General Growth Properties, Inc. 10-K 2010
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COMMISSION FILE NUMBER 1-11656
GENERAL GROWTH PROPERTIES, INC.
Registered Pursuant to Section 12(b) of the Act:
Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer" and "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO ý
On June 30, 2009, the last business day of the registrant's most recently completed second quarter, the aggregate market value of the shares of common stock held by non-affiliates of the registrant was $522.6 million based upon the closing price of the common stock on such date.
As of February 24, 2010, there were 317,304,152 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is to be filed by amendment no later than April 30, 2010.
Table of Contents
All references to numbered Notes are to specific footnotes to the Consolidated Financial Statements of General Growth Properties, Inc. ("GGP" or the "Company") as included in this Annual Report on Form 10-K ("Annual Report"). The descriptions (and definitions, if not otherwise defined) included in such Notes are incorporated into the applicable Item response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. The terms "we," "us" and "our" may also be used to refer to GGP and its subsidiaries.
GGP is a Delaware corporation, organized in 1986, which operates as a self-administered and self-managed real estate investment trust, referred to as a "REIT." We have ownership interest in, or management responsibility for, over 200 regional shopping malls in 43 states, as well as ownership in master planned communities and commercial office buildings.
Our business is focused in two main areas:
Substantially all of our business is conducted through GGP Limited Partnership ("the Operating Partnership" or "GGPLP"). We own one hundred percent of many of our properties and a majority or controlling interest of certain others. As a result, these properties are consolidated under generally accepted accounting principles in the United States of America ("GAAP") and we refer to them as the "Consolidated Properties." Some properties are held through joint venture entities in which we own a non-controlling interest ("Unconsolidated Real Estate Affiliates") and we refer to those properties as the "Unconsolidated Properties." Collectively, we refer to the Consolidated Properties and Unconsolidated Properties as our "Company Portfolio."
We generally make all key strategic decisions for our Consolidated Properties. However, in connection with the Unconsolidated Properties, such strategic decisions are made with the respective stockholders, members or joint venture partners. We are also the asset manager for most of the Company Portfolio, executing the strategic decisions and overseeing the day-to-day property management functions, including operations, leasing, construction management, maintenance, accounting, marketing and promotional services. With respect to jointly owned properties, we generally conduct the management activities through General Growth Management, Inc. ("GGMI"), one of our taxable REIT subsidiaries ("TRS") which manages, leases, and performs various services for the majority of the properties owned by our Unconsolidated Real Estate Affiliates and 19 properties owned by unaffiliated third parties, all located in the United States, and also performs marketing and strategic partnership services at five of the operating retail properties owned by our Unconsolidated Real Estate Affiliates. All of the 15 operating retail properties owned either through our Brazil or Turkey joint ventures are unconsolidated and are managed by our joint venture partners.
On April 16, 2009, the Company, the Operating Partnership and certain of the Company's domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United
States Code ("Chapter 11"). On April 22, 2009 (collectively with April 16, 2009, the "Petition Date"), certain additional domestic subsidiaries (collectively with the Company and the subsidiaries that sought Chapter 11 protection on April 16, 2009, the "Debtors") of the Company also filed voluntary petitions for relief (collectively, the "Chapter 11 Cases"). However, neither GGMI, certain of our wholly-owned subsidiaries, nor any of our joint ventures, (collectively, the "Non-Debtors") either consolidated or unconsolidated, have sought such protection. The Chapter 11 Cases were filed in the Bankruptcy Court of the Southern District of New York (the "Bankruptcy Court") and are currently being jointly administered. A total of 388 Debtors with approximately $21.83 billion of debt filed for Chapter 11 protection.
The Company and certain of the Debtors are currently operating as "debtors in possession" under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Chapter 11 (Note 1Debtors in Posession). In general, as debtors in possession, we are authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. The Bankruptcy Court has granted a variety of Debtor motions that allow the Company to continue to operate its business in the ordinary course without interruption, and covering, among other things, employee obligations, critical service providers, tax matters, insurance matters, tenant and contractor obligations, claim settlements, ordinary course property sales, cash management, cash collateral, alternative dispute resolution, settlement of the pre-petition mechanics liens and department store transactions.
