaled the fair market value of the underlying stock at the date of grant, no compensation expense related to grants issued under the 1993 Stock Incentive Plan was recognized. As a result of the cash settlement option available for threshold-vesting stock options (“TSOs”) issued prior to 2004, compensation expense equal to the change in the market price of our stock at the end of each reporting period continues to be recognized for all such unexercised TSOs.
On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff PositionNo. 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The transition methods include procedures to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R). We have adopted the transition guidance in SFAS 123(R) and not the alternative method described in this FASB staff position.
| Foreign Currency Translation |
The functional currencies for our international joint ventures are their local currencies. Assets and liabilities of these investments are translated at the rate of exchange in effect on the balance sheet date. Translation adjustments resulting from this process are accumulated in stockholders’ equity as a component of accumulated other comprehensive income (loss).
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 period. For example, significant 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, and cost ratios and completion percentages used for land sales. Actual results could differ from these and other estimates.
Reclassifications and Corrections
Certain amounts in the 2005 and 2004 Consolidated Financial Statements have been reclassified to conform to the current year presentation.
During 2006, we made various corrections to the TRCLP purchase price allocation that was recorded in our 2005 Consolidated Financial Statements. Corrections related to the aggregate net deferred tax liabilities acquired in the TRC Merger reduced deferred tax liabilities by approximately $58.7 million with a corresponding decrease in goodwill in the first quarter of 2006 and additional corrections identified in the fourth quarter increased deferred tax liabilities by $15.5 million, increased goodwill by $9.8 million, increased deferred tax assets by $2.1 million and decreased current taxes payable by $3.6 million. The net reductions to deferred tax liabilities of $43.2 million and goodwill of $48.9 million and the other corrections noted above, had no impact on earnings for the years ended December 31, 2006 and 2005, or any period within such years.
Additionally, we reclassified approximately $65 million of below-market ground leases, which were included in prepaid expenses and other assets in our December 31, 2005 Consolidated Balance Sheet, to owned land in 2006. This change and the corresponding revision of previously recorded amortization decreased other property operating costs by approximately $1.9 million and increased net income by approximately $1.5 million during 2006. We also
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
corrected the amortization period used to amortize the tenant-related intangible assets and liabilities at one of the properties acquired in the TRC Merger. This correction increased depreciation and amortization by approximately $2.4 million and decreased net income by approximately $2.0 million in 2006.
None of the adjustments impacted our cash flows from operating, investing or financing activities in any period in 2006 and 2005. We believe that the effects of these changes are not material to our Consolidated Financial Statements.
| Note 3 | Intangibles |
The following table summarizes our intangible assets and liabilities:
| Accumulated | ||||||||||||
| Gross Asset | (Amortization)/ | Net Carrying | ||||||||||
| (Liability) | Accretion | Amount | ||||||||||
| (In thousands) | ||||||||||||
As of December 31, 2006 | ||||||||||||
| Tenant leases: | ||||||||||||
| In-place value | $ | 667,492 | $ | (314,270 | ) | $ | 353,222 | |||||
| Above-market | 107,157 | (53,176 | ) | 53,981 | ||||||||
| Below-market | (294,052 | ) | 176,089 | (117,963 | ) | |||||||
| Ground leases: | ||||||||||||
| Above-market | (16,968 | ) | 1,007 | (15,961 | ) | |||||||
| Below-market | 293,435 | (12,919 | ) | 280,516 | ||||||||
| Real estate tax stabilization agreement | 91,879 | (8,501 | ) | 83,378 | ||||||||
As of December 31, 2005 | ||||||||||||
| Tenant leases: | ||||||||||||
| In-place value | $ | 664,444 | $ | (176,190 | ) | $ | 488,254 | |||||
| Above-market | 106,117 | (29,023 | ) | 77,094 | ||||||||
| Below-market | (293,967 | ) | 111,697 | (182,270 | ) | |||||||
| Ground leases: | ||||||||||||
| Above-market | (16,968 | ) | 535 | (16,433 | ) | |||||||
| Below-market | 358,524 | (8,736 | ) | 349,788 | ||||||||
| Real estate tax stabilization agreement | 91,879 | (4,691 | ) | 87,188 | ||||||||
Changes in gross asset (liability) balances are the result of the ground lease reclassification (Note 2), GGP Ivanhoe IV, Inc. acquisition (Note 5) and acquisition of the minority interest in two joint ventures.
Amortization of these intangible assets and liabilities, and similar assets and liabilities from our Unconsolidated Real Estate Affiliates at our share, decreased income (excluding the impact of minority interest and the provision for income taxes) by approximately $118.2 million in 2006 and $157.5 million in 2005 and increased net income by $8.4 million in 2004.
Future amortization, including our share of such items from Unconsolidated Real Estate Affiliates, is estimated to decrease income (excluding the impact of minority interest and the provision for income taxes) by approximately $120 million in 2007, $90 million in 2008, $60 million in 2009, $40 million in 2010, and $30 million in 2011.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 4 | Discontinued Operations and Gains (Losses) on Dispositions of Interests in Operating Properties |
In December 2005, our Board of Directors approved two separate plans to dispose of certain office/industrial properties originally acquired in the TRCLP merger in 2004. The plans included 21 office properties which were sold at a total sale price of approximately $125 million and 16 industrial buildings which were sold at a total sale price of approximately $57 million. All of the properties were located in Hunt Valley and Woodlawn, Baltimore, Maryland. The sales closed in December 2005. As a result of the dispositions, we recognized a loss of approximately $1.3 million in 2006 and a gain of approximately $6.2 million in 2005, both before minority interest.
In August 2004, our Board of Directors approved plans to dispose of certain of the commercial/business properties originally acquired in the JP Realty acquisition in July 2002. The sale closed on November 1, 2004 for $67 million and a gain of approximately $11 million was recognized.
Pursuant to SFAS No. 144, the operations of these properties (net of minority interests) have been reported as discontinued operations in the accompanying consolidated financial statements. Revenues and income before minority interest were as follows:
| Years Ended December 31, | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Revenues: | ||||||||
| TRCLP office/industrial properties | $ | 24,275 | $ | 2,813 | ||||
| JP Realty commercial/business properties | — | 6,118 | ||||||
| Total | $ | 24,275 | $ | 8,931 | ||||
Net income: | ||||||||
| TRCLP office/industrial properties | $ | 8,067 | $ | 983 | ||||
| JP Realty commercial/business properties | — | 3,801 | ||||||
| Total | $ | 8,067 | $ | 4,784 | ||||
| Note 5 | Unconsolidated Real Estate Affiliates |
The Unconsolidated Real Estate Affiliates include our non-controlling 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. Some of the joint ventures have elected to be taxed as REITs. Since we have joint interest and control of the Unconsolidated Properties with our venture partners, we account for these joint ventures using the equity method.
In certain circumstances, we are obligated (or can elect) to fund debt in excess of our pro rata share of the debt of our Unconsolidated Real Estate Affiliates. Such Retained Debt totaled $170.1 million as of December 31, 2006 and $302.7 million as of December 31, 2005, and has been reflected as a reduction in our investment in Unconsolidated Real Estate Affiliates.
The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same as ours.
On April 6, 2006, we acquired our joint venture partner’s 49% interest in GGP Ivanhoe IV, Inc., which owns Eastridge Mall, for approximately $115 million, which was paid with a 5.95% fixed-rate note. This note was repaid, prior to its scheduled maturity of September 2006, in August 2006 in conjunction with the refinancing of the entire property, with a $170 million, 5.79% fixed-rate mortgage note due in 2011. As of April 6, 2006, GGP Ivanhoe IV, Inc. has been consolidated for accounting purposes.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates
Following is summarized financial information for our Unconsolidated Real Estate Affiliates as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004. Certain 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
Condensed Combined Balance Sheets — Unconsolidated Real Estate Affiliates | ||||||||
| Assets: | ||||||||
| Land | $ | 988,018 | $ | 919,533 | ||||
| Buildings and equipment | 8,158,030 | 7,656,894 | ||||||
| Less accumulated depreciation | (1,590,812 | ) | (1,302,624 | ) | ||||
| Developments in progress | 551,464 | 427,779 | ||||||
| Net property and equipment | 8,106,700 | 7,701,582 | ||||||
| Investment in unconsolidated joint ventures | 7,424 | 8,788 | ||||||
| Investment land and land held for sale and development | 290,273 | 259,386 | ||||||
| Net investment in real estate | 8,404,397 | 7,969,756 | ||||||
| Cash and cash equivalents | 180,203 | 217,535 | ||||||
| Accounts and notes receivable, net | 165,049 | 161,225 | ||||||
| Deferred expenses, net | 155,051 | 148,568 | ||||||
| Prepaid expenses and other assets | 509,324 | 340,120 | ||||||
| Total assets | $ | 9,414,024 | $ | 8,837,204 | ||||
| Liabilities and Owners’ Equity: | ||||||||
| Mortgage notes and other property debt payable | $ | 7,752,889 | $ | 6,325,116 | ||||
| Accounts payable and accrued expenses | 558,974 | 482,414 | ||||||
| Owners’ equity | 1,102,161 | 2,029,674 | ||||||
| Total liabilities and owners’ equity | $ | 9,414,024 | $ | 8,837,204 | ||||
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net | ||||||||
| Owners’ equity | $ | 1,102,161 | $ | 2,029,674 | ||||
| Less joint venture partners’ equity | (601,314 | ) | (1,175,175 | ) | ||||
| Capital or basis differences and loans | 825,768 | 945,627 | ||||||
| Investment in and loans to/from | ||||||||
| Unconsolidated Real Estate Affiliates, net | $ | 1,326,615 | $ | 1,800,126 | ||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
Condensed Combined Statements of Income — Unconsolidated Real Estate Affiliates | ||||||||||||
| Revenues: | ||||||||||||
| Minimum rents | $ | 864,368 | $ | 795,185 | $ | 569,348 | ||||||
| Tenant recoveries | 378,413 | 365,325 | 264,907 | |||||||||
| Overage rents | 31,889 | 28,592 | 21,422 | |||||||||
| Land sales | 162,790 | 158,181 | 38,681 | |||||||||
| Other | 182,134 | 126,507 | 35,083 | |||||||||
| Management and other fees | 15,712 | — | — | |||||||||
| Total revenues | 1,635,306 | 1,473,790 | 929,441 | |||||||||
| Expenses: | ||||||||||||
| Real estate taxes | 119,426 | 112,225 | 77,513 | |||||||||
| Repairs and maintenance | 88,243 | 87,816 | 59,051 | |||||||||
| Marketing | 26,485 | 29,561 | 25,860 | |||||||||
| Other property operating costs | 311,267 | 239,194 | 142,185 | |||||||||
| Land sales operations | 103,519 | 89,561 | 18,101 | |||||||||
| Provision for doubtful accounts | 1,494 | 10,182 | 5,390 | |||||||||
| Property management and other costs | 77,290 | 59,548 | 47,044 | |||||||||
| General and administrative | 7,947 | 2,684 | 10,115 | |||||||||
| Depreciation and amortization | 269,327 | 257,153 | 170,529 | |||||||||
| Total expenses | 1,004,998 | 887,924 | 555,788 | |||||||||
| Operating income | 630,308 | 585,866 | 373,653 | |||||||||
| Interest income | 30,498 | 14,432 | 3,778 | |||||||||
| Interest expense | (361,114 | ) | (304,368 | ) | (179,807 | ) | ||||||
| Provision for income taxes | (1,274 | ) | (1,157 | ) | (353 | ) | ||||||
| Income allocated to minority interest | (588 | ) | — | — | ||||||||
| Equity in income of unconsolidated joint ventures | 6,509 | 5,384 | 4,337 | |||||||||
| Net income | $ | 304,339 | $ | 300,157 | $ | 201,608 | ||||||
Equity In Income of Unconsolidated Real Estate Affiliates | ||||||||||||
| Net income of Unconsolidated Real Estate Affiliates | $ | 304,339 | $ | 300,157 | $ | 201,608 | ||||||
| Joint venture partners’ share of income of Unconsolidated Real Estate Affiliates | (160,099 | ) | (157,756 | ) | (103,768 | ) | ||||||
| Amortization of capital or basis differences | (22,083 | ) | (20,844 | ) | (9,632 | ) | ||||||
| Elimination of Unconsolidated Real Estate Affiliates loan interest | (7,916 | ) | (571 | ) | (17 | ) | ||||||
| Equity in income of Unconsolidated Real Estate Affiliates | $ | 114,241 | $ | 120,986 | $ | 88,191 | ||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Condensed Financial Information of Individually Significant Unconsolidated Real Estate Affiliates
The following is summarized financial information for certain individually significant Unconsolidated Real Estate Affiliates as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004. Our investment in such affiliates varies from a strict ownership percentage due to capital or basis differences or loans and related amortization.
GGP/Homart I
We own 50% of the common stock of GGP/Homart, Inc. (“GGP/Homart I”), a REIT. The remaining 50% interest in GGP/Homart I is owned by New York State Common Retirement Fund (“NYSCRF”). GGP/Homart I owns an interest in 23 retail properties. NYSCRF has an exchange right which permits it to convert its ownership interest in GGP/Homart I to shares of GGP common stock. If this exchange right is exercised, we may alternatively satisfy it in cash. Certain 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.
| GGP/Homart I | ||||||||
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Land | $ | 157,708 | $ | 146,527 | ||||
| Buildings and equipment | 1,879,992 | 1,796,335 | ||||||
| Less accumulated depreciation | (517,187 | ) | (452,809 | ) | ||||
| Developments in progress | 13,216 | 30,010 | ||||||
| Investment in unconsolidated joint ventures | 7,424 | 8,788 | ||||||
| Net investment in real estate | 1,541,153 | 1,528,851 | ||||||
| Cash and cash equivalents | 15,871 | 69,034 | ||||||
| Accounts receivable, net | 48,498 | 48,137 | ||||||
| Deferred expenses, net | 44,773 | 46,709 | ||||||
| Prepaid expenses and other assets | 174,854 | 18,333 | ||||||
| Total assets | $ | 1,825,149 | $ | 1,711,064 | ||||
| Liabilities and Owners’ Equity (Deficit): | ||||||||
| Mortgage notes and other property debt payable | $ | 2,041,796 | $ | 1,579,717 | ||||
| Accounts payable and accrued expenses | 58,408 | 62,132 | ||||||
| Owners’ equity (deficit) | (275,055 | ) | 69,215 | |||||
| Total liabilities and owners’ equity (deficit) | $ | 1,825,149 | $ | 1,711,064 | ||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| GGP/Homart I | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Revenues: | ||||||||||||
| Minimum rents | $ | 236,192 | $ | 226,936 | $ | 214,448 | ||||||
| Tenant recoveries | 98,864 | 95,752 | 91,867 | |||||||||
| Overage rents | 10,237 | 9,312 | 8,266 | |||||||||
| Other | 11,224 | 10,660 | 7,469 | |||||||||
| Total revenues | 356,517 | 342,660 | 322,050 | |||||||||
| Expenses: | ||||||||||||
| Real estate taxes | 30,393 | 29,745 | 27,845 | |||||||||
| Repairs and maintenance | 25,477 | 26,748 | 25,890 | |||||||||
| Marketing | 7,963 | 9,294 | 9,683 | |||||||||
| Other property operating costs | 44,062 | 36,480 | 41,120 | |||||||||
| Provision for doubtful accounts | 835 | 1,088 | 1,487 | |||||||||
| Property management and other costs | 22,603 | 20,835 | 19,355 | |||||||||
| General and administrative | 456 | 418 | 3,461 | |||||||||
| Depreciation and amortization | 71,043 | 68,578 | 66,430 | |||||||||
| Total expenses | 202,832 | 193,186 | 195,271 | |||||||||
| Operating income | 153,685 | 149,474 | 126,779 | |||||||||
| Interest income | 14,688 | 4,588 | 1,817 | |||||||||
| Interest expense | (99,991 | ) | (84,684 | ) | (81,120 | ) | ||||||
| Provision for income taxes | (338 | ) | (126 | ) | (150 | ) | ||||||
| Equity in income of unconsolidated joint ventures | 6,509 | 5,384 | 4,337 | |||||||||
| Net income | $ | 74,553 | $ | 74,636 | $ | 51,663 | ||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GGP/Homart II
We own 50% of the membership interest of GGP/Homart II L.L.C. (“GGP/Homart II”), a limited liability company. The remaining 50% interest in GGP/Homart II is owned by NYSCRF. GGP Homart II owns 13 retail properties and one office building. Certain 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.
