General Growth Properties Inc. shares fell almost 50 percent Wednesday after the mall operator missed analysts’ third-quarter estimates. The company said it would seek loan extensions and strategic alternatives and continue efforts to raise capital.
This story first appeared in the November 6, 2008 issue of WWD. Subscribe Today.
The Chicago-based real estate investment trust said third-quarter funds from operations fell 11 percent to $185.4 million, or 58 cents a diluted share, compared with $208.4 million, or 70 cents a share, a year ago. REITs use funds from operations to define cash flow and measure performance. On average, analysts polled by Yahoo Finance estimated the firm would record funds from operations of 76 cents a share for the quarter.
Overall, the company posted a $15.4 million third-quarter loss, 64.7 percent greater than the $9.4 million loss it posted a year ago. Revenues fell 5.7 percent to $814.7 million from $864.3 million last year.
Shares of GGP closed down $2.24, or 49.9 percent, to $2.25. Its stock traded at a 52-week high of $51.57 last November.
The company, which is the nation’s second largest mall operator, has been plagued by solvency concerns and a reshuffling of its executive ranks in recent months. It owns, or has management responsibilities in, more than 200 regional malls accounting for about 200 million square feet of retail space.
“We realize we need to generate billions to deleverage the company,” Adam Metz, interim chief executive officer, said on a conference call with analysts Wednesday. “Sales transactions are an important part of our plan. Unfortunately, these transactions take time and until the deals are completed there is really nothing to announce. We hope to be able to report some transactions prior to yearend.”
Last month, the firm said it was putting its three Las Vegas properties on the market. It has $900 million in debt related to two of the properties maturing at the end of this month. Metz said General Growth would attempt to negotiate loan extensions where possible.
GGP named Metz interim ceo and Thomas Nolan Jr. interim president last month. Former ceo John Bucksbaum and former president Robert Michaels resigned after the company learned that Michaels and ousted chief financial officer Bernard Freibaum received unsecured loans from a Bucksbaum family trust that were used to cover margin calls on the purchase of company stock. Michaels gave up his seat on the company’s board, but retained the title of chief operating officer. Bucksbaum continues to serve as chairman of the board.
“Actions taken by the new management team to reduce capital spending over the next few years, while necessary, may not be enough,” Banc of America Securities analyst Christine McElroy wrote in a research note after the conference call.
The company said it is reducing its development spending on near- and intermediate-term projects. McElroy noted that the firm still expects to spend about $222 million in development costs in the fourth quarter.
General Growth lowered its core funds from operations estimate to between $2.85 and $2.95 a share, from earlier guidance of $3.42 because of lower mall and shopping center operation income, impairment charges and refinancing costs.
The company said it was considering a sale of core and noncore assets, sales of joint venture interests and capital