For two out of the three REITs reporting quarterly results this week, the underlying theme was growth: on the bottom line, and in the real estate market.
General Growth Properties shook off several quarters of stagnant growth with better-than-expected fourth-quarter and year-end results.
The real estate investment trust recorded net income for the quarter that swelled 5.2 percent, to $70.2 million, or 29 cents per diluted share, from $66.7 million, or 28 cents, a year prior. Full-year net income dropped 21.6 percent, to $59.3 million, or 24 cents per share, from $75.6 million, or 32 cents.
Sales per square foot in its retail properties rose to $453 in the fourth quarter, from $437 a year prior. Sales in its top 20 most productive shopping centers averaged $739 per square foot, up from $694 in 2005.
“General Growth’s solid fourth-quarter results should benefit the [share valuation] as many of the issues that have recently plagued [General Growth] (land sales, short-term interest rates, accounting issues) are largely behind it,” Dennis Maloney, an analyst at Goldman Sachs, wrote in a research note. “Without this ‘noise,’ investors can focus on its core competency — the mall business — and the growth that exists therein.”
With confidence in General Growth’s mall business, Goldman raised its 2007 earnings estimate to $3.25 per share from $3.23. For 2008, the analyst raised the REIT’s earnings estimate to $3.60 from $3.47.
Jeffrey Donnelly, senior analyst at Wachovia Capital Markets, is still wary of the company’s excess land, though he did raise his earnings guidance to $3.22 for 2007. “As a leading national platform, General Growth benefits from scale and a robust third-party management business,” he wrote. “Unfortunately, its significant leverage and volatile land sales business is negatively impacting cash flow growth and predictability.”
The company plans to open three retail centers in the U.S. in 2007, and three projects in Brazil and Turkey, and like other REITs that have reported this quarter, the company plans to expand overseas.
“We continue to put great importance on international activity as we speak with retailers and/or look at opportunities on various continents,” said John Bucksbaum, chief executive of the company. “We continue to look for new developments.”
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The Macerich Co. has a more active pipeline, having recently broken ground on or received approvals for several major retail projects. In 2007, it will open the Promenade at Casa Grande and the first phase of San Tan Village, both in Arizona, and the final phase of Twenty-Ninth Street in Colorado. It broke ground this month on an expansion to The Oaks in California, and received approvals to add up to five mixed-use towers to Biltmore Fashion Park in Arizona and to move forward with planning on Tyson’s Corner Center in Virginia.
“Our development pipeline remains the very major force of our future growth,” Arthur Coppola, president and chief executive, said on a conference call. “We’ve got over $500 million per year of major development and redevelopment in the pipeline.”
Ross Nussbaum, senior equity analyst with Bank of America Securities, agreed that Macerich was on the right track with its properties.
“We believe Macerich continues to be a development story, with $2 billion to $2.5 billion of redevelopment and development in the pipeline over the next five years,” wrote Nussbaum.
For the fourth quarter, net income available to Macerich’s stockholders jumped to $147.9 million, or $1.98 per diluted share, from $23.6 million, or 39 cents, in the prior year. Results were fueled by a one-time gain of $132.7 million from sales of noncore malls. Net income for the year totaled $228 million, or $3.19 per share, which compares with $52.6 million, or 88 cents, in the prior year. Sales per square foot increased 8.4 percent in the quarter, to $452 from $417 a year earlier.
Federal Realty Investment Trust is sticking to its tried-and-true redevelopment practice for future growth. It launched six redevelopment projects in 2006, and is expected to deliver a half-dozen more this year, but has managed to keep costs down and its balance sheet unencumbered, Richard Moore, managing director at RBC Capital Markets wrote in a research note.
“With a deep redevelopment pipeline that has years yet to run, huge capacity on and off the balance sheet for additional ventures and an eye for geographic expansion,” the company could continue to post double-digit growth for some time, he predicted.
The REIT reported fourth-quarter net income of $17.8 million, or 32 cents per diluted share, which is down from $32.3 million, or 61 cents, in the prior year. Results include a one-time charge from the buyback of more than 5 million preferred shares. Net income for the year was $103.5 million, or $1.94 per share, which compares with $103.1 million, or $1.96 per share, a year prior.