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Coverage Initiation: General Growth Properties, Inc.
Value Line has initiated coverage of General Growth Properties, Inc. (GGP) in its flagship product, The Value Line Investment Survey. This company is a self-administered and self-managed real estate investment trust (REIT) engaged in the ownership, operation, management, and redevelopment of regional malls. It owns, entirely or with joint venture partners, 144 properties (126 in the United States and 18 in Brazil), comprising approximately 135 million square feet of space. Too, it should be noted GGP’s domestic portfolio is primarily located in the Western United States.
This REIT is a successor to GGP, Inc., which filed for Chapter 11 bankruptcy protection on April 16, 2009, highlighting one of the largest commercial real estate collapses in U.S. history. GGP, Inc. had been one of the biggest mall operators in the country, but it fell victim to the burden of over $25 billion in debt, most of which was in the form of short-term mortgages. The business spent more than a year and a half restructuring its debt tied to mall properties, and positioning itself to reemerge from bankruptcy on November 9, 2010. After the new REIT made its debut, the company split into two distinct, publicly traded entities: Howard Hughes Corp. (comprised of the master-planned communities business) and General Growth Properties (a vast network of regional shopping malls). Now, it appears GGP has a host of solid, long-term top- and bottom-line prospects lined up.
The nature and extent of the competition it can face varies from property to property within each segment of the business. In the company’s Retail and Other segment, its 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. Because GGP’s revenue potential is linked to the success of its retailers, the REIT indirectly shares exposure to the same competitive factors that its 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 pressures stemming from discount shopping clubs, catalog companies, internet sales, and telemarketing.
With respect to its office and other properties, the company experiences competition in the development and management of its properties similar to that of the retail portfolio. Prospective tenants generally consider quality and appearance, amenities, location relative to other commercial activity, and rent price in determining the attractiveness of GGP’s properties. Based on the quality and location of its properties, which are generally in urban markets or are concentrated in the commercial centers of our master planned communities, this REIT should perform well, relative to its peers.
In its Master Planned Communities segment, the business squares off against other landholders and residential/commercial property developers in the development of properties within the Baltimore/Washington, D.C., Las Vegas, and Houston markets. Significant factors which ought to allow it to operate effectively in this business include: overall relationships with nearby homebuilders, its proximity to growing metropolitan areas, and the size and scope of its planned communities.
General Growth Properties has done well of late, while its stock has remained relatively flat, stuck in a range between the high-teens and low-twenties. That said, increased rental rates, higher occupancy levels, and improved operating efficiencies augur well for future quarters. In addition, management’s efforts to right-size the business and initiate tighter cost controls seems to be bolstering profitability.
All told, subscribers interested in this real estate investment trusts are advised to consult Value Line’s quarterly reports for General Growth Properties, Inc., as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.