| GGP/Homart II | ||||||||
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Land | $ | 224,158 | $ | 190,787 | ||||
| Buildings and equipment | 2,261,123 | 2,014,151 | ||||||
| Less accumulated depreciation | (326,340 | ) | (264,434 | ) | ||||
| Developments in progress | 286,396 | 148,453 | ||||||
| Net investment in real estate | 2,445,337 | 2,088,957 | ||||||
| Cash and cash equivalents | 6,289 | 55,539 | ||||||
| Accounts receivable, net | 35,506 | 32,644 | ||||||
| Deferred expenses, net | 58,712 | 56,223 | ||||||
| Prepaid expenses and other assets | 36,656 | 116,234 | ||||||
| Total assets | $ | 2,582,500 | $ | 2,349,597 | ||||
| Liabilities and Owners’ Equity: | ||||||||
| Mortgage notes and other property debt payable | $ | 2,284,763 | $ | 1,666,979 | ||||
| Accounts payable and accrued expenses | 146,781 | 88,822 | ||||||
| Owners’ equity | 150,956 | 593,796 | ||||||
| Total liabilities and owners’ equity | $ | 2,582,500 | $ | 2,349,597 | ||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| GGP/Homart II | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Revenues: | ||||||||||||
| Minimum rents | $ | 205,835 | $ | 194,938 | $ | 184,418 | ||||||
| Tenant recoveries | 94,298 | 92,862 | 90,958 | |||||||||
| Overage rents | 5,935 | 6,432 | 5,530 | |||||||||
| Other | 9,057 | 8,543 | 5,352 | |||||||||
| Total revenues | 315,125 | 302,775 | 286,258 | |||||||||
| Expenses: | ||||||||||||
| Real estate taxes | 29,883 | 27,132 | 27,030 | |||||||||
| Repairs and maintenance | 19,362 | 19,671 | 18,734 | |||||||||
| Marketing | 7,583 | 8,726 | 9,504 | |||||||||
| Other property operating costs | 37,776 | 29,490 | 32,435 | |||||||||
| (Recovery of) provision for doubtful accounts | (47 | ) | 3,125 | 1,591 | ||||||||
| Property management and other costs | 19,469 | 17,468 | 16,176 | |||||||||
| General and administrative | 7,137 | 2,005 | 6,056 | |||||||||
| Depreciation and amortization | 66,024 | 61,923 | 56,394 | |||||||||
| Total expenses | 187,187 | 169,540 | 167,920 | |||||||||
| Operating income | 127,938 | 133,235 | 118,338 | |||||||||
| Interest income | 8,840 | 7,358 | 1,492 | |||||||||
| Interest expense | (91,240 | ) | (77,285 | ) | (55,780 | ) | ||||||
| (Provision) benefit for income taxes | (69 | ) | 64 | (59 | ) | |||||||
| Net income | $ | 45,469 | $ | 63,372 | $ | 63,991 | ||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GGP/Teachers
We own 50% of the membership interest in GGP- TRS L.L.C. (GGP/Teachers), a limited liability company. The remaining 50% interest in GGP/Teachers is owned by the Teachers’ Retirement System of the State of Illinois. GGP/Teachers owns six retail properties. Certain 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.
| GGP/Teachers | ||||||||
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Land | $ | 176,761 | $ | 176,761 | ||||
| Buildings and equipment | 908,786 | 879,828 | ||||||
| Less accumulated depreciation | (89,323 | ) | (64,795 | ) | ||||
| Developments in progress | 76,991 | 18,431 | ||||||
| Net investment in real estate | 1,073,215 | 1,010,225 | ||||||
| Cash and cash equivalents | 19,029 | 18,279 | ||||||
| Accounts receivable, net | 11,347 | 9,725 | ||||||
| Deferred expenses, net | 15,280 | 13,220 | ||||||
| Prepaid expenses and other assets | 13,980 | 3,968 | ||||||
| Total assets | $ | 1,132,851 | $ | 1,055,417 | ||||
| Liabilities and Owners’ Equity: | ||||||||
| Mortgage notes and other property debt payable | $ | 933,375 | $ | 786,025 | ||||
| Accounts payable and accrued expenses | 88,188 | 84,322 | ||||||
| Owners’ equity | 111,288 | 185,070 | ||||||
| Total liabilities and owners’ equity | $ | 1,132,851 | $ | 1,055,417 | ||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| GGP/Teachers | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Revenues: | ||||||||||||
| Minimum rents | $ | 106,422 | $ | 87,014 | $ | 83,464 | ||||||
| Tenant recoveries | 46,530 | 40,033 | 38,473 | |||||||||
| Overage rents | 6,003 | 2,888 | 2,736 | |||||||||
| Other | 2,753 | 2,378 | 1,831 | |||||||||
| Total revenues | 161,708 | 132,313 | 126,504 | |||||||||
| Expenses: | ||||||||||||
| Real estate taxes | 11,549 | 11,130 | 10,868 | |||||||||
| Repairs and maintenance | 8,298 | 7,405 | 7,472 | |||||||||
| Marketing | 3,909 | 3,610 | 3,424 | |||||||||
| Other property operating costs | 18,783 | 13,466 | 16,531 | |||||||||
| Provision for doubtful accounts | 132 | 440 | 445 | |||||||||
| Property management and other costs | 9,166 | 7,424 | 6,716 | |||||||||
| General and administrative | 297 | 213 | 179 | |||||||||
| Depreciation and amortization | 26,621 | 21,385 | 20,578 | |||||||||
| Total expenses | 78,755 | 65,073 | 66,213 | |||||||||
| Operating income | 82,953 | 67,240 | 60,291 | |||||||||
| Interest income | 914 | 723 | 287 | |||||||||
| Interest expense | (44,262 | ) | (27,030 | ) | (15,499 | ) | ||||||
| Provision for income taxes | (485 | ) | (747 | ) | (130 | ) | ||||||
| Net income | $ | 39,120 | $ | 40,186 | $ | 44,949 | ||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Woodlands Land Development
We own 52.5% of the membership interest of The Woodlands Land Development Company, L.P. (“The Woodlands Partnership”), a limited liability partnership. The remaining 47.5% interest in The Woodlands Partnership is owned by Morgan Stanley Real Estate Fund II, L.P.
| Woodlands Land Development | ||||||||
| Holdings, LP | ||||||||
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Land | $ | 13,828 | $ | 15,302 | ||||
| Buildings and equipment | 91,485 | 86,892 | ||||||
| Less accumulated depreciation | (19,271 | ) | (9,825 | ) | ||||
| Developments in progress | 6,939 | 27,802 | ||||||
| Investment land and land held for sale and development | 290,273 | 258,926 | ||||||
| Net investment in real estate | 383,254 | 379,097 | ||||||
| Cash and cash equivalents | 15,219 | — | ||||||
| Deferred expenses, net | 2,782 | — | ||||||
| Prepaid expenses and other assets | 97,977 | 88,926 | ||||||
| Total assets | $ | 499,232 | $ | 468,023 | ||||
| Liabilities and Owners’ Equity: | ||||||||
| Mortgage notes and other property debt payable | $ | 321,724 | $ | 282,036 | ||||
| Accounts payable and accrued expenses | 58,805 | 84,275 | ||||||
| Owners’ equity | 118,704 | 101,712 | ||||||
| Total liabilities and owners’ equity | $ | 499,233 | $ | 468,023 | ||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| The Woodlands Land | ||||||||
| Development Holdings, L.P. | ||||||||
| Years Ended December 31, | ||||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Revenues: | ||||||||
| Minimum rents | $ | 1,834 | $ | (9 | ) | |||
| Land sales | 161,540 | 157,581 | ||||||
| Other | 50,791 | 31,947 | ||||||
| Total revenues | 214,165 | 189,519 | ||||||
| Expenses: | ||||||||
| Real estate taxes | 453 | — | ||||||
| Repairs and maintenance | 311 | — | ||||||
| Other property operating costs | 32,207 | 33,083 | ||||||
| Land sales operations | 102,989 | 89,313 | ||||||
| Depreciation and amortization | 5,218 | 4,659 | ||||||
| Total expenses | 141,178 | 127,055 | ||||||
| Operating income | 72,987 | 62,464 | ||||||
| Interest income | 332 | 224 | ||||||
| Interest expense | (6,434 | ) | (5,873 | ) | ||||
| Net income | $ | 66,885 | $ | 56,815 | ||||
Results for the year ended December 31, 2004 include only the six weeks subsequent to the November 12, 2004 TRC Merger and, as a result, have not been presented due to immateriality.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 6 | Mortgage Notes and Other Property Debt Payable |
Mortgage notes and other property debt payable are summarized as follows:
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Fixed-rate debt: | ||||||||
| Commercial mortgage-backed securities | $ | 868,765 | $ | 1,181,895 | ||||
| Other collateralized mortgage notes and other property debt payable | 13,761,988 | 11,092,544 | ||||||
| Corporate and other unsecured term loans | 2,386,727 | 1,631,257 | ||||||
| Total fixed-rate debt | 17,017,480 | 13,905,696 | ||||||
| Variable-rate debt: | ||||||||
| Commercial mortgage-backed securities | — | 306,270 | ||||||
| Other collateralized mortgage notes and other property debt payable | 388,287 | 888,842 | ||||||
| Credit facilities | 60,000 | 180,500 | ||||||
| Corporate and other unsecured term loans | 3,056,200 | 5,137,567 | ||||||
| Total variable-rate debt | 3,504,487 | 6,513,179 | ||||||
| Total | $ | 20,521,967 | $ | 20,418,875 | ||||
The weighted-average annual interest rate (including the effects of swaps and excluding the effects of deferred finance costs) on our mortgage notes and other property debt payable was 5.70% at December 31, 2006 and 5.64% at December 31, 2005. Our mortgage notes and other debt payable have various maturities through 2095. The weighted-average remaining term of our mortgage notes and other property debt payable was 4.7 years as of December 31, 2006.
As of December 31, 2006, approximately $21.5 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgage notes and other debt payable. Certain properties, including those within the portfolios collateralized by commercial mortgage-backed securities, are subject to financial performance covenants, primarily debt service coverage ratios.
Commercial Mortgage-Backed Securities
In November 1997 (refinanced in November 2004), the Operating Partnership and GGP Ivanhoe I completed the placement of fixed-rate non-recourse commercial mortgage backed securities (the “CMBS 13”). The commercial mortgage-backed securities have cross-default provisions and are cross-collateralized. Under certain cross-default provisions, a default under any mortgage note included in a cross-defaulted package may constitute a default under all such mortgage notes in the package and may lead to acceleration of the indebtedness due on each property within the collateral package. In general, the cross-defaulted properties are under common ownership; however, $138.6 million of unconsolidated debt at two Unconsolidated Properties is cross-defaulted and cross-collateralized by $868.8 million of consolidated debt at eleven Consolidated Properties. As of December 31, 2006, the weighted-average interest rate on the CMBS 13 was 5.40% (range of 4.20% to 6.71%).
In December 2001, the Operating Partnership and certain Unconsolidated Real Estate Affiliates completed the placement of non-recourse commercial mortgage pass-through certificates (the “GGP MPTC”). The principal amount of the GGP MPTC was attributed to the Operating Partnership, GGP/Homart I, GGP/Homart II, GGP Ivanhoe III and GGP Ivanhoe IV. The GGP MPTC was repaid in the third quarter of 2006.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Collateralized Mortgage Notes and Other Property Debt Payable
Collateralized mortgage notes and other property debt payable consist primarily of non-recourse notes collateralized by individual properties and equipment. Substantially all of the mortgage notes are non-recourse to us. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium or a percentage of the loan balance.
The fixed-rate collateralized mortgage notes and other debt payable bear interest ranging from 3.17% to 11.53%. The variable-rate collateralized mortgage notes and other debt payable bear interest at LIBOR (5.35% at December 31, 2006) plus 125 to 190 basis points.
Corporate and Other Unsecured Term Loans
On February 24, 2006, we amended the 2004 Credit Facility, which was entered into to fund the TRC Merger, and entered into a Second Amended and Restated Credit Agreement (the “2006 Credit Facility”). The 2006 Credit Facility provides for a $2.85 billion term loan (the “Term Loan”) and a $650 million revolving credit facility. As of December 31, 2006, $590 million is available to be drawn on the revolving credit facility.
The 2006 Credit Facility has a four year term, with a one year extension option. The interest rate ranges from LIBOR plus 1.15% to LIBOR plus 1.5%, depending on our leverage ratio and assuming we maintain our election to have these loans designated as Eurodollar loans. The interest rate, as of December 31, 2006, was LIBOR plus 1.25%. Quarterly principal payments on the Term Loan of $12.5 million begin March 31, 2007, with the balance due at maturity.
Under the terms of the 2006 Credit Facility, we are subject to customary affirmative and negative covenants. If a default occurs, the lenders will have the option of declaring all outstanding amounts immediately due and payable. Events of default include a failure to maintain our REIT status under the Internal Revenue Code, a failure to remain listed on the New York Stock Exchange and such customary events as nonpayment of principal, interest, fees or other amounts, breach of representations and warranties, breach of covenant, cross-default to other indebtedness and certain bankruptcy events.
Concurrently with the 2006 Credit Facility transaction, we also entered into a $1.4 billion term loan (the “Short Term Loan”) and TRCLP entered into a $500 million term loan (the “Bridge Loan”). The Short Term Loan was repaid in August 2006 as part of various refinancing transactions including the GGP MPTC. The Bridge Loan was fully repaid in May 2006 with a portion of the proceeds obtained from the sale of $800 million of senior unsecured notes which were issued by TRCLP. These notes provide for semi-annual, interest-only payments at a rate of 6.75% and payment of the principal in full on May 1, 2013.
Also concurrently with the 2006 Credit Facility transaction, GGP Capital Trust I, a Delaware statutory trust (the “Trust”) and a wholly-owned subsidiary of GGPLP, completed a private placement of $200 million of trust preferred securities (“TRUPS”). The Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036. The TRUPS require distributions 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 under FASB Interpretation No. 46 (as revised), “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46R”). As a result, we have recorded the Junior Subordinated Notes as Mortgage Notes and Other Property Debt Payable and our common equity interest in the Trust as Prepaid Expenses and Other Assets in our Consolidated Balance Sheet.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unsecured Term Loans
In conjunction with the TRC Merger, we assumed certain publicly-traded unsecured debt which included 8.78% and 8.44% Notes due 2007, 3.625% Notes and 8% Notes due 2009, 7.2% Notes due 2012 and 5.375% Notes due 2013. Such debt totaled $1.5 billion at both December 31, 2006 and 2005. Under the terms of the Indenture dated as of February 24, 1995, as long as these notes are outstanding, TRCLP is required to file with the SEC the annual and quarterly reports and other documents which TRCLP would be required to file as if it was subject to Section 13(a) or 15(d) of the Exchange Act, regardless of whether TRCLP was subject to such requirements. TRCLP is no longer required to file reports or other documents with the SEC under Section 13(a) or 15(d). Accordingly, in lieu of such filing, certain financial and other information related to TRCLP has been included as Exhibit 99.1 to this Annual Report onForm 10-K. We believe that such TRCLP information is responsive to the terms of the Indenture and that any additional information needed or actions required can be supplied or addressed.
In conjunction with our acquisition of JP Realty in 2002, we assumed $100 million of ten-year senior unsecured notes which bear interest at a fixed rate of 7.29% and were issued in March 1998. The notes require semi-annual interest payments. Annual principal payments of $25 million began in March 2005 and continue until the loan is fully repaid in March 2008.