The Bankruptcy Court also authorized the Senior Secured Debtor in Possession Credit, Security and Guaranty Agreement (the "DIP Facility") (Note 6) which provides for a $400.0 million term loan. The proceeds of the DIP Facility were used to refinance certain pre-petition secured indebtedness and to fund the Debtors' working capital requirements during Chapter 11.
On April 16, 2009, and May 21, 2009, respectively, the Company's common stock was suspended from trading, and then de-listed, from the New York Stock Exchange (the "Exchange"). On April 17, 2009, the Company's common stock began trading on the over the counter market referred to as the Pink Sheet Electronic Quotation Service (the "Pink Sheets") under the symbol GGWPQ.
The bankruptcy petitions triggered defaults on substantially all debt obligations of the Debtors. However, under section 362 of Chapter 11, the filing of a bankruptcy petition automatically stays most actions against the debtor's estate. The Chapter 11 Cases created the protections necessary for the Debtors to be able to develop and begin execution of a restructuring of the Debtors to extend mortgage maturities, reduce corporate debt and overall leverage and establish a sustainable long-term capital structure.
We are pursuing a deliberate two-stage strategy to accomplish our reorganization, the first step of which is to restructure our property-level secured mortgage debt. As a result, during December 2009, January and February 2010, 231 Debtors (the "Track 1 Debtors") owning 119 properties with $12.33 billion of secured mortgage debt filed consensual plans of reorganization (the "Track 1 Plans") with the Bankruptcy Court. As of December 31, 2009, 113 Debtors owning 50 properties with approximately $4.65 billion of secured mortgage debt restructured such debt and emerged from bankruptcy (the "Track 1A Debtors"). Through March 1, 2010, an additional 92 Debtors owning 57 properties with approximately $5.98 billion of secured mortgage debt restructured such debt and emerged from bankruptcy. Effectiveness of the plans of reorganization and/or restructuring of the $1.70 billion of secured mortgage debt of the remaining Track 1 Debtors (together with the Track 1 Debtors that have already emerged from bankruptcy in 2010, the "Track 1B Debtors") is expected to occur in the first quarter of 2010.
GGP is continuing to pursue consensual restructurings for 31 Debtors (the "Remaining Secured Debtors") with secured loans aggregating $2.50 billion. The Chapter 11 Cases for the Remaining Secured Debtors and the other remaining Debtors (generally GGP, GGPLP and other holding company
subsidiaries, the "TopCo Debtors" and together with the Remaining Secured Debtors, the "2010 Track Debtors") will continue until their respective plans of reorganization are filed, approved by the respective creditors, confirmed by the Bankruptcy Court and are effective.
Although we have successfully restructured $10.65 billion of secured mortgage debt, no agreements have been reached with respect to $2.50 billion of secured debt and $6.51 billion of unsecured debt and we do not yet have a filed or confirmed plan of reorganization for the 2010 Track Debtors. In addition, our share of the secured mortgage debt of our Unconsolidated Real Estate Affiliates maturing in 2010 (excluding the Woodlands MPC and Brazil loans) is $513.8 million (of which $78.3 million has been extended to 2014) and we have not yet restructured or refinanced this secured debt. Therefore, there continues to be the potential for substantially adverse outcomes to these unresolved contingencies which raises substantial doubt about our ability to continue as a going concern (see also Note 1).
GENERAL DEVELOPMENT OF BUSINESS
In the first quarter of 2009, liquidity was our primary issue. As of March 31, 2009, we had $2.01 billion in past due debt and an additional $4.09 billion of debt that could have been accelerated. We did not have sufficient liquidity to make principal payments on maturing or accelerating debt or pay our past due payables. We reviewed all of our strategic and financial alternatives during the first quarter of 2009 and tried to develop an out of court restructuring plan with our lenders. To forestall certain foreclosure proceedings and to facilitate further negotiations with our secured and unsecured lenders, we filed for bankruptcy in April 2009.
