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General Growth Properties Completes Share Buyback

Zacks Equity Research

Real estate investment trust (:REIT) General Growth Properties, Inc (GGP) declared the buyback of over 27.6 million common shares from the hedge fund sponsor firm Pershing Square Capital Management, L.P., thus marking the latter’s exit. The repurchase price has been settled at around $556 million or $20.12 per share.

Consequently, the company’s common stock outstanding declined to around 937 million shares. Notably, the earnings guidance for 2014 did not include the share repurchase activity. According to the company, there would have been 2 cents positive impact of this on pro forma funds from operations (:FFO) per share had this been occurred at the beginning of 2014.  However, there would have been a nominal effect on GAAP net income per share.

The deal was financed through General Growth Properties’ existing cash balance. Based on the company’s guidance for 2014 of $2.25 billion net operating income and net debt of around $18.3 billion at the end of fourth-quarter 2013, the implied capitalization for the share repurchase is around 6%.

Previously, in Sep 2013, General Growth Properties bought back 25 million shares from Pershing Square Capital. With the latest move the company offloaded the entire stake of Pershing Square Capital.

Battered by the financial crisis, General Growth Properties filed for Chapter 11 bankruptcy protection, which is known to be one of the biggest real estate bankruptcy cases in the U.S. In 2010, Pershing Square Capital, being part of an investor group rescued General Growth Properties from bankruptcy through an investment of $60 million in shares. Since 2010, the company’s shares have significantly appreciated.
On Feb 3, General Growth Properties reported fourth-quarter 2013 FFO per share of 36 cents, exceeding the Zacks Consensus Estimate by a penny. Results befitted from revenue growth, rise in same store net operating income (:NOI) and increase in initial rental rates.

We remain encouraged owing to its portfolio restructuring activities and a significant development pipeline that bode well for the company’s long-term growth.

Currently, General Growth Properties carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the REIT sector include AmREIT, Inc. (AMRE), Federal Realty Investment Trust (FRT) and Excel Trust, Inc. (EXL). All these stocks holds a Zacks Rank #2 (Buy).

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Read the Full Research Report on AMRE
Read the Full Research Report on FRT
Read the Full Research Report on EXL

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