Interest Rate Swaps
To achieve a more desirable balance between fixed and variable-rate debt, we have also entered into certain swap agreements as follows:
| 2006 Credit | Property | |||||||
| Agreement | Specific | |||||||
| Total notional amount (in millions) | $ | 625.0 | $ | 195.0 | ||||
| Average fixed pay rate | 4.11 | % | 4.78 | % | ||||
| Average variable receive rate | LIBOR | LIBOR | ||||||
Such swap agreements have been designated as cash flow hedges and are intended to hedge our exposure to future interest payments on the related variable-rate debt.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of approximately $220 million as of December 31, 2006. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.
| Note 7 | Income Taxes |
We elected to be taxed as a REIT undersections 856-860 of the Internal Revenue Code, commencing with our taxable year beginning January 1, 1993. 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 distribute to stockholders or pay tax on 100% of capital gains and to meet certain asset and income tests. It is management’s current intention to adhere to these requirements.
As a REIT, we will generally not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property, and to Federal income and excise taxes on our undistributed taxable income. In addition, we are subject to rules which may impose corporate income tax on certain built-in gains recognized upon the disposition of assets owned by our subsidiaries where such subsidiaries (or other predecessors)
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
had formerly been C corporations. These rules apply only where the disposition occurs within certain specified recognition periods. Specifically, in the case of the TRC assets, we may be subject to tax on built-in gain recognized upon the disposition prior to January 1, 2008 of assets owned by TRC on January 1, 1998, the effective date of TRC’s REIT election. At December 31, 2006, the total amount of built-in gains with respect to our assets is substantial. However, to the extent that any such properties are to be sold, we intend to utilize tax strategies such as dispositions through like-kind exchanges and the use of net operating loss carryforwards to limit or offset the amount of such gains and therefore the amount of tax paid.
We also have subsidiaries which we have elected to be treated as taxable real estate investment trust subsidiaries (a “TRS” or “TRS entities”) and which are, therefore, subject to federal and state income taxes. Our primary TRS entities include GGMI, entities which own our master planned community properties and other TRS entities acquired in the TRC Merger. Current Federal income taxes of certain of these TRS entities are likely to increase in future years as we exhaust the net loss carryforwards of these entities and as certain master planned community developments are completed. Such increases could be significant.
The provision for income taxes for the years ended December 31, 2006, 2005 and 2004 were as follows:
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Current | $ | 40,732 | $ | 22,693 | $ | 390 | ||||||
| Deferred | 58,252 | 28,596 | 1,993 | |||||||||
| Total | $ | 98,984 | $ | 51,289 | $ | 2,383 | ||||||
Income tax expense computed by applying the Federal corporate tax rate for the years ended December 31, 2006, 2005 and 2004 is reconciled to the provision for income taxes as follows:
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Tax at statutory rate on earnings from continuing operations before income taxes | $ | 55,678 | $ | 40,723 | $ | 89,481 | ||||||
| Increase (decrease) in valuation allowances, net | 936 | (5,114 | ) | (2,110 | ) | |||||||
| State income taxes, net of Federal income tax benefit | 4,608 | 343 | 115 | |||||||||
| Tax at statutory rate on earnings (losses) not subject to Federal income taxes and other permanent differences | 37,762 | 15,337 | (85,103 | ) | ||||||||
| Income tax expense | $ | 98,984 | $ | 51,289 | $ | 2,383 | ||||||
Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods. Our net operating loss carryforwards are currently scheduled to expire in subsequent years through 2026. Some of the net operating loss carryforward amounts are subject to annual limitations under Section 382 of the Internal Revenue Code. This annual limitation under Section 382 is subject to modification if a taxpayer recognizes what are called “built-in gain items.” For 2004, the benefit of the entire amount of the net operating loss was recorded and a reserve was established to reflect the limitations caused by Section 382. For 2005, the presentation has changed, but the net amount has remained the same. For 2005, the benefit amount has been reduced to reflect the sum of the annual Section 382 limitations, with no adjustment for the potential of built-in gain items. The valuation amount has likewise been reduced, thereby maintaining the same net deferred tax benefit amount for the net operating loss carryforwards. For 2006, there has been no change from 2005 in the presentation of the net tax benefit.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Net deferred tax assets (liabilities) are summarized as follows:
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Total deferred tax assets | $ | 16,006 | $ | 12,457 | ||||
| Valuation allowance | (936 | ) | — | |||||
| Net deferred tax assets | 15,070 | 12,457 | ||||||
| Total deferred tax liabilities | (1,302,205 | ) | (1,286,576 | ) | ||||
| Net deferred tax liabilities | $ | (1,287,135 | ) | $ | (1,274,119 | ) | ||
As part of the TRC merger, we acquired a controlling interest in an entity whose assets included a deferred tax asset of approximately $141 million related to $405.5 million of temporary differences (primarily interest deduction carryforwards with no expiration date).
Due to the uncertainty of the realization of certain tax carryforwards, we established valuation allowances. The majority of the valuation allowances related to net operating loss carryforwards where there was uncertainty regarding their realizability.
The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31, 2006 and 2005 are summarized as follows:
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Property, primarily differences in depreciation and amortization, the tax basis of land assets and treatment of interest and certain other costs | $ | (1,165,960 | ) | $ | (1,266,660 | ) | ||
| Deferred income | (291,634 | ) | (236,167 | ) | ||||
| Interest deduction carryforwards | 142,177 | 163,193 | ||||||
| Operating loss and tax credit carryforwards | 28,282 | 65,515 | ||||||
| Net deferred tax liabilities | $ | (1,287,135 | ) | $ | (1,274,119 | ) | ||
Several of our subsidiaries and partnerships in which we have an interest are currently under examination by the Internal Revenue Service. Although we believe our tax returns are correct, the final determination of tax audits and any related litigation could be different than that which was reported on the returns. In the opinion of management, we have made adequate tax provisions for years subject to examination.
During the first quarter of 2007, we expect to complete an internal restructuring of certain of our operating properties that are currently owned by TRS entities. We currently estimate that the restructuring will reduce our deferred tax liability by approximately $300 million.
Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due to differences for Federal income tax reporting purposes in, among other things, estimated useful lives, depreciable basis of properties and permanent and temporary differences on the inclusion or deductibility of elements of income and deductibility of expense for such purposes.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Distributions paid on our common stock and their tax status, as sent to our shareholders, are presented in the following table. The tax status of GGP distributions in 2006, 2005 and 2004 may not be indicative of future periods.
| 2006 | 2005 | 2004 | ||||||||||
| Ordinary income | $ | 0.542 | $ | 0.993 | $ | 1.260 | ||||||
| Return of capital | 0.501 | 0.497 | — | |||||||||
| Qualified dividends | 0.432 | — | — | |||||||||
| Capital gain distributions | 0.205 | — | — | |||||||||
| Distributions per share | $ | 1.680 | $ | 1.490 | $ | 1.260 | ||||||
| Note 8 | Rentals Under Operating Leases |
We receive rental income from the leasing of retail and other space under operating leases. The minimum future rentals based on operating leases of our Consolidated Properties held as of December 31, 2006 are as follows:
Year | Amount | |||
| (In thousands) | ||||
| 2007 | $ | 1,393,768 | ||
| 2008 | 1,293,107 | |||
| 2009 | 1,156,375 | |||
| 2010 | 1,005,205 | |||
| 2011 | 861,215 | |||
| Subsequent | 3,097,317 | |||
Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of operating expenses and amortization of above and below-market tenant leases.
Such operating leases are with a variety of tenants, the majority of which are national and regional retail chains and local retailers, and consequently, our credit risk is concentrated in the retail industry.
| Note 9 | Transactions With Affiliates |
Management fees primarily represent management and leasing 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 charged to the Unconsolidated Properties totaled approximately $110.9 million in 2006, $87.5 million in 2005 and $61.8 million in 2004. Such fees are recognized as revenue when earned.
| Note 10 | Stock-Based Compensation Plans and Other Stock-Based Activity |
Incentive Stock Plans
We grant qualified and non-qualified stock options and make restricted stock grants to attract and retain officers and key employees through the 2003 Incentive Stock Plan and, prior to April 2003, the 1993 Stock Incentive Plan. 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 market value of our common stock on the date of the grant. The terms of the options are fixed by the Compensation Committee. Stock options granted to officers and key employees under the 2003 Incentive Stock Plan are for5-year terms and under the 1993 Incentive Stock Plan are for10-year terms. Stock options generally vest 20% at the time of the grant and in 20% annual increments thereafter. Prior to May 2006, we granted options to non-employee directors that were exercisable in full commencing on the date of grant and scheduled to expire on the fifth anniversary of the date of the grant. Beginning in May 2006, non-employee directors received restricted stock
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
grants, as further described below. The 2003 Incentive Stock Plan provides for the issuance of up to 9.0 million shares of our common stock, subject to certain customary adjustments to prevent dilution.
The following tables summarize stock option activity as of and for the years ended December 31, 2006, 2005 and 2004.
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
| Stock Options Outstanding at January 1 | 2,546,174 | $ | 29.57 | 1,875,687 | $ | 22.17 | 1,482,087 | $ | 14.86 | |||||||||||||||
| Granted | 1,370,000 | 49.78 | 1,352,500 | 36.13 | 922,500 | 30.80 | ||||||||||||||||||
| Exercised | (573,226 | ) | 24.70 | (610,213 | ) | 21.00 | (521,100 | ) | 16.83 | |||||||||||||||
| Exchanged for restricted stock | (30,000 | ) | 47.26 | — | — | — | — | |||||||||||||||||
| Forfeited | (145,000 | ) | 43.10 | (70,000 | ) | 33.49 | (7,500 | ) | 11.31 | |||||||||||||||
| Expired | (600 | ) | 9.99 | (1,800 | ) | 9.99 | (300 | ) | 9.99 | |||||||||||||||
| Stock Options Outstanding at December 31 | 3,167,348 | $ | 38.41 | 2,546,174 | $ | 29.57 | 1,875,687 | $ | 22.17 | |||||||||||||||
| Stock Options Outstanding | Stock Options Exercisable | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Weighted | Average | Weighted | |||||||||||||||||||||
| Remaining | Average | Remaining | Average | |||||||||||||||||||||
| Contractual | Exercise | Contractual | Exercise | |||||||||||||||||||||
Range of Exercise Prices | Shares | Term (in years) | Price | Shares | Term (in years) | Price | ||||||||||||||||||
In-the-money stock options | ||||||||||||||||||||||||
| $ 5.05 - $10.09 | 6,000 | 3.3 | $ | 9.99 | 6,000 | 3.3 | $ | 9.99 | ||||||||||||||||
| $10.09 - $15.14 | 54,700 | 5.2 | 13.58 | 54,700 | 5.2 | 13.58 | ||||||||||||||||||
| $15.14 - $20.19 | 247,148 | 6.2 | 16.77 | 103,148 | 6.2 | 16.77 | ||||||||||||||||||
| $30.28 - $35.33 | 612,500 | 2.7 | 30.98 | 298,500 | 2.7 | 31.03 | ||||||||||||||||||
| $35.33 - $40.38 | 972,000 | 3.1 | 35.61 | 292,000 | 3.1 | 35.55 | ||||||||||||||||||
| $40.38 - $50.47 | 1,275,000 | 4.1 | 49.50 | 220,000 | 4.0 | 49.37 | ||||||||||||||||||
| Total | 3,167,348 | 3.9 | $ | 38.41 | 974,348 | 3.8 | $ | 33.91 | ||||||||||||||||
| Intrinsic value (in thousands) | $ | 43,773 | $ | 17,850 | ||||||||||||||||||||
The intrinsic value of outstanding and exercisable stock options as of December 31, 2006 represents the excess of our closing stock price ($52.23) over the exercise price multiplied by the applicable number of stock options. 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 and was $13.9 million for options exercised during 2006, $10.9 million for options exercised during 2005, and $7.4 million for options exercised during 2004.
The weighted-average fair value of stock options as of the grant date was $7.61 for stock options granted during 2006, $4.82 for stock options granted during 2005, and $2.97 for stock options granted during 2004.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock
We also make restricted stock grants to certain officers and, beginning in May 2006, to non-employee directors, pursuant to the 2003 Stock Incentive Plan. The vesting terms of these grants are specific to the individual grant. Generally, the shares vest either one-third immediately with the remainder vesting equally on the first and second anniversaries or equally on the first, second and third anniversaries.
The following table summarizes restricted stock activity as of and for the years ended December 31, 2006, 2005, and 2004.
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Grant Date | Grant Date | Grant Date | ||||||||||||||||||||||
| Shares | Fair Value | Shares | Fair Value | Shares | Fair Value | |||||||||||||||||||
| Nonvested restricted stock grants outstanding as of January 1 | 15,000 | $ | 16.77 | 80,001 | $ | 16.71 | 145,002 | $ | 16.71 | |||||||||||||||
| Granted | 99,000 | 47.91 | 66,000 | 35.41 | 55,000 | 30.94 | ||||||||||||||||||
| Vested | (41,334 | ) | 37.13 | (131,001 | ) | 26.13 | (120,001 | ) | 23.22 | |||||||||||||||
| Nonvested restricted stock grants outstanding as of December 31 | 72,666 | $ | 47.62 | 15,000 | $ | 16.77 | 80,001 | $ | 16.71 | |||||||||||||||
| Intrinsic value (in thousands) | $ | 3,795 | $ | 705 | $ | 2,893 | ||||||||||||||||||
The total fair value of restricted stock grants which vested during 2006 was $2.0 million, during 2005 was $5.1 million and during 2004 was $3.7 million.
Threshold-Vesting Stock Options
Under the 1998 Incentive Stock Plan (the “1998 Incentive Plan”), we may also grant stock incentive awards to employees in the form of threshold-vesting stock options (“TSOs”). The exercise price of the TSO is the Fair Market Value (“FMV”) 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 Threshold Price for at least 20 consecutive trading days at any time over the five years following the date of grant. The Threshold Price is determined by multiplying the FMV on the date of grant by the Estimated Annual Growth Rate (currently 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 provides for the issuance of 11.0 million shares, subject to certain customary adjustments to prevent dilution.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes TSO activity by grant year.
| TSO Grant Year | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Granted | 1,400,000 | 1,000,000 | 1,031,480 | |||||||||
| Forfeited | (84,773 | ) | (118,332 | ) | (114,919 | ) | ||||||
| Vested and exercised | — | (723,920 | ) | (916,561 | ) | |||||||
| TSOs outstanding at December 31, 2006 | 1,315,227 | 157,748 | (1) | — | ||||||||
| Intrinsic value (in thousands) | $ | 2,315 | $ | 2,653 | — | |||||||
| Exercise price | $ | 50.47 | $ | 35.41 | $ | 30.94 | ||||||
| Threshold price | 70.79 | 49.66 | 43.39 | |||||||||
| Fair value of options on grant date | 6.51 | 3.81 | 1.59 | |||||||||
| Remaining contractual term (in years) | 4.2 | 0.1 | — | |||||||||
| (1) | Substantially all of the outstanding 2005 grant year TSOs were exercised in January 2007. |
In addition to the TSOs above, which are accounted for pursuant to SFAS 123(R), 156,516 vested, but unexercised, TSOs granted prior to 2004 are accounted for using the intrinsic value method.
Other Required Disclosures
The fair values of TSOs granted in 2006 and 2005 were estimated using the binomial method. The value of restricted stock grants is calculated as the average of the high and low stock prices on the date of the initial grant. The fair values of all other stock options were estimated on the date of grant using the Black-Scholes-Merton option pricing model. These fair values are affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. Expected volatilities are based on historical volatility of our stock price as well as that of our peer group, implied volatilities and various other factors. Historical data was used to estimate expected life and represents the period of time that options are expected to be outstanding. The weighted average estimated value of stock options and TSOs granted during 2006, 2005 and 2004 were based on the following assumptions:
| 2006 | 2005 | 2004 | ||||||||||
| Risk-free interest rate | 4.43 | % | 3.40 | % | 3.44 | % | ||||||
| Dividend yield | 4.00 | 4.00 | 6.09 | |||||||||
| Expected volatility | 22.94 | 21.61 | 20.10 | |||||||||
| Expected life (in years) | 2.5 - 3.5 | 5.0 | 5.2 | |||||||||
Compensation expense related to the Incentive Stock Plans, TSOs and restricted stock was $14.0 million in 2006, $11.1 million in 2005 and $6.5 million in 2004.
