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GGP Inc.'s (GGP) Q2 FFO Beats, NOI Increases, Revenues Lag

GGP Inc. GGP delivered second-quarter 2017 funds from operations (“FFO”) per share of 40 cents, beating the Zacks Consensus Estimate of 35 cents. The figure also came in higher than the prior-year quarter tally of 36 cents.

Results reflect 0.7% growth in same store net operating income (“NOI”) from the prior-year period.

However, the company posted revenues of $555.8 million, which missed the Zacks Consensus Estimate of $576.7 million. The figure also compared unfavorably with the year-ago number of $574.6 million.

General Growth Properties, Inc. Price, Consensus and EPS Surprise
 

General Growth Properties, Inc. Price, Consensus and EPS Surprise | General Growth Properties, Inc. Quote

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Quarter in Details

Same Store leased percentage was 95.7% at quarter end. Initial NOI weighted rental rates for signed leases that have commenced in the trailing 12 months (on a suite-to-suite basis), expanded 13.4% when compared to the rental rate for expiring leases. Further, tenant sales (all less anchors) inched up 0.8% on a trailing 12-month basis.

The company ended the quarter with cash and cash equivalents of $227.6 million, down from $474.8 million as of Dec 31, 2016.

Portfolio Activity

During the second quarter, the company acquired its joint-venture partner’s stake in Neshaminy Mall in Bensalem, PA, and the Younkers anchor box at Jordan Creek Town Center in West Des Moines, IA. On the other hand, the company sold Red Cliffs Mall in St. George, UT, for around $39.1 million.

GGP Inc.’s development and redevelopment activities totaled $1.5 billion. Of this, projects worth $1.3 billion are under construction and $0.2 billion is in the pipeline.

Dividend Update

GGP Inc. announced a third-quarter common stock dividend of 22 cents per share, indicating an increase of 10% year over year, but flat sequentially. This amount is payable on Oct 31 to stockholders of record as of Oct 13, 2017.

Guidance

For full-year 2017, GGP Inc. expects FFO per share in the range of $1.59–$1.63. The Zacks Consensus Estimate is currently pegged at $1.56.

For third-quarter 2017, the company projects FFO per share in the range of 35–37 cents. The Zacks Consensus Estimate for the same is pegged at 38 cents.

Our Take

GGP Inc.’s better-than-expected FFO per share in the reported quarter is encouraging, but a lag in revenues disappoints us. Admittedly, mall traffic continues to suffer with online purchases growing by leaps and bounds. These have made retailers reconsider their footprint and eventually opt for store closures in recent times. Also, amid high competition, a number of retailers have been filing bankruptcy. This has emerged as a pressing concern for retail REITs, like GGP Inc., as such moves are curtailing demand for the retail real estate space considerably.

Though the company is making efforts to counter the pressure through various initiatives, the implementation of such measures requires a decent upfront cost and therefore, is likely to limit any robust growth in its profit margins in the near term. Also, rate hike has added to the company’s woes.

General Growth Properties currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We are now looking forward to the earnings releases of Regency Centers Corporation REG, Outfront Media Inc. OUT and Lamar Advertising Company LAMR, all of which are expected to report in the upcoming days.

Note:  FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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