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General Growth climbs to profit as retail recovers

Improving economic conditions and business trends for its retail tenants helped shopping mall owner General Growth Properties Inc. report a gain in first-quarter funds from operations, reversing a year-ago loss.
/ Source: The Associated Press

Improving economic conditions and business trends for its retail tenants helped shopping mall owner General Growth Properties Inc. report a gain in first-quarter funds from operations, reversing a year-ago loss.

The company, which filed for Chapter 11 bankruptcy protection more than a year ago, said Monday that the recovering economy led to a rise in sales and leasing activity for the quarter. General Growth Chief Executive Adam Metz said the company continues to curb its expenses and noted that occupancy rates have stabilized.

"First-quarter sales trends improved significantly from the same period last year," Metz said. "We are seeing signs of recovery and growth in a number of our markets."

Still, the positive trends aren't expected to bolster the company's operating results for another nine months to a year, Metz said.

The company said core funds from operations, a key industry metric, rose to $254.1 million, or 78 cents a share, for the three months ended March 31. That compares with a core FFO loss of $122.9 million, or 38 cents a share, in the prior-year quarter.

Stripping out costs related to the company's reorganization and other one-time items, FFO declined to $159.4 million, or 49 cents a share, versus $176.7 million, or 55 cents a share. FFO, a widely used gauge of real estate operating performance, adds depreciation and amortization expenses, as well as other non-operating items, back to the company's net income or loss.

General Growth also returned to profitablity in the quarter, posting net income of $78.4 million, or 25 cents a share, compared with a loss of $396.1 million, or $1.27 a share, in the prior-year quarter.

Revenue slipped about 3 percent to $761.2 million.

Retail center occupancy stood at 90.5 percent at the end of March, down from 90.9 percent a year earlier. Leasing activity rose 21 percent from the year-ago period.

General Growth is the nation's second-largest mall operator with more than 200 centers in 43 states, including Faneuil Hall in Boston, the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.

The Chicago-based company seized on cheap lending to bankroll acquisitions at the height of the real estate boom, but racked up $27 billion in debt by the time it sought bankruptcy protection in April 2009.

As of the end of April, the company had reorganized $14.8 billion of secured mortgage debt.

On Friday, a bankruptcy court judge approved a $6.5 billion plan put forth by an investor group led by Canadian property manager Brookfield Asset Management that would help fund General Growth's exit from bankruptcy as a standalone company. The plan also is intended to buy time for General Growth while it solicits potential buyout offers.

Rival shopping mall owner Simon Property Group Inc., which had been seeking to buy General Growth, withdrew its $6.5 billion bid on Friday, saying the court's ruling would have made the deal too expensive.

General Growth shares added 70 cents, or 5 percent, to close at $14.77, amid strong gains in the broader market. The stock has traded in a 52-week range of $13.50 to $18.15.