As of December 31, 2006, total compensation expense related to nonvested options, TSOs and restricted stock grants which had not yet been recognized was $17.4 million. Of this total, $7.9 million is expected to be recognized in 2007, $6.5 million in 2008, $2.5 million in 2009, $0.4 million in 2010 and $0.1 million in 2011. These amounts may be impacted by future grants, changes in forfeiture estimates, actual forfeiture rates which differ from estimated forfeituresand/or timing of TSO vesting.
We have a $200 million per fiscal year common stock repurchase program which gives us the ability to acquire some or all of the shares of common stock to be issued upon the exercise of the TSOs.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee Stock Purchase Plan
The General Growth Properties, Inc. Employee Stock Purchase Plan (the “ESPP”) was established to assist eligible employees in acquiring stock ownership interest in GGP. Under the ESPP, eligible employees make payroll deductions over a six-month purchase period. At the end of each six-month purchase period, the amounts withheld are used to purchase shares of our common stock at a purchase price equal to 85% of the lesser of the closing price of a share of a common stock on the first or last trading day of the purchase period. The ESPP is considered a compensatory plan pursuant to SFAS 123(R). A maximum of 1.5 million shares of our common stock are reserved for issuance under the ESPP. Since inception, an aggregate of approximately 1.4 million shares of our common stock have been sold under the ESPP, including 61,759 shares for the purchase period ending December 31, 2006 which were purchased at a price of $39.26 per share. Compensation expense related to the ESPP was $1.5 million in 2006, $2.0 million in 2005, and $1.3 million in 2004.
Defined Contribution Plan
We sponsor the General Growth 401(k) Savings Plan (the “401(k) Plan”) which permits all eligible employees to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Subject to certain limitations (including an annual limit imposed by the Internal Revenue Code), each participant is allowed to make before-tax contributions up to 50% of gross earnings, as defined. We add to a participant’s account through a matching contribution up to 5% of the participant’s annual earnings contributed to the 401(k) Plan. We match 100% of the first 4% of earnings contributed by each participant and 50% of the next 2% of earnings contributed by each participant. We recognized expense resulting from the matching contributions of $9.3 million in 2006, $7.5 million in 2005, and $5.3 million in 2004.
Dividend Reinvestment and Stock Purchase Plan
We have reserved up to 3.0 million shares of our common stock for issuance under the Dividend Reinvestment and Stock Purchase Plan (“DRSP”). In general, the DRSP allows participants to purchase our common stock from dividends received or additional cash investments. The stock is purchased at current market price, but no fees or commissions are charged to the participant. We expect to continue to satisfy DRSP common stock purchases by issuing new shares of our common stock or by repurchasing currently outstanding common stock. As of December 31, 2006, an aggregate of 598,161 shares of our common stock have been issued under the DRSP.
| Note 11 | Other Assets & Liabilities |
The following table summarizes the significant components of “Prepaid Expenses and Other Assets.”
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Below-market ground leases | $ | 280,516 | $ | 349,788 | ||||
| Receivables — finance leases and bonds | 118,459 | 136,409 | ||||||
| Security and escrow deposits | 76,834 | 87,326 | ||||||
| Real estate tax stabilization agreement | 83,378 | 87,188 | ||||||
| Special Improvement District receivable | 64,819 | 66,206 | ||||||
| Above-market tenant leases | 53,981 | 77,094 | ||||||
| Prepaid expenses | 37,528 | 26,627 | ||||||
| Funded defined contribution plan assets | 17,119 | 20,062 | ||||||
| Other | 50,200 | 66,411 | ||||||
| $ | 782,834 | $ | 917,111 | |||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the significant components of “Accounts Payable and Accrued Expenses.”
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Accounts payable and accrued expenses | $ | 200,936 | $ | 217,829 | ||||
| Below-market tenant leases | 117,963 | 182,270 | ||||||
| Construction payables | 188,038 | 105,789 | ||||||
| Accrued interest | 102,870 | 85,945 | ||||||
| Hughes participation payable | 90,793 | 61,783 | ||||||
| Accrued real estate taxes | 71,816 | 62,492 | ||||||
| Accrued payroll and other employee liabilities | 58,372 | 60,038 | ||||||
| Deferred gains/income | 56,414 | 75,488 | ||||||
| Tenant and other deposits | 32,887 | 18,651 | ||||||
| Funded defined contribution plan liabilities | 17,119 | 20,062 | ||||||
| Above-market ground leases | 15,961 | 16,433 | ||||||
| Capital lease obligations | 14,967 | 19,206 | ||||||
| Other | 82,056 | 88,457 | ||||||
| $ | 1,050,192 | $ | 1,014,443 | |||||
| Note 12 | Minority Interests |
Common
Changes in outstanding Operating Partnership Common Units for the three years ended December 31, 2006 are as follows:
| January 1, 2004 | 55,712,250 | |||
| Exchanges for GGP common stock | (179,987 | ) | ||
| December 31, 2004 | 55,532,263 | |||
| Conversion of Preferred Units into Common Units | 729,890 | |||
| Exchanges for GGP common stock | (3,200,258 | ) | ||
| December 31, 2005 | 53,061,895 | |||
| Conversion of Preferred Units into Common Units | 1,163,333 | |||
| Exchanges for GGP common stock | (1,334,637 | ) | ||
| December 31, 2006 | 52,890,591 | |||
Under certain circumstances, the Common Units can be redeemed at the option of the holders for cash or, at our election, for shares of GGP common stock on aone-for-one basis. The holders of the Common Units also share equally with our common stockholders on a per share basis in any distributions by the Operating Partnership on the basis that one Common Unit is equivalent to one share of GGP common stock.
Also included in minority interests-common is minority interest in consolidated joint ventures of approximately $6.4 million as of December 31, 2006 and $13.6 million as of December 31, 2005.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Preferred
Components of minority interest — preferred as of December 31, 2006 and 2005 are as follows:
| Number | ||||||||||||||||||||||||
| of Units | ||||||||||||||||||||||||
| as of | Per Unit | |||||||||||||||||||||||
| Coupon | Issuing | December 31, | Liquidation | Carrying Amount | ||||||||||||||||||||
Security Type | Rate | Entity | 2006 | Preference | 2006 | 2005 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
Perpetual Preferred Units | ||||||||||||||||||||||||
| Redeemable Preferred Units (“RPUs”) | 8.95 | % | LLC | 240,000 | $ | 250 | $ | 60,000 | $ | 60,000 | ||||||||||||||
| Cumulative Preferred Units (“CPUs”) | 8.25 | % | LLC | 20,000 | 250 | 5,000 | 5,000 | |||||||||||||||||
| 65,000 | 65,000 | |||||||||||||||||||||||
Convertible Preferred Units | ||||||||||||||||||||||||
| Series B — JP Realty | 8.50 | % | GGPLP | 1,294,471 | 50 | 64,724 | 68,129 | |||||||||||||||||
| Series C — Glendale Galleria | 7.00 | % | GGPLP | 19,466 | 50 | 974 | 20,685 | |||||||||||||||||
| Series D — Foothills Mall | 6.50 | % | GGPLP | 532,750 | 50 | 26,637 | 26,637 | |||||||||||||||||
| Series E — Four Seasons Town Centre | 7.00 | % | GGPLP | 502,658 | 50 | 25,132 | 25,132 | |||||||||||||||||
| 117,467 | 140,583 | |||||||||||||||||||||||
| Other preferred stock of consolidated subsidiaries | N/A | various | 361 | 1,000 | 361 | 361 | ||||||||||||||||||
| Total Minority Interest-Preferred | $ | 182,828 | $ | 205,944 | ||||||||||||||||||||
Holders of the RPUs and CPUs are entitled to receive cumulative preferential cash distributions prior to any distributions by the LLC to the Operating Partnership. Subject to certain limitations, the RPUs may be redeemed in cash by the LLC in April 2007 for the liquidation preference amount plus accrued and unpaid distributions and may be exchanged by the holders of the RPUs for an equivalent amount of GGP redeemable preferred stock. Such preferred stock provides for an equivalent 8.95% annual preferred distribution and is redeemable at our option for cash equal to the liquidation preference amount plus accrued and unpaid distributions.
The Convertible Preferred Units are convertible, with certain restrictions, at any time by the holder into Common Units of the Operating Partnership at the following rates:
| Number of Common | ||||
| Units for each | ||||
| Preferred Unit | ||||
| Series B — JP Realty | 3.000 | |||
| Series C — Glendale Galleria | 2.433 | |||
| Series D — Foothills Mall | 1.508 | |||
| Series E — Four Seasons Town Centre | 1.298 | |||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 13 | Accumulated Other Comprehensive Income |
Components of accumulated other comprehensive income as of December 31, 2006 and 2005 are as follows:
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Net unrealized gains on financial instruments | $ | 1,386 | $ | 4,702 | ||||
| Accrued pension adjustment | (705 | ) | (703 | ) | ||||
| Foreign currency translation | 9,238 | 6,510 | ||||||
Unrealized losses onavailable-for-sale securities | (337 | ) | (55 | ) | ||||
| $ | 9,582 | $ | 10,454 | |||||
| Note 14 | 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 management’s 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. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Rental expense, including participation rent and excluding amortization of above and below-market ground leases and straight-line rents, was $10.3 million in 2006, $10.5 million in 2005 and $3.6 million in 2004.
We periodically enter into contingent agreements for the acquisition of properties. Each acquisition is 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 planned to be part of The Palazzo in Las Vegas, Nevada that will be connected to the existing Venetian and the Sands Expo and Convention Center facilities (the “Phase II Acquisition”) and The Grand Canal Shoppes. The Palazzo is currently under construction and is expected to be completed in early 2008. If completed as specified under the terms of the Phase II Agreement, we will purchase, payable upon grand opening, the Phase II Acquisition retail space at a price computed on a 6% capitalization rate on the projected net operating income of the Phase II retail space, as defined by the Phase II Agreement (“Phase II NOI”), up to $38 million and on a capitalization rate of 8% on Phase II NOI in excess of $38 million, all subject to a minimum purchase price of $250 million. Based on current construction plans, progress and estimated rents, we believe the actual purchase price will be approximately $600 million. The Phase II Agreement is subject to the satisfaction of customary closing conditions.
The following table summarizes the contractual maturities of our long-term commitments. Both long-term debt and ground leases include the related purchase accounting fair value adjustments:
| 2007 | 2008 | 2009 | 2010 | 2011 | Subsequent | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Long-term debt-principal | $ | 1,330,256 | $ | 2,055,555 | $ | 3,246,184 | $ | 3,760,636 | $ | 6,546,472 | $ | 3,582,864 | $ | 20,521,967 | ||||||||||||||
| Retained debt-principal | 6,847 | 2,446 | 2,606 | 119,694 | 775 | 37,742 | 170,110 | |||||||||||||||||||||
| Ground lease payments | 18,795 | 18,838 | 18,862 | 18,870 | 18,731 | 712,147 | 806,243 | |||||||||||||||||||||
| Total | $ | 1,355,898 | $ | 2,076,839 | $ | 3,267,652 | $ | 3,899,200 | $ | 6,565,978 | $ | 4,332,753 | $ | 21,498,320 | ||||||||||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingent Stock Agreement
In conjunction with the TRC Merger, we assumed TRC’s obligations under a Contingent Stock Agreement (“CSA”). TRC entered into the CSA in 1996 when they acquired The Hughes Corporation (“Hughes”). This acquisition included various assets, including Summerlin (the “CSA Assets”), a project in our Master Planned Communities segment. We agreed that the TRC Merger would not have a prejudicial effect on the former Hughes owners or their successors (the “Beneficiaries”) with respect to their receipt of securities pursuant to the CSA. We further agreed to indemnify and hold harmless the Beneficiaries against losses arising out of any breach by us of these covenants.
Under the CSA, we are required to issue shares of our common stock semi-annually (February and August) to the Beneficiaries. The number of shares to be issued is based on cash flows from the developmentand/or sale of the CSA Assets and our stock price. We account for the Beneficiaries’ share of earnings from the CSA Assets as an operating expense. We delivered 1.8 million shares of our common stock (including 1.7 million treasury shares) to the Beneficiaries in 2006 and 1.6 million (including 1.0 million treasury shares) in 2005.
We are also required to make a final distribution to the Beneficiaries in 2009. The amount of this distribution will be based on the appraised values of the CSA Assets and is expected to be significant. We will account for this distribution as additional investments in the related assets (that is, contingent consideration).
The issuance of shares pursuant to any of the semi-annual or final distributions could be dilutive to our existing stockholders if we issue new shares rather than treasury shares or shares purchased on the open market.
Hurricane Damages
In September 2005, two of our operating retail properties in Louisiana incurred hurricaneand/or vandalism damage. Riverwalk Marketplace, which is located near the convention center in downtown New Orleans, partially reopened in November 2005. Though it is now fully opened, it is operating at levels below pre-hurricane levels as a result of reduced occupancy and tourist traffic. Oakwood Center, located in Gretna, Louisiana, is not expected to reopen until October 2007. We have comprehensive insurance coverage for both property damage and business interruption and, therefore, have recorded insurance recovery receivables for both of these coverages.
The net book value of the property damage at these properties is currently estimated to be approximately $37 million. However, we continue to assess the damage estimates and are having ongoing discussions with our insurance carriers regarding the scope of repair, cleaning, and replacement required. The actual net book value write-off could vary from this estimate. Changes to these estimates have been and will be recorded in the periods in which they are determined.
We believe it is probable that insurance proceeds will be sufficient to cover the cost of restoring the property damage and certain business interruption amounts; however, certain deductibles, limitations and exclusions are expected to apply with respect to both current and future matters. No determination has yet been made as to the total amount or timing of insurance payments. As of December 31, 2006, however, an aggregate of $32.5 million in insurance proceeds related to property damage and business interruption have been received. These proceeds have been applied against insurance recovery receivables. In addition, as certain disputes currently exist or may occur in the future with our insurance carriers, we have initiated litigation to preserve our rights concerning our claims. Finally, as of December 31, 2006, the majority of the remaining insurance recovery receivable represents the recovery of the net book value of fixed assets written off.
| Note 15 | Recently Issued Accounting Pronouncements |
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) which provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. With certain limitations, early adoption is permitted. We are evaluating the impact of this new statement on our financial statements.
In September 2006, the SEC staff issued SEC Staff Accounting Bulletin (“SAB”) Topic 1N, “Financial Statements — Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 addresses how a registrant should quantify the effect of an error on the financial statements. The SEC staff concludes in SAB 108 that a dual approach should be used to compute the amount of a misstatement. Specifically, the amount should be computed using both the “rollover” (current year income statement perspective) and “iron curtain” (year-end balance sheet perspective) methods. The adoption had no impact on our Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R)” (“SFAS 158”) which requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in their financial statements. Specifically, SFAS 158 requires an employer to:
| (a) | Recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status |
| (b) | Measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions) |
| (c) | Recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income of a business entity. |
The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We have adopted SFAS 158 as of and for the year-ended December 31, 2006. Due to the immateriality of our defined benefit pension plans, the impact of the adoption of SFAS 158 was not significant to our Consolidated Financial Statements.
In September 2006, the FASB also issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also requires expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe that the adoption of SFAS No. 157 will have a material impact on our Consolidated Financial Statements.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of SFAS 109, “Accounting for Income Taxes,” to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will adopt FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. We are evaluating the impact of FIN 48 but cannot estimate
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the impact to the financial statements because of the need to continue to assess the sufficiency of our positions with respect to measurement and recognition, including but not limited to, transfer pricing.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” (“SFAS 150”) which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The effective date of SFAS 150 relating to measurement and classification provisions has been indefinitely postponed by the FASB. We did not enter into new financial instruments subsequent to May 2003 which would fall within the scope of this statement. Though we have certain limited life ventures that appear to meet the criteria for liability recognition, we do not believe that the adoption of SFAS No. 150 statement, if required, will have a material impact on our financial statements.
| Note 16 | 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 |
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. Management believes that NOI provides useful information about a property’s operating performance.
