General Growth earnings decrease

Daniel Taub and Jessica Brice

Tuesday, May 3, 2005 | 10:46 a.m.

General Growth Properties Inc., the second-largest owner of U.S. shopping malls, said first-quarter earnings fell 78 percent on higher costs and interest expenses related to a recent acquisition.

Net income fell to $13.1 million, or 6 cents a share, from $59.1 million, or 27 cents, a year earlier, the Chicago-based company said today in a statement. Revenue almost doubled to $709.5 million from $359.8 million because of an increase in rents and store sales.

In Las Vegas, General Grwoth owns properties including the Grand Canal Shoppes at the Venetian and Boulevard mall, and thanks to its acquisition of Rouse Co., it also owns the planned community of Summerlin and the Las Vegas Strip's Fashion Show mall.

The company's revenue was helped by rising U.S. retail industry sales and its $11.3 billion purchase of Rouse, which added 37 malls and four shopping centers. The acquisition also increased the company's depreciation and amortization costs and interest expenses, Chief Financial Officer Bernard Freibaum said in an interview.

"Earnings per share were down because we have a huge amount of depreciation, a non-cash expense, that comes from the purchase of the Rouse Company," Freibaum said. Interest expenses also climbed because the acquisition "was done primarily with debt."

General Growth's funds from operations, a measure of cash flow used by real estate investment trusts, rose 26 percent to $209.6 million, or 72 cents a share, from $163.7 million, or 60 cents. On that basis, which doesn't comply with generally accepted accounting principles, results beat the 71-cent average estimate of 13 analysts surveyed by Thomson Financial.

Freibaum said rising retail sales have benefited the mall owner, which receives a percentage of tenants' revenue.

"Consumer are more than two-third of the economy and they continue to spend," he said. "That's directly tied into our business. We have lots of retailers who want to open up new stores."

Comparable center net operating income rose 5 percent in the first quarter. Mall-shop occupancy fell to 90 percent at the end of the quarter from 90.4 percent a year earlier. Sales per square foot, on a trailing 12-month basis as of March 31, rose to $416 from $359.

First-quarter results were reported after the close of regular U.S. trading. General Growth shares fell 72 cents, or 1.8 percent, to $38.39 in New York Stock Exchange composite trading. They have gained 42 percent in the past year, compared with a 27 percent rise in the Bloomberg Real Estate Investment Trust Index.

General Growth owns stakes in and manages 209 regional malls in 44 U.S. states, encompassing about 200 million square feet of space. The company is second in size to Simon Property Group Inc., which controls 202 million square feet of space including the Forum Shops at Caesars Palace in Las Vegas. Simon last week said that its first-quarter earnings rose 34 percent as revenue jumped the most in 5 1/2 years.