The accounting policies of the segments are the same as those described in Note 2, except that we account for 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 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 include the NOI of discontinued operations and is reduced by the NOI attributable to our minority interest partners in consolidated joint ventures.
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Segment operating results are as follows:
| Year Ended December 31, 2006 | ||||||||||||
| Consolidated | Unconsolidated | Segment | ||||||||||
| Properties | Properties | Basis | ||||||||||
| (In thousands) | ||||||||||||
Retail and Other | ||||||||||||
| Property revenues: | ||||||||||||
| Minimum rents | $ | 1,753,508 | $ | 428,337 | $ | 2,181,845 | ||||||
| Tenant recoveries | 773,034 | 187,782 | 960,816 | |||||||||
| Overage rents | 75,945 | 15,966 | 91,911 | |||||||||
| Other, including minority interest | 99,779 | 88,552 | 188,331 | |||||||||
| Total property revenues | 2,702,266 | 720,637 | 3,422,903 | |||||||||
| Property operating expenses: | ||||||||||||
| Real estate taxes | 218,549 | 58,832 | 277,381 | |||||||||
| Repairs and maintenance | 199,078 | 43,768 | 242,846 | |||||||||
| Marketing | 48,626 | 13,184 | 61,810 | |||||||||
| Other property operating costs | 373,020 | 154,010 | 527,030 | |||||||||
| Provision for doubtful accounts | 22,078 | 793 | 22,871 | |||||||||
| Total property operating expenses | 861,351 | 270,587 | 1,131,938 | |||||||||
| Retail and other net operating income | 1,840,915 | 450,050 | 2,290,965 | |||||||||
Master Planned Communities | ||||||||||||
| Land sales | 423,183 | 85,561 | 508,744 | |||||||||
| Land sales operations | (316,453 | ) | (62,304 | ) | (378,757 | ) | ||||||
| Master Planned Communities net operating income | 106,730 | 23,257 | 129,987 | |||||||||
| Real estate property net operating income | $ | 1,947,645 | $ | 473,307 | $ | 2,420,952 | ||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Year Ended December 31, 2005 | ||||||||||||
| Consolidated | Unconsolidated | Segment | ||||||||||
| Properties | Properties | Basis | ||||||||||
| (In thousands) | ||||||||||||
Retail and Other | ||||||||||||
| Property revenues: | ||||||||||||
| Minimum rents | $ | 1,670,387 | $ | 393,740 | $ | 2,064,127 | ||||||
| Tenant recoveries | 754,836 | 181,193 | 936,029 | |||||||||
| Overage rents | 69,628 | 14,085 | 83,713 | |||||||||
| Other, including discontinued operations and minority interest | 107,674 | 64,803 | 172,477 | |||||||||
| Total property revenues | 2,602,525 | 653,821 | 3,256,346 | |||||||||
| Property operating expenses: | ||||||||||||
| Real estate taxes | 206,193 | 55,138 | 261,331 | |||||||||
| Repairs and maintenance | 195,292 | 43,411 | 238,703 | |||||||||
| Marketing | 63,522 | 14,705 | 78,227 | |||||||||
| Other property operating costs | 390,051 | 120,381 | 510,432 | |||||||||
| Provision for doubtful accounts | 13,868 | 4,857 | 18,725 | |||||||||
| Total property operating expenses | 868,926 | 238,492 | 1,107,418 | |||||||||
| Retail and other net operating income | 1,733,599 | 415,329 | 2,148,928 | |||||||||
Master Planned Communities | ||||||||||||
| Land sales | 385,205 | 83,089 | 468,294 | |||||||||
| Land sales operations | (311,815 | ) | (60,826 | ) | (372,641 | ) | ||||||
| Master Planned Communities net operating income | 73,390 | 22,263 | 95,653 | |||||||||
| Real estate property net operating income | $ | 1,806,989 | $ | 437,592 | $ | 2,244,581 | ||||||
F-49
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Year Ended December 31, 2004 | ||||||||||||
| Consolidated | Unconsolidated | Segment | ||||||||||
| Properties | Properties | Basis | ||||||||||
| (In thousands) | ||||||||||||
Retail and Other | ||||||||||||
| Property revenues: | ||||||||||||
| Minimum rents | $ | 1,058,732 | $ | 293,175 | $ | 1,351,907 | ||||||
| Tenant recoveries | 472,250 | 135,561 | 607,811 | |||||||||
| Overage rents | 54,105 | 10,960 | 65,065 | |||||||||
| Other, including discontinued operations and minority interest | 67,686 | 18,694 | 86,380 | |||||||||
| Total property revenues | 1,652,773 | 458,390 | 2,111,163 | |||||||||
| Property operating expenses: | ||||||||||||
| Real estate taxes | 128,114 | 39,546 | 167,660 | |||||||||
| Repairs and maintenance | 123,251 | 33,150 | 156,401 | |||||||||
| Marketing | 48,220 | 13,351 | 61,571 | |||||||||
| Other property operating costs | 207,909 | 74,589 | 282,498 | |||||||||
| Provision for doubtful accounts | 10,375 | 2,766 | 13,141 | |||||||||
| Total property operating expenses | 517,869 | 163,402 | 681,271 | |||||||||
| Retail and other net operating income | 1,134,904 | 294,988 | 1,429,892 | |||||||||
Master Planned Communities | ||||||||||||
| Land sales | 68,643 | 37,170 | 105,813 | |||||||||
| Land sales operations | (66,100 | ) | (37,225 | ) | (103,325 | ) | ||||||
| Master Planned Communities net operating income | 2,543 | (55 | ) | 2,488 | ||||||||
| Real estate property net operating income | $ | 1,137,447 | $ | 294,933 | $ | 1,432,380 | ||||||
F-50
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following reconciles NOI to GAAP-basis operating income and income from continuing operations:
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Real estate property net operating income | $ | 2,420,952 | $ | 2,244,581 | $ | 1,432,380 | ||||||
| Unconsolidated Properties NOI | (473,307 | ) | (437,592 | ) | (294,933 | ) | ||||||
| Consolidated Properties NOI | 1,947,645 | 1,806,989 | 1,137,447 | |||||||||
| Management and other fees | 115,798 | 91,022 | 82,896 | |||||||||
| Property management and other costs | (184,705 | ) | (147,012 | ) | (100,267 | ) | ||||||
| General and administrative | (15,128 | ) | (13,053 | ) | (9,499 | ) | ||||||
| Depreciation and amortization | (690,194 | ) | (672,914 | ) | (364,854 | ) | ||||||
| Discontinued operations and minority interest in consolidated NOI | 15,036 | (6,048 | ) | (4,431 | ) | |||||||
| Operating income | 1,188,452 | 1,058,984 | 741,292 | |||||||||
| Interest income | 11,585 | 10,416 | 3,227 | |||||||||
| Interest expense | (1,117,437 | ) | (1,031,241 | ) | (472,185 | ) | ||||||
| Provision for income taxes | (98,984 | ) | (51,289 | ) | (2,383 | ) | ||||||
| Income allocated to minority interest | (37,761 | ) | (43,989 | ) | (105,274 | ) | ||||||
| Equity in income of unconsolidated affiliates | 114,241 | 120,986 | 88,191 | |||||||||
| Income from continuing operations | $ | 60,096 | $ | 63,867 | $ | 252,868 | ||||||
The following reconciles segment revenues to GAAP-basis consolidated revenues:
| Years Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Segment basis total property revenues | $ | 3,422,903 | $ | 3,256,346 | $ | 2,111,163 | ||||||
| Unconsolidated segment revenues | (720,637 | ) | (653,821 | ) | (458,390 | ) | ||||||
| Land sales | 423,183 | 385,205 | 68,643 | |||||||||
| Management and other fees | 115,798 | 91,022 | 82,896 | |||||||||
| Real estate net operating income attributable to minority interests, net of discontinued operations | 15,036 | (6,048 | ) | (4,431 | ) | |||||||
| GAAP-basis consolidated total revenues | $ | 3,256,283 | $ | 3,072,704 | $ | 1,799,881 | ||||||
The assets by segment and the reconciliation of total segment assets to the total assets in the consolidated financial statements at December 31, 2006 and 2005 are summarized as follows:
| 2006 | 2005 | |||||||
| (In thousands) | ||||||||
| Retail and Other | $ | 26,444,766 | $ | 25,523,426 | ||||
| Master Planned Communities | 2,144,268 | 2,116,588 | ||||||
| Total segment assets | 28,589,034 | 27,640,014 | ||||||
| Unconsolidated Properties | (4,753,634 | ) | (4,308,854 | ) | ||||
| Corporate and other | 1,406,045 | 1,975,859 | ||||||
| Total assets | $ | 25,241,445 | $ | 25,307,019 | ||||
F-51
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Note 17 | Quarterly Financial Information (Unaudited) |
| 2006 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In thousands except for per share amounts) | ||||||||||||||||
| Total revenues | $ | 828,619 | $ | 709,810 | $ | 746,032 | $ | 971,823 | ||||||||
| Operating income | 307,747 | (b) | 245,449 | 265,356 | 369,901 | |||||||||||
| Income (loss) from continuing operations | 23,014 | (25,813 | ) | (8,161 | ) | 71,056 | ||||||||||
| Loss from discontinued operations | — | — | — | (823 | ) | |||||||||||
| Net income (loss) available to common shareholders | 23,014 | (25,813 | ) | (8,161 | ) | 70,233 | ||||||||||
| Earnings (loss) per share from continuing operations: | ||||||||||||||||
| Basic | 0.10 | (0.11 | ) | (0.03 | ) | 0.29 | ||||||||||
| Diluted(a) | 0.10 | (0.11 | ) | (0.03 | ) | 0.29 | ||||||||||
| Earnings per share from discontinued operations: | ||||||||||||||||
| Basic | — | — | — | — | ||||||||||||
| Diluted | — | — | — | — | ||||||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | 0.10 | (0.11 | ) | (0.03 | ) | 0.29 | ||||||||||
| Diluted(a) | 0.10 | (0.11 | ) | (0.03 | ) | 0.29 | ||||||||||
| Distributions declared per share | 0.41 | 0.41 | 0.41 | 0.45 | ||||||||||||
| Weighted-average shares outstanding: | ||||||||||||||||
| Basic | 240,621 | 241,330 | 241,150 | 241,779 | ||||||||||||
| Diluted | 241,588 | 241,330 | 241,150 | 242,739 | ||||||||||||
| (a) | Earnings (loss) per share for the quarters do not add up to the annual earnings per share due to the issuance of additional common stock during the year. | |
| (b) | Amounts reported differ from previously reported amounts as a result of reclassifications to conform to current period presentation. |
F-52
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 2005 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In thousands except for per share amounts) | ||||||||||||||||
| Total revenues | $ | 706,457 | $ | 758,230 | $ | 745,843 | $ | 862,176 | ||||||||
| Operating income | 240,478 | (b) | 235,436 | 261,399 | 321,670 | |||||||||||
| Income (loss) from continuing operations | 11,535 | 884 | (8,521 | ) | 59,967 | |||||||||||
| Income from discontinued operations | 1,530 | 1,768 | 1,687 | 6,703 | ||||||||||||
| Net income (loss) available to common shareholders | 13,065 | 2,652 | (6,834 | ) | 66,670 | |||||||||||
| Earnings (loss) per share from continuing operations: | ||||||||||||||||
| Basic(a) | 0.05 | — | (0.04 | ) | 0.25 | |||||||||||
| Diluted(a) | 0.05 | — | (0.04 | ) | 0.25 | |||||||||||
| Earnings per share from discontinued operations: | ||||||||||||||||
| Basic(a) | 0.01 | 0.01 | 0.01 | 0.03 | ||||||||||||
| Diluted(a) | 0.01 | 0.01 | 0.01 | 0.03 | ||||||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | 0.06 | 0.01 | (0.03 | ) | 0.28 | |||||||||||
| Diluted | 0.06 | 0.01 | (0.03 | ) | 0.28 | |||||||||||
| Distributions declared per share | 0.36 | 0.36 | 0.36 | 0.41 | ||||||||||||
| Weighted-average shares outstanding: | ||||||||||||||||
| Basic | 235,812 | 237,854 | 238,218 | 238,784 | ||||||||||||
| Diluted | 236,588 | 238,922 | 238,218 | 239,736 | ||||||||||||
| (a) | Earnings (loss) per share for the quarters do not add up to the annual earnings per share due to the issuance of additional common stock during the year. | |
| (b) | Amounts reported may differ from previously reported amounts as a result of reclassifications to conform to conform to current period presentation. |
F-53
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
General Growth Properties, Inc.
Chicago, Illinois
We have audited the consolidated financial statements of General Growth Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and have issued our reports thereon dated February 28, 2007; such consolidated financial statements and reports are included elsewhere in thisForm 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule onpage F-1 of thisForm 10-K. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Chicago, Illinois
February 28, 2007
F-54
Table of Contents
GENERAL GROWTH PROPERTIES, INC.
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2006
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2006
| Costs Capitalized | |||||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent to | Gross Amounts at Which | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost(b) | Acquisition (c) | Carried at Close of Period (d) | Life Upon Which | ||||||||||||||||||||||||||||||||||||||||||||||
| Buildings | Buildings | Buildings | Latest Income | ||||||||||||||||||||||||||||||||||||||||||||||
| and | and | and | Accumulated | Date of | Date | Statement is | |||||||||||||||||||||||||||||||||||||||||||
Name of Center | Location | Encumbrances (a) | Land | Improvements | Land | Improvements | Land | Improvements | Total | Depreciation (e) | Construction | Acquired | Computed | ||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
Retail and Other: | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ala Moana Center | Honolulu, HI | $ | 1,500,000 | $ | 336,229 | $ | 473,771 | $ | — | $ | 106,974 | $ | 336,229 | $ | 580,745 | $ | 916,974 | $ | 128,627 | 1999 | (e | ) | |||||||||||||||||||||||||||
| Alameda Plaza | Pocatello, ID | — | 740 | 2,060 | — | 16 | 740 | 2,076 | 2,816 | 231 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Anaheim Crossing | Anaheim, CA | — | — | 1,986 | — | 5 | — | 1,991 | 1,991 | 224 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Animas Valley Mall | Farmington, NM | 25,530 | 6,464 | 35,902 | — | 7,837 | 6,464 | 43,739 | 50,203 | 4,911 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Apache Mall | Rochester, MN | 51,647 | 8,110 | 72,993 | — | 24,062 | 8,110 | 97,055 | 105,165 | 20,593 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Arizona Center | Phoenix, AZ | 7,766 | 2,314 | 132,158 | — | 1,586 | 2,314 | 133,744 | 136,058 | 15,314 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Augusta Mall | Augusta, GA | 175,000 | 787 | 162,272 | — | 4,044 | 787 | 166,316 | 167,103 | 13,269 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Austin Bluffs Plaza | Colorado Springs, CO | 2,451 | 1,080 | 3,007 | — | 210 | 1,080 | 3,217 | 4,297 | 355 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Bailey Hills Village | Eugene, OR | — | 290 | 806 | — | 36 | 290 | 842 | 1,132 | 92 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Baybrook Mall | Friendswood, TX | 153,420 | 13,300 | 117,163 | 6,853 | 26,559 | 20,153 | 143,722 | 163,875 | 26,423 | 1999 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Bayshore Mall | Eureka, CA | 32,214 | 3,005 | 27,399 | — | 36,753 | 3,005 | 64,152 | 67,157 | 28,588 | 1986-1987 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Bayside Marketplace | Miami, FL | 65,865 | — | 177,801 | — | 2,460 | — | 180,261 | 180,261 | 18,912 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Beachwood Place | Beachwood, OH | 247,973 | 18,500 | 319,684 | — | 6,943 | 18,500 | 326,627 | 345,127 | 20,437 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Bellis Fair | Bellingham, WA | 65,569 | 7,616 | 47,040 | (131 | ) | 22,336 | 7,485 | 69,376 | 76,861 | 35,739 | 1987-1988 | (e | ) | |||||||||||||||||||||||||||||||||||
| Birchwood Mall | Port Huron, MI | 39,982 | 1,769 | 34,575 | 1,274 | 19,815 | 3,043 | 54,390 | 57,433 | 25,427 | 1989-1990 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Boise Plaza | Boise, ID | — | 374 | 1,042 | — | 40 | 374 | 1,082 | 1,456 | 124 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Boise Towne Plaza | Boise, ID | 11,431 | 3,988 | 11,101 | — | 68 | 3,988 | 11,169 | 15,157 | 1,261 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Boise Towne Square | Boise, ID | 76,149 | 23,449 | 131,001 | 1,019 | 17,662 | 24,468 | 148,663 | 173,131 | 16,933 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Boulevard Mall | Las Vegas, NV | 113,032 | 16,490 | 148,413 | (1,135 | ) | 9,614 | 15,355 | 158,027 | 173,382 | 34,786 | 1998 | (e | ) | |||||||||||||||||||||||||||||||||||
| Burlington Town Center | Burlington, VT | 31,501 | 1,637 | 32,798 | — | 3,135 | 1,637 | �� | 35,933 | 37,570 | 7,630 | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Cache Valley Mall | Logan, UT | — | 3,875 | 22,047 | — | 9,123 | 3,875 | 31,170 | 35,045 | 3,374 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Cache Valley Marketplace | Logan, UT | — | 1,500 | 1,583 | 1,639 | 2,086 | 3,139 | 3,669 | 6,808 | 297 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Capital Mall | Jefferson City, MO | 21,000 | 4,200 | 14,201 | (287 | ) | 10,248 | 3,913 | 24,449 | 28,362 | 10,314 | 1993 | (e | ) | |||||||||||||||||||||||||||||||||||
| Century Plaza | Birmingham, AL | 2 | 3,164 | 28,514 | — | 5,895 | 3,164 | 34,409 | 37,573 | 9,769 | 1997 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Chapel Hills Mall | Colorado Springs, CO | 120,009 | 4,300 | 34,017 | — | 64,947 | 4,300 | 98,964 | 103,264 | 33,254 | 1993 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Chico Mall | Chico, CA | 59,300 | 16,958 | 45,628 | — | 1,135 | 16,958 | 46,763 | 63,721 | 4,239 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Coastland Center | Naples, FL | 100,925 | 11,450 | 103,050 | — | 14,935 | 11,450 | 117,985 | 129,435 | 25,525 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Collin Creek | Plano, TX | 75,223 | 26,250 | 122,991 | — | 1,266 | 26,250 | 124,257 | 150,507 | 11,310 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Colony Square Mall | Zanesville, OH | 41,083 | 1,000 | 24,500 | 597 | 23,868 | 1,597 | 48,368 | 49,965 | 22,355 | 1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Columbia Mall | Columbia, MO | 89,226 | 5,383 | 19,663 | — | 28,976 | 5,383 | 48,639 | 54,022 | 23,113 | 1984-1985 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Coral Ridge Mall | Coralville, IA | 102,705 | 3,364 | 64,218 | 49 | 21,028 | 3,413 | 85,246 | 88,659 | 23,761 | 1998-1999 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Coronado Center | Albuquerque, NM | 175,249 | 33,072 | 148,799 | — | 2,118 | 33,072 | 150,917 | 183,989 | 17,404 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Cottonwood Mall | Salt Lake City, UT | — | 7,613 | 42,987 | — | (271 | ) | 7,613 | 42,716 | 50,329 | 5,103 | 2002 | (e | ) | |||||||||||||||||||||||||||||||||||
| Cottonwood Square | Salt Lake City, UT | — | 1,558 | 4,339 | — | 90 | 1,558 | 4,429 | 5,987 | 497 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Country Hills Plaza | Ogden, UT | 13,923 | 3,620 | 9,080 | — | 588 | 3,620 | 9,668 | 13,288 | 1,053 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Crossroads | Portage, MI | 41,397 | 6,800 | 61,200 | — | 22,326 | 6,800 | 83,526 | 90,326 | 16,344 | 1999 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Crossroads Center | St. Cloud, MN | 87,945 | 10,813 | 72,203 | 2,393 | 37,875 | 13,206 | 110,078 | 123,284 | 16,065 | 2000 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Cumberland Mall | Atlanta, GA | 161,806 | 15,199 | 136,787 | 10,042 | 52,959 | 25,241 | 189,746 | 214,987 | 32,261 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Division Crossing | Portland, OR | 5,648 | 1,773 | 4,935 | — | 323 | 1,773 | 5,258 | 7,031 | 584 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Eagle Ridge Mall | Lake Wales, FL | 49,244 | 7,620 | 49,561 | — | 17,627 | 7,620 | 67,188 | 74,808 | 22,965 | 1995-1996 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Eastridge Mall | Casper, WY | 40,711 | 6,171 | 34,384 | (79 | ) | 4,806 | 6,092 | 39,190 | 45,282 | 4,549 | 2002 | (e | ) | |||||||||||||||||||||||||||||||||||
| Eastridge Mall | San Jose, CA | 170,000 | 36,724 | 178,018 | — | 10,568 | 36,724 | 188,586 | 225,310 | 11,806 | 2006 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Eden Prairie Center | Eden Prairie, MN | 83,388 | 465 | 19,024 | 28 | 127,429 | 493 | 146,453 | 146,946 | 27,988 | 1997 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fallbrook Center | West Hills, CA | 74,957 | 6,117 | 10,077 | 10 | 101,259 | 6,127 | 111,336 | 117,463 | 44,165 | 1984 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Faneuil Hall Marketplace | Boston, MD | 97,201 | — | 122,098 | — | 1,224 | — | 123,322 | 123,322 | 12,128 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fashion Place | Murray, UT | 149,649 | 21,604 | 206,484 | — | 3,695 | 21,604 | 210,179 | 231,783 | 13,680 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fashion Show | Las Vegas, NV | 366,269 | 523,650 | 602,288 | — | 8,415 | 523,650 | 610,703 | 1,134,353 | 53,806 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Foothills Mall | Fort Collins, CO | 43,325 | 8,031 | 96,642 | 1,233 | 1,369 | 9,264 | 98,011 | 107,275 | 9,214 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fort Union | Midvale, UT | 2,948 | — | 3,842 | — | 25 | — | 3,867 | 3,867 | 441 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
F-55
Table of Contents
| Costs Capitalized | |||||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent to | Gross Amounts at Which | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost(b) | Acquisition (c) | Carried at Close of Period (d) | Life Upon Which | ||||||||||||||||||||||||||||||||||||||||||||||
| Buildings | Buildings | Buildings | Latest Income | ||||||||||||||||||||||||||||||||||||||||||||||
| and | and | and | Accumulated | Date of | Date | Statement is | |||||||||||||||||||||||||||||||||||||||||||
Name of Center | Location | Encumbrances (a) | Land | Improvements | Land | Improvements | Land | Improvements | Total | Depreciation (e) | Construction | Acquired | Computed | ||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
| dFour Seasons Town Centre | Greensboro, NC | 106,162 | 27,231 | 141,978 | — | 2,483 | 27,231 | 144,461 | 171,692 | 12,493 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fox River Mall | Appleton, WI | 195,223 | 2,701 | 18,291 | 2,086 | 63,065 | 4,787 | 81,356 | 86,143 | 33,593 | 1983-1984 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Fremont Plaza | Las Vegas, NV | — | — | 3,956 | — | 295 | — | 4,251 | 4,251 | 452 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Gallery At Harborplace | Baltimore, MD | 106,176 | 17,912 | 174,410 | — | 3,459 | 17,912 | 177,869 | 195,781 | 13,373 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Gateway Crossing Shopping Center | Bountiful, UT | 15,945 | 4,104 | 11,422 | — | 600 | 4,104 | 12,022 | 16,126 | 1,408 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Gateway Mall | Springfield, OR | 41,156 | 8,728 | 34,707 | — | 36,551 | 8,728 | 71,258 | 79,986 | 31,570 | 1989-1990 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Glenbrook Square | Fort Wayne, IN | 184,179 | 30,414 | 195,896 | 50 | 5,904 | 30,464 | 201,800 | 232,264 | 17,526 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Governor’s Square | Tallahassee, FL | 66,738 | — | 121,482 | — | 2,149 | — | 123,631 | 123,631 | 10,073 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Grand Canal Shoppes | Las Vegas, NV | 410,778 | — | 766,232 | — | 12,938 | — | 779,170 | 779,170 | 53,895 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Grand Teton Mall | Idaho Falls, ID | 27,354 | 6,973 | 44,030 | — | 9,567 | 6,973 | 53,597 | 60,570 | 5,728 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Grand Teton Plaza | Idaho Falls, ID | — | 2,349 | 7,336 | — | 587 | 2,349 | 7,923 | 10,272 | 500 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Grand Traverse Mall | Traverse City, MI | 88,526 | 3,534 | 20,776 | — | 29,471 | 3,534 | 50,247 | 53,781 | 24,097 | 1990-1991 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Greenwood Mall | Bowling Green, KY | 46,206 | 3,200 | 40,202 | 187 | 33,888 | 3,387 | 74,090 | 77,477 | 30,770 | 1993 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Halsey Crossing | Gresham, OR | 2,764 | — | 4,363 | — | 115 | — | 4,478 | 4,478 | 509 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Harborplace | Baltimore, MD | 28,692 | — | 54,308 | — | 3,655 | — | 57,963 | 57,963 | 6,199 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Hulen Mall | Fort Worth, TX | 117,532 | 8,910 | 153,894 | — | 1,345 | 8,910 | 155,239 | 164,149 | 11,467 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Jordan Creek Town Center | West Des Moines, IA | 193,733 | 18,142 | 166,143 | — | 10,423 | 18,142 | 176,566 | 194,708 | 16,966 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Knollwood Mall | St. Louis Park, MN | 41,357 | — | 9,748 | 7,026 | 41,364 | 7,026 | 51,112 | 58,138 | 22,149 | 1978 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Lakeside Mall | Sterling Heights, MI | 188,554 | 35,860 | 369,639 | — | 3,283 | 35,860 | 372,922 | 408,782 | 25,231 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Lakeview Square | Battle Creek, MI | 42,628 | 3,579 | 32,210 | — | 18,753 | 3,579 | 50,963 | 54,542 | 14,337 | 1996 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Landmark Mall | Alexandria, VA | — | 28,396 | 67,235 | — | (374 | ) | 28,396 | 66,861 | 95,257 | 15,691 | 2003 | (e | ) | |||||||||||||||||||||||||||||||||||
| Lansing Mall | Lansing, MI | 26,469 | 6,978 | 62,800 | 4,518 | 46,270 | 11,496 | 109,070 | 120,566 | 27,119 | 1996 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Lincolnshire Commons | Lincolnshire, IL | — | 10,784 | 9,441 | — | 2,735 | 10,784 | 12,176 | 22,960 | 577 | 2006 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Lockport Mall | Lockport, NY | — | 800 | 10,000 | — | 3,315 | 800 | 13,315 | 14,115 | 7,750 | 1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Lynnhaven Mall | Virginia Beach, VA | 246,035 | 33,698 | 229,433 | — | 5,060 | 33,698 | 234,493 | 268,191 | 22,045 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Maine Mall | South Portland, ME | 224,946 | 41,374 | 238,457 | (297 | ) | 8,317 | 41,077 | 246,774 | 287,851 | 19,803 | 2003 | (e | ) | |||||||||||||||||||||||||||||||||||
| Mall At Sierra Vista | Sierra Vista, AZ | — | 3,652 | 20,450 | — | 746 | 3,652 | 21,196 | 24,848 | 2,625 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Mall In Columbia | Columbia, MD | 193,913 | 34,650 | 522,363 | — | 14,936 | 34,650 | 537,299 | 571,949 | 35,580 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mall Of Louisiana | Baton Rouge, LA | 238,000 | 24,591 | 246,452 | — | 27,699 | 24,591 | 274,151 | 298,742 | 18,740 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mall Of The Bluffs | Council Bluffs, IA | 39,982 | 1,860 | 24,016 | 35 | 24,304 | 1,895 | 48,320 | 50,215 | 23,672 | 1985-1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mall St. Matthews | Louisville, KY | 150,829 | — | 176,583 | — | 5,106 | — | 181,689 | 181,689 | 14,483 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mall St. Vincent | Shreveport, LA | 17,252 | 2,640 | 23,760 | — | 9,824 | 2,640 | 33,584 | 36,224 | 8,770 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Market Place Shopping Center | Champaign, IL | 106,737 | 7,000 | 63,972 | — | 52,828 | 7,000 | 116,800 | 123,800 | 29,596 | 1997 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mayfair Mall | Wauwatosa, WI | 185,783 | 14,707 | 224,847 | — | 34,172 | 14,707 | 259,019 | 273,726 | 48,592 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Meadows Mall | Las Vegas, NV | 106,917 | 24,634 | 104,088 | (3,259 | ) | 16,655 | 21,375 | 120,743 | 142,118 | 23,620 | 2003 | (e | ) | |||||||||||||||||||||||||||||||||||
| Metro Plaza | Baltimore, MD | — | 1,050 | 10,340 | — | 148 | 1,050 | 10,488 | 11,538 | 1,758 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Mondawmin Mall | Baltimore, MD | 16,604 | 10,800 | 47,531 | — | 935 | 10,800 | 48,466 | 59,266 | 5,890 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| North Plains Mall | Clovis, NM | — | 2,722 | 15,048 | — | 2,873 | 2,722 | 17,921 | 20,643 | 2,250 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| North Star Mall | San Antonio, TX | 242,932 | 29,230 | 467,961 | 3,791 | 31,653 | 33,021 | 499,614 | 532,635 | 30,906 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| North Temple Shops | Salt Lake City, UT | — | 168 | 468 | — | 6 | 168 | 474 | 642 | 53 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| North Town Mall | Spokane, WA | 76,677 | 22,407 | 125,033 | — | 5,660 | 22,407 | 130,693 | 153,100 | 15,470 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Northgate Mall | Chattanooga, TN | 46,365 | 2,525 | 43,944 | — | 6,743 | 2,525 | 50,687 | 53,212 | 11,189 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Northridge Fashion Center | Northridge, CA | 131,160 | 16,618 | 149,563 | 248 | 36,364 | 16,866 | 185,927 | 202,793 | 41,982 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Oak View Mall | Omaha, NE | 118,248 | 12,056 | 113,042 | — | 4,134 | 12,056 | 117,176 | 129,232 | 20,025 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Oakwood Center | Gretna, LA | 95,000 | 2,830 | 137,574 | — | (29,360 | ) | 2,830 | 108,214 | 111,044 | 12,709 | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Oakwood Mall | Eau Claire, WI | 53,309 | 3,267 | 18,281 | — | 27,224 | 3,267 | 45,505 | 48,772 | 23,823 | 1985-1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Oglethorpe Mall | Savannah, GA | 146,937 | 16,036 | 92,978 | — | 7,005 | 16,036 | 99,983 | 116,019 | 20,672 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Orem Plaza Center Street | Orem, UT | 2,635 | 1,069 | 2,974 | — | 2,368 | 1,069 | 5,342 | 6,411 | 349 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Orem Plaza State Street | Orem, UT | 1,631 | 592 | 1,649 | — | 59 | 592 | 1,708 | 2,300 | 188 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Oviedo Marketplace | Orlando, FL | 53,795 | 24,017 | 23,958 | (2,045 | ) | 724 | 21,972 | 24,682 | 46,654 | 6,093 | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
F-56
Table of Contents
| Costs Capitalized | |||||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent to | Gross Amounts at Which | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost(b) | Acquisition (c) | Carried at Close of Period (d) | Life Upon Which | ||||||||||||||||||||||||||||||||||||||||||||||
| Buildings | Buildings | Buildings | Latest Income | ||||||||||||||||||||||||||||||||||||||||||||||
| and | and | and | Accumulated | Date of | Date | Statement is | |||||||||||||||||||||||||||||||||||||||||||
Name of Center | Location | Encumbrances (a) | Land | Improvements | Land | Improvements | Land | Improvements | Total | Depreciation (e) | Construction | Acquired | Computed | ||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Owings Mills Mall | Owing Mills, MD | 28,849 | 27,534 | 173,005 | (6,208 | ) | 6,274 | 21,326 | 179,279 | 200,605 | 17,401 | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Oxmoor Center | Louisville, KY | 63,719 | — | 131,434 | — | 3,262 | — | 134,696 | 134,696 | 7,639 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Paramus Park | Paramus, NJ | 108,143 | 47,660 | 182,124 | — | 2,327 | 47,660 | 184,451 | 232,111 | 12,935 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Park City Center | Lancaster, PA | 155,556 | 8,465 | 177,191 | — | 11,711 | 8,465 | 188,902 | 197,367 | 38,340 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Park Place | Tucson, AZ | 183,530 | 4,996 | 44,993 | (280 | ) | 112,564 | 4,716 | 157,557 | 162,273 | 34,322 | 1996 | (e | ) | |||||||||||||||||||||||||||||||||||
| Peachtree Mall | Columbus, GA | 93,011 | 22,052 | 67,679 | — | 4,921 | 22,052 | 72,600 | 94,652 | 8,773 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Pecanland Mall | Monroe, LA | 61,811 | 10,101 | 68,329 | — | 9,868 | 10,101 | 78,197 | 88,298 | 10,505 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Piedmont Mall | Danville, VA | 34,900 | 2,000 | 38,000 | — | 10,765 | 2,000 | 48,765 | 50,765 | 14,992 | 1995 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Pierre Bossier Mall | Bossier City, LA | 37,130 | 4,367 | 35,353 | — | 10,265 | 4,367 | 45,618 | 49,985 | 11,192 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Pine Ridge Mall | Pocatello, ID | 27,448 | 4,905 | 27,349 | — | 6,179 | 4,905 | 33,528 | 38,433 | 3,864 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Pines | Pine Bluff, AR | — | 1,489 | 17,627 | (242 | ) | 17,223 | 1,247 | 34,850 | 36,097 | 17,942 | 1985-1986 | (e | ) | |||||||||||||||||||||||||||||||||||
| Pioneer Place | Portland, OR | 175,591 | 10,805 | 209,965 | — | 4,134 | 10,805 | 214,099 | 224,904 | 18,771 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Plaza 800 | Sparks, NV | — | — | 5,430 | — | 33 | — | 5,463 | 5,463 | 549 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Plaza 9400 | Sandy, UT | — | — | 9,114 | — | 196 | — | 9,310 | 9,310 | 1,053 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Prince Kuhio Plaza | Hilo, HI | 39,826 | 9 | 42,710 | — | 2,363 | 9 | 45,073 | 45,082 | 9,523 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Providence Place | Providence, RI | 430,434 | — | 502,809 | — | 3,969 | — | 506,778 | 506,778 | 38,968 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Provo Towne Centre | Provo, UT | 50,366 | 13,486 | 74,587 | — | 1,428 | 13,486 | 76,015 | 89,501 | 9,443 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Red Cliffs Mall | St. George, UT | 26,088 | 1,879 | 26,561 | 3,237 | 3,656 | 5,116 | 30,217 | 35,333 | 3,673 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Red Cliffs Plaza | St. George, UT | — | — | 2,366 | — | 371 | — | 2,737 | 2,737 | 280 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Regency Square Mall | Jacksonville, FL | 99,061 | 16,498 | 148,478 | 1,386 | 19,672 | 17,884 | 168,150 | 186,034 | 35,677 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Ridgedale Center | Minnetonka, MN | 185,368 | 10,710 | 272,607 | — | 4,881 | 10,710 | 277,488 | 288,198 | 18,047 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Rio West Mall | Gallup, NM | 22,844 | — | 19,500 | — | 6,919 | — | 26,419 | 26,419 | 13,432 | 1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| River Falls Mall | Clarksville, IN | — | 3,178 | 54,610 | 3,703 | 83,392 | 6,881 | 138,002 | 144,883 | 36,358 | 1989-1990 | (e | ) | ||||||||||||||||||||||||||||||||||||
| River Hills Mall | Mankato, MN | 83,018 | 3,714 | 29,014 | 993 | 36,360 | 4,707 | 65,374 | 70,081 | 24,992 | 1990-1991 | (e | ) | ||||||||||||||||||||||||||||||||||||
| River Pointe Plaza | West Jordan, UT | 4,082 | 1,302 | 3,623 | — | 327 | 1,302 | 3,950 | 5,252 | 428 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Riverlands Shopping Center | LaPlace, LA | — | 500 | 4,500 | 601 | 4,868 | 1,101 | 9,368 | 10,469 | 1,518 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Riverside Plaza | Provo, UT | 5,841 | 2,475 | 6,890 | — | 1,996 | 2,475 | 8,886 | 11,361 | 1,020 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Rivertown Crossings | Grandville, MI | 122,302 | 10,973 | 97,142 | (3,747 | ) | 50,099 | 7,226 | 147,241 | 154,467 | 34,979 | 1998-1999 | (e | ) | |||||||||||||||||||||||||||||||||||
| Riverwalk Marketplace | New Orleans, LA | 52,696 | — | 94,513 | — | (135 | ) | — | 94,378 | 94,378 | 10,166 | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Rogue Valley Mall | Medford, OR | 27,191 | 21,913 | 36,392 | (95 | ) | 3,847 | 21,818 | 40,239 | 62,057 | 4,494 | 2003 | (e | ) | |||||||||||||||||||||||||||||||||||
| Saint Louis Galleria | St. Louis, MO | 246,818 | 36,774 | 184,645 | 9,005 | 15,116 | 45,779 | 199,761 | 245,540 | 19,268 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Salem Center | Salem, OR | 26,442 | 6,966 | 38,976 | — | 1,614 | 6,966 | 40,590 | 47,556 | 4,896 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Shops At La Cantera | San Antonio, TX | 177,141 | 10,966 | 205,222 | — | 7,402 | 10,966 | 212,624 | 223,590 | 8,664 | 2005 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Sikes Senter | Wichita Falls, TX | 63,672 | 12,759 | 50,567 | — | 2,780 | 12,759 | 53,347 | 66,106 | 7,035 | 2003 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Silver Lake Mall | Coeur d’Alene, ID | — | 4,448 | 24,801 | — | 1,215 | 4,448 | 26,016 | 30,464 | 3,035 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Sooner Mall | Norman, OK | 59,206 | 2,700 | 24,300 | (119 | ) | 18,740 | 2,581 | 43,040 | 45,621 | 12,162 | 1996 | (e | ) | |||||||||||||||||||||||||||||||||||
| South Street Seaport | New York, NY | — | — | 10,872 | — | 113 | — | 10,985 | 10,985 | 6,386 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Southlake Mall | Morrow, GA | 105,996 | 6,700 | 60,407 | — | 13,912 | 6,700 | 74,319 | 81,019 | 19,373 | 1997 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Southland Center | Taylor, MI | 113,099 | 7,690 | 99,376 | — | 2,829 | 7,690 | 102,205 | 109,895 | 11,649 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Southland Mall | Hayward, CA | 85,478 | 13,921 | 75,126 | 200 | 10,438 | 14,121 | 85,564 | 99,685 | 9,780 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Southshore Mall | Aberdeen, WA | — | 650 | 15,350 | — | 5,665 | 650 | 21,015 | 21,665 | 11,820 | 1986 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Southwest Plaza | Littleton, CO | 76,159 | 9,000 | 103,984 | 602 | 33,660 | 9,602 | 137,644 | 147,246 | 30,488 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Spokane Valley Mall | Spokane, WA | 39,168 | 11,455 | 67,046 | — | (290 | ) | 11,455 | 66,756 | 78,211 | 7,924 | 2002 | (e | ) | |||||||||||||||||||||||||||||||||||
| Spokane Valley Plaza | Spokane, WA | — | 3,558 | 10,150 | — | 90 | 3,558 | 10,240 | 13,798 | 1,136 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Spring Hill Mall | West Dundee, IL | 81,444 | 12,400 | 111,644 | — | 19,849 | 12,400 | 131,493 | 143,893 | 28,306 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Staten Island Mall | Staten Island, NY | 170,322 | 222,710 | 339,102 | — | 4,614 | 222,710 | 343,716 | 566,426 | 25,414 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Stonestown Galleria | San Francisco, CA | 273,000 | 67,000 | 246,272 | — | 8,647 | 67,000 | 254,919 | 321,919 | 16,035 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Streets At Southpoint | Durham, NC | 249,359 | 16,070 | 406,266 | — | 7,127 | 16,070 | 413,393 | 429,463 | 25,714 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Three Rivers Mall | Kelso, WA | 22,347 | 4,312 | 23,019 | — | 2,503 | 4,312 | 25,522 | 29,834 | 2,976 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Town East Mall | Mesquite, TX | 110,957 | 7,711 | 149,258 | — | 16,896 | 7,711 | 166,154 | 173,865 | 23,688 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
F-57
Table of Contents
| Costs Capitalized | |||||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent to | Gross Amounts at Which | ||||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost(b) | Acquisition (c) | Carried at Close of Period (d) | Life Upon Which | ||||||||||||||||||||||||||||||||||||||||||||||
| Buildings | Buildings | Buildings | Latest Income | ||||||||||||||||||||||||||||||||||||||||||||||
| and | and | and | Accumulated | Date of | Date | Statement is | |||||||||||||||||||||||||||||||||||||||||||
Name of Center | Location | Encumbrances (a) | Land | Improvements | Land | Improvements | Land | Improvements | Total | Depreciation (e) | Construction | Acquired | Computed | ||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tucson Mall | Tucson, AZ | 123,014 | — | 181,424 | — | 29,650 | — | 211,074 | 211,074 | 27,217 | 2001 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Twin Falls Crossing | Twin Falls, ID | — | 275 | 769 | — | — | 275 | 769 | 1,044 | 86 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| University Crossing | Orem, UT | 11,904 | 3,420 | 9,526 | — | 587 | 3,420 | 10,113 | 13,533 | 1,131 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Valley Hills Mall | Hickory, NC | 59,374 | 3,444 | 31,025 | 2,212 | 43,648 | 5,656 | 74,673 | 80,329 | 18,080 | 1997 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Valley Plaza Mall | Bakersfield, CA | 100,359 | 12,685 | 114,166 | — | 19,322 | 12,685 | 133,488 | 146,173 | 27,881 | 1998 | (e | ) | ||||||||||||||||||||||||||||||||||||
| The Village Of Cross Keys | Baltimore, MD | 618 | 18,070 | 57,285 | — | 1,980 | 18,070 | 59,265 | 77,335 | 5,301 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Visalia Mall | Visalia, CA | 44,801 | 11,052 | 58,172 | — | 5,984 | 11,052 | 64,156 | 75,208 | 7,578 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Ward Centers | Honolulu, HI | 217,938 | 164,007 | 89,321 | 1,475 | 47,540 | 165,482 | 136,861 | 302,343 | 17,609 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| West Valley Mall | Tracy, CA | 60,982 | 9,295 | 47,789 | 1,591 | 34,720 | 10,886 | 82,509 | 93,395 | 27,183 | 1995 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Westlake Center | Seattle, WA | 79,279 | 12,971 | 117,003 | 4,669 | 4,603 | 17,640 | 121,606 | 139,246 | 14,424 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Westwood Mall | Jackson, MI | 37,110 | 2,658 | 23,924 | 913 | 5,879 | 3,571 | 29,803 | 33,374 | 8,750 | 1996 | (e | ) | ||||||||||||||||||||||||||||||||||||
| White Marsh Mall | Baltimore, MD | 72,149 | 24,760 | 239,688 | — | 6,746 | 24,760 | 246,434 | 271,194 | 17,996 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| White Mountain Mall | Rock Springs, WY | — | 1,363 | 7,611 | — | 6,078 | 1,363 | 13,689 | 15,052 | 1,954 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Willowbrook | Wayne, NJ | 178,659 | 28,810 | 444,762 | — | 6,544 | 28,810 | 451,306 | 480,116 | 30,390 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Woodbridge Center | Woodbridge, NJ | 217,513 | 50,737 | 420,703 | — | 2,568 | 50,737 | 423,271 | 474,008 | 30,958 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Woodlands Village | Flagstaff, AZ | 7,463 | 2,689 | 7,484 | — | 147 | 2,689 | 7,631 | 10,320 | 841 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Yellowstone Square | Idaho Falls, ID | — | 1,057 | 2,943 | — | 130 | 1,057 | 3,073 | 4,130 | 340 | 2002 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Other, including corporate and developments in progress | 5,986,735 | 265,143 | 490,895 | 102,691 | 409,021 | 367,834 | 899,916 | 1,267,750 | 130,493 | ||||||||||||||||||||||||||||||||||||||||
Total Retail and Other | 20,415,833 | 3,074,441 | 17,056,164 | 158,432 | 2,715,913 | 3,232,873 | 19,772,077 | 23,004,950 | 2,766,833 | ||||||||||||||||||||||||||||||||||||||||
Master Planned Communities | |||||||||||||||||||||||||||||||||||||||||||||||||
| Bridgeland | Houston, TX | 41,587 | 257,222 | — | 66,756 | 567 | 323,978 | 567 | 324,545 | 28 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Columbia | Howard County, MD | — | 315,944 | — | (91,111 | ) | 111 | 224,833 | 111 | 224,944 | — | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Fairwood | Prince George’s County, MD | — | 136,434 | — | (34,546 | ) | 19 | 101,888 | 19 | 101,907 | — | 2004 | (e | ) | |||||||||||||||||||||||||||||||||||
| Summerlin | Summerlin, NV | 52,835 | 990,179 | — | 12,858 | 110 | 1,003,037 | 110 | 1,003,147 | 10 | 2004 | (e | ) | ||||||||||||||||||||||||||||||||||||
| Other | 11,712 | — | — | 2,102 | 6 | 2,102 | 6 | 2,108 | — | ||||||||||||||||||||||||||||||||||||||||
Total Master Planned Communities | 106,134 | 1,699,779 | — | (43,941 | ) | 813 | 1,655,838 | 813 | 1,656,651 | 38 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 20,521,967 | $ | 4,774,220 | $ | 17,056,164 | $ | 114,491 | $ | 2,716,726 | $ | 4,888,711 | $ | 19,772,890 | $ | 24,661,601 | $ | 2,766,871 | |||||||||||||||||||||||||||||||
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GENERAL GROWTH PROPERTIES, INC.
NOTES TO SCHEDULE III
| (a) | See description of mortgage notes and other property debt payable in Note 6 of Notes to Consolidated Financial Statements. | |
| (b) | Initial cost for constructed malls is cost at end of first complete calendar year subsequent to opening. | |
| (c) | For retail and other properties, costs capitalized subsequent to acquisitions is net of cost of disposals and other property write-downs. For Master Planned Communities, costs capitalized subsequent to acquisitions are net of land sales. | |
| (d) | The aggregate cost of land, buildings and improvements for federal income tax purposes is approximately $16.1 billion. | |
| (e) | Depreciation is computed based upon the following estimated lives: |
| Years | ||||
| Buildings, improvements and carrying costs | 40-45 | |||
| Equipment, tenant improvements and fixtures | 5-10 | |||
Reconciliation of Real Estate
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Balance at beginning of year | $ | 23,583,536 | $ | 23,308,792 | $ | 9,677,348 | ||||||
| Acquisitions | 234,624 | — | 11,235,608 | |||||||||
| Change in Master Planned Communities land | 4,775 | 5,363 | 1,645,700 | |||||||||
| Additions | 855,529 | 496,362 | 804,556 | |||||||||
| Hurricane property damage provisions — Oakwood Center and Riverwalk (Note 14) | — | (53,022 | ) | — | ||||||||
| Dispositions | (16,863 | ) | (173,959 | ) | (54,420 | ) | ||||||
| Balance at end of year | $ | 24,661,601 | $ | 23,583,536 | $ | 23,308,792 | ||||||
Reconciliation of Accumulated Depreciation
| 2006 | 2005 | 2004 | ||||||||||
| (In thousands) | ||||||||||||
| Balance at beginning of year | $ | 2,104,956 | $ | 1,453,488 | $ | 1,101,235 | ||||||
| Depreciation expense | 663,524 | 652,109 | 354,560 | |||||||||
| Dispositions and other | (1,609 | ) | (641 | ) | (2,307 | ) | ||||||
| Balance at end of year | $ | 2,766,871 | $ | 2,104,956 | $ | 1,453,488 | ||||||
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EXHIBIT INDEX
| 3 | .1 | Restated Certificate of Incorporation of General Growth Properties, Inc. filed with the Delaware Secretary of State on February 10, 2006 (previously filed as Exhibit 3.1 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 3 | .2 | Bylaws of General Growth Properties, Inc., as amended (previously filed as Exhibit 3(ii) to the Current Report onForm 8-K dated November 8, 2006 which was filed with the SEC on November 14, 2006, incorporated herein by reference). | ||
| 3 | .3 | Certificate of Designations, Preferences and Rights of Increasing Rate Cumulative Preferred Stock, Series 1 Filed with the Delaware Secretary of State on February 26, 2007 (Filed herewith). | ||
| 4 | .1 | Form of Common Stock Certificate (previously filed as Exhibit 4.1 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .2 | Rights Agreement dated July 27, 1993, between General Growth Properties, Inc. and certain other parties named therein (previously filed as Exhibit 4.2 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .3 | Amendment to Rights Agreement dated as of February 1, 2000, between General Growth Properties, Inc. and certain other parties named therein (previously filed as Exhibit 10.11 to the Annual Report onForm 10-K for the year ended December 31, 2003, incorporated herein by reference). | ||
| 4 | .4 | Redemption Rights Agreement dated July 13, 1995, by and among GGP Limited Partnership (the “Operating Partnership”), General Growth Properties, Inc. and the persons listed on the signature pages thereof (previously filed as Exhibit 4.4 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .5 | Redemption Rights Agreement dated December 6, 1996, among the Operating Partnership, Forbes/Cohen Properties, Lakeview Square Associates, and Jackson Properties (previously filed as Exhibit 4.5 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .6 | Redemption Rights Agreement dated June 19, 1997, among the Operating Partnership, General Growth Properties, Inc., and CA Southlake Investors, Ltd. (previously filed as Exhibit 4.6 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .7 | Redemption Rights Agreement dated October 23, 1997, among General Growth Properties, Inc., the Operating Partnership and Peter Leibowits (previously filed as Exhibit 4.7 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .8 | Redemption Rights Agreement dated April 2, 1998, among the Operating Partnership, General Growth Properties, Inc. and Southwest Properties Venture (previously filed as Exhibit 4.8 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .9 | Redemption Rights Agreement dated July 21, 1998, among the Operating Partnership, General Growth Properties, Inc., Nashland Associates, and HRE Altamonte, Inc. (previously filed as Exhibit 4.9 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .10 | Redemption Rights Agreement dated October 21, 1998, among the Operating Partnership, General Growth Properties, Inc. and the persons on the signature pages thereof (previously filed as Exhibit 4.10 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .11 | Redemption Rights Agreement (PDC Common Units) dated July 10, 2002, by and among the Operating Partnership, General Growth Properties, Inc. and the persons listed on the signature pages thereof (previously filed as Exhibit 10.6 to the Current Report onForm 8-K dated July 10, 2002 which was filed with the SEC on July 24, 2002, incorporated herein by reference). |
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| 4 | .12 | Redemption Rights Agreement (PDC Series B Preferred Units) dated July 10, 2002, by and among the Operating Partnership, General Growth Properties, Inc. and the persons listed on the signature pages thereof (previously filed as Exhibit 10.7 to the Current Report onForm 8-K dated July 10, 2002 which was filed with the SEC on July 24, 2002, incorporated herein by reference). | ||
| 4 | .13 | Redemption Rights Agreement (Series C Preferred Units) dated November 27, 2002, by and among the Operating Partnership, General Growth Properties, Inc. and JSG, LLC (previously filed as Exhibit 10(LLL) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 4 | .14 | Redemption Rights Agreement (PDC Common Units) dated November 27, 2002, by and among the Operating Partnership, General Growth Properties, Inc. and JSG, LLC (previously filed as Exhibit 10(MMM) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 4 | .15 | Redemption Rights Agreement dated December 11, 2003, by and among the Operating Partnership, General Growth Properties, Inc. and Everitt Enterprises, Inc. (previously filed as Exhibit 10.44 to the Annual Report onForm 10-K for the year ended December 31, 2003 which was filed with the SEC on March 12, 2004, incorporated herein by reference). | ||
| 4 | .16 | Form of Registration Rights Agreement dated April 15, 1993, between General Growth Properties, Inc., Martin Bucksbaum, Matthew Bucksbaum and the other parties named therein (previously filed as Exhibit 4.16 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .17 | Amendment to Registration Rights Agreement dated February 1, 2000, among General Growth Properties, Inc. and certain other parties named therein (previously filed as Exhibit 10.16 to the Annual Report onForm 10-K for the year ended December 31, 2003 which was filed with the SEC on March 12, 2004, incorporated herein by reference). | ||
| 4 | .18 | Registration Rights Agreement dated April 17, 2002, between General Growth Properties, Inc. and GSEP 2002 Realty Corp. (previously filed as Exhibit 10.3 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2002 which was filed with the SEC on May 13, 2002, incorporated herein by reference). | ||
| 4 | .19 | Rights Agreement dated November 18, 1998, between General Growth Properties, Inc. and Norwest Bank Minnesota, N.A., as Rights Agent (including the Form of Certificate of Designation of Series A Junior Participating Preferred Stock attached thereto as Exhibit A, the Form of Right Certificate attached thereto as Exhibit B and the Summary of Rights to Purchase Preferred Shares attached thereto as Exhibit C) (previously filed as Exhibit 4.19 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .20 | First Amendment to Rights Agreement dated as of November 10, 1999, between General Growth Properties, Inc. and Norwest Bank Minnesota, N.A. (previously filed as Exhibit 4.20 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .21 | Second Amendment to Rights Agreement dated as of December 31, 2001, between General Growth Properties, Inc. and Mellon Investor Services, LLC, successor to Norwest Bank Minnesota, N.A. (previously filed as Exhibit 4.13 to the Registration Statement onForm S-3(No. 333-82134) dated February 4, 2002 which was filed with the SEC on February 5, 2002, incorporated herein by reference). | ||
| 4 | .22 | Letter Agreement concerning Rights Agreement dated November 10, 1999, between the Operating Partnership and NYSCRF (previously filed as Exhibit 4.22 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 4 | .23 | The Rouse Company and The First National Bank of Chicago (Trustee) Indenture dated as of February 24, 1995 (previously filed as Exhibit 4.23 to the Annual Report onForm 10-K for the year ended December 31, 2004 which was filed with the SEC on March 22, 2005, incorporated herein by reference). | ||
| 4 | .24 | The Rouse Company LP, TRC Co-Issuer, Inc. and LaSalle Bank National Association (Trustee) Indenture dated May 5, 2006 (filed herewith). |
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| 4 | .25 | Second Amended and Restated Credit Agreement dated as of February 24, 2006 among General Growth Properties, Inc., Operating Partnership and GGPLP L.L.C., as Borrowers; the several lenders from time to time parties thereto; Banc of America Securities LLC, Eurohypo AG, New York Branch (“Eurohypo”) and Wachovia Capital Markets, LLC, as Arrangers; Eurohypo, as Administrative Agent; Bank of America, N.A., and Wachovia Bank, National Association, as Syndication Agents; and Lehman Commercial Paper, Inc., as Documentation Agent (previously filed as Exhibit 4.1 to the Current Report onForm 8-K dated February 24, 2006 which was filed with the SEC on March 2, 2006, incorporated herein by reference). | ||
| 10 | .1 | Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated April 1, 1998 (the “LP Agreement”) (previously filed as Exhibit 10.1 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .2 | First Amendment to the LP Agreement dated as of June 10, 1998 (previously filed as Exhibit 10(B) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 10 | .3 | Second Amendment to the LP Agreement dated as of June 29, 1998 (previously filed as Exhibit 10(C) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 10 | .4 | Third Amendment to the LP Agreement dated as of February 15, 2002 (previously filed as Exhibit 10.3 to the Current Report onForm 8-K dated July 10, 2002 which was filed with the SEC on July 24, 2002, incorporated herein by reference). | ||
| 10 | .5 | Amendment to the LP Agreement dated as of April 24, 2002 (previously filed as Exhibit 10.4 to the Current Report onForm 8-K dated July 10, 2002 which was filed with the SEC on July 24, 2002, incorporated herein by reference). | ||
| 10 | .6 | Fourth Amendment to the LP Agreement dated as of July 10, 2002 (previously filed as Exhibit 10.5 to the Current Report onForm 8-K dated July 10, 2002 which was filed with the SEC on July 24, 2002, incorporated herein by reference). | ||
| 10 | .7 | Amendment to the LP Agreement dated as of November 27, 2002 (previously filed as Exhibit 10(G) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 10 | .8 | Sixth Amendment to the LP Agreement and Exhibit A to the Amendment dated as of November 20, 2003 (previously filed as Exhibit 10.8 to the Annual Report onForm 10-K for the year ended December 31, 2003 which was filed with the SEC on March 12, 2004, incorporated herein by reference). | ||
| 10 | .9 | Amendment to the LP Agreement and Exhibit A to the Amendment dated as of December 11, 2003 (previously filed as an Exhibit 10.9 to the Annual Report onForm 10-K for the year ended December 31, 2003 which was filed with the SEC on March 12, 2004, incorporated herein by reference). | ||
| 10 | .10 | Amendment to the LP Agreement dated March 5, 2004 (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2004 which was filed with the SEC on May 7, 2004, incorporated herein by reference). | ||
| 10 | .11 | Amendment to the LP Agreement dated November 12, 2004 (previously filed as Exhibit 10.3 to the Current Report onForm 8-K/A dated November 12, 2004 which was filed with the SEC on November 18, 2004, incorporated herein by reference). | ||
| 10 | .12 | Amendment to the LP Agreement dated September 30, 2006 (filed herewith). | ||
| 10 | .13 | Twelfth Amendment to the LP Agreement dated December 31, 2006 (filed herewith). | ||
| 10 | .14 | Second Amended and Restated Operating Agreement of GGPLP L.L.C. dated April 17, 2002 (the “LLC Agreement”) (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2002 which was filed with the SEC on May 13, 2002, incorporated herein by reference). | ||
| 10 | .15 | First Amendment to the LLC Agreement dated April 23, 2002 (previously filed as Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2002 which was filed with the SEC on May 13, 2002, incorporated herein by reference). |
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| 10 | .16 | Second Amendment to the LLC Agreement dated May 13, 2002 (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2002 which was filed with the SEC on August 13, 2002, incorporated herein by reference). | ||
| 10 | .17 | Third Amendment to the LLC Agreement dated October 30, 2002 (previously filed as Exhibit 10(Y) to the Annual Report onForm 10-K for the year ended December 31, 2002 which was filed with the SEC on March 14, 2003, incorporated herein by reference). | ||
| 10 | .18 | Fourth Amendment to the LLC Agreement dated April 7, 2003 (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2003 which was filed with the SEC on May 9, 2003, incorporated herein by reference). | ||
| 10 | .19 | Fifth Amendment to the LLC Agreement dated April 11, 2003 (previously filed as Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2003 which was filed with the SEC on May 9, 2003, incorporated herein by reference). | ||
| 10 | .20 | Sixth Amendment to the LLC Agreement dated November 12, 2004 (previously filed as Exhibit 10.2 to the Current Report onForm 8-K/A dated November 12, 2004 which was filed with the SEC on November 18, 2004, incorporated herein by reference). | ||
| 10 | .21 | Stockholders Agreement dated December 20, 1995, among GGP/Homart, Inc., Operating Partnership, The Comptroller of the State of New York, As Trustee of the Common Retirement Fund (“NYSCRF”), Equitable Life Insurance Company of Iowa, USG Annuity & Life Company, Trustees of the University of Pennsylvania and General Growth Properties (previously filed as Exhibit 10.18 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .22 | First Amendment to Stockholders Agreement dated September 10, 1996 (previously filed as Exhibit 10.19 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .23 | Operating Agreement dated November 10, 1999, between the Operating Partnership, NYSCRF, and GGP/Homart II L.L.C. (previously filed as Exhibit 10.20 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .24 | Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated November 22, 2002 (previously filed as Exhibit 10.21 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .25 | Letter Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.22 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .26 | Second Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.23 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .27 | Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated August 26, 2002, between the Operating Partnership, Teachers’ Retirement System of the State of Illinois and GGP-TRS L.L.C. (previously filed as Exhibit 10.24 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .28 | First Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated December 19, 2002 (previously filed as Exhibit 10.25 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .29 | Second Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated November 1, 2005 (previously filed as Exhibit 10.26 to the Annual Report onForm 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006, incorporated herein by reference). | ||
| 10 | .30* | Summary of Non-Employee Director Compensation Program (previously filed as Exhibit 10.1 to the Current Report onForm 8-K dated July 26, 2005 which was filed with the SEC on July 28, 2005, incorporated herein by reference). |
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| 10 | .31 | Form of Contingent Stock Agreement, effective January 1, 1996, by The Rouse Company and in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 99.1 to the Registration Statement onForm S-3/A(No. 333-120373) which was filed with the SEC on December 23, 2004, incorporated herein by reference). | ||
| 10 | .32 | Assumption Agreement dated October 19, 2004 by General Growth Properties, Inc. and The Rouse Company in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 99.2 to the Registration Statement onForm S-3/A(No. 333-120373) which was filed with the SEC on December 23, 2004, incorporated herein by reference). | ||
| 10 | .33 | Indemnity Agreement dated as of February 2006 by the Company and The Rouse Company, LP. (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended March 31, 2006 which was filed with the SEC on May 10, 2006, incorporated herein by reference). | ||
| 10 | .34* | General Growth Properties, Inc. 1998 Incentive Stock Plan, as amended (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2005 which was filed with the SEC on August 8, 2005, incorporated herein by reference). | ||
| 10 | .35* | Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth Properties, Inc. 1998 Incentive Stock Plan (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended September 30, 2006 which was filed with the SEC on November 8, 2006, incorporated herein by reference). | ||
| 10 | .36* | Form of Option Agreement pursuant to 1998 Incentive Stock Plan (previously filed as Exhibit 10.47 to the Annual Report onForm 10-K for the year ended December 31, 2004 which was filed with the SEC on March 22, 2005, incorporated herein by reference). | ||
| 10 | .37* | General Growth Properties, Inc. 2003 Incentive Stock Plan, as amended (previously filed as Exhibit 10.1 to the Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2006 which was filed with the SEC on August 9, 2006, incorporated herein by reference). | ||
| 10 | .38* | Amendment dated November 8, 2006 and effective January 1, 2007 to General Growth Properties, Inc. 2003 Incentive Stock Plan (previously filed as Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarterly period ended September 30, 2006 which was filed with the SEC on November 8, 2006, incorporated herein by reference). | ||
| 10 | .39* | Form of Option Agreement pursuant to 2003 Incentive Stock Plan (previously filed as Exhibit 10.48 to the Annual Report onForm 10-K for the year ended December 31, 2004 which was filed with the SEC on March 22, 2005, incorporated herein by reference). | ||
| 10 | .40* | Form of Employee Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2006 which was filed with the SEC on August 9, 2006, incorporated herein by reference). | ||
| 10 | .41* | Form of Non-Employee Director Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.3 to the Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2006 which was filed with the SEC on August 9, 2006, incorporated herein by reference). | ||
| 21 | List of Subsidiaries (filed herewith). | |||
| 23 | .1 | Consent of Deloitte & Touche LLP (filed herewith). | ||
| 23 | .2 | Consent of KPMG LLP (filed herewith). | ||
| 31 | .1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||
| 31 | .2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||
| 32 | .1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||
| 32 | .2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||
| 99 | .1 | Financial Statements of TRCLP, a wholly owned subsidiary of GGPLP (filed herewith). |
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| (*) | A compensatory plan or arrangement required to be filed. |
Pursuant to Item 601(b)(4)(iii) ofRegulation 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 December 31, 2006. The registrant agrees to furnish a copy of such agreements to the Commission upon request.
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