Prior to and immediately following the bankruptcy filing, we were focused on preservation of capital and maintenance of occupancy levels at our retail and other rental properties. As a result, the typical length of new and renewal leases entered into in 2009 was shorter than historical averages as a result of economic conditions and our financial condition.. Following the filing of the bankruptcy cases through the end of the second quarter of 2009, we focused on stabilizing our business during the Chapter 11 Cases and maintaining the profitability of our operating properties. In the second half of 2009, we recommitted to our strategic repairs and maintenance programs deferred as a result of liquidity issues to ensure that our retail properties continue to provide the right physical environment for our tenants and shoppers. We strategically reduced operational costs, without reducing service levels, and used these savings to further our repairs and maintenance related to property preservation and upkeep.
During the fourth quarter of 2009, and into 2010, we developed a long term business plan. The business plan is the culmination of a strategic and financial analysis of the Company and all of its assets. The business plan contemplates the continued ownership and operation of most of our retail shopping centers, divestiture of non-core assets and suspension of development projects. It also contemplates the transfer of certain non-performing retail assets to applicable lenders in satisfaction of secured mortgage debt. The business plan provides the framework for the two key strategic initiatives we have undertaken. The first initiative was the design and restructuring of the balance sheet to create the sustainable long-term capital structure we desire upon emergence from bankruptcy. We developed and commenced a deliberate two stage strategy for our balance sheet restructuring and emergence. We have made substantial progress on the first stage of the strategy, which includes the extension of the maturity dates of our secured mortgage debt and the emergence from bankruptcy of the Debtors associated with such debt. We are working on the second stage of the strategy, restructuring of the TopCo Debtors and have undertaken a process to explore all possible alternatives for emergence of the TopCo Debtors.
The second key strategic initiative arising from the business plan is the development of a long term operational strategy. We developed and launched the two necessary processes we identified for creation of a strategy designed to increase long-term net operating income ("NOI"). These two processes include a reengineering program and a strategic planning process for each of our retail shopping centers.
Our business plan is subject to change and would be changed if the agreement in principal with Brookfield Asset Management Inc. is consummated. See "Item 7. Management's Discussion and Analysis of Financial condition and Results of Operations; OverviewIntroduction" for a discussion of the agreement in principle.
In the fourth quarter of 2008, we halted or deferred substantially all of our development and redevelopment projects, other than projects which were substantially complete, projects at properties owned by our Unconsolidated Real Estate Affiliates, and projects with commitments we were obligated to fulfill. Costs to complete, or that we are obligated to pay (subject to any confirmed plan of reorganization of the TopCo Debtors) related to our remaining active domestic projects are expected to be approximately $248.0 million in 2010 and beyond. Our current business plan contemplates that we will not have sufficient capital to complete the substantial majority of our deferred development and redevelopment projects nor to continue to hold certain non-performing retail assets. Accordingly, we recorded approximately $1.22 billion in property, goodwill and project impairments in 2009.
From 2005 to the third quarter of 2008, our focus was on development projects, including new development and redevelopment and expansion of existing properties. In such regard, we opened in September 2007 The Natick Collection in Natick, Massachusetts, which, anchored by Nordstrom, Neiman Marcus, JC Penney, Lord & Taylor, Macy's and Sears, is the largest mall in New England. Additionally, we opened The Shops at Fallen Timbers in Maumee, Ohio in October 2007. In March 2008, we opened The Shoppes at River Crossing in Macon, Georgia, an approximately 659,000 square foot open-air center anchored by Dillard's and Belk. Two significant projects in progress in 2008 which were completed in 2009 were the 138,000 square foot expansion of the Fashion Place Mall in Murray Utah (consisting of a Nordstrom and certain national restaurant tenants) in the spring of 2009 and a 165,000 square foot expansion and food court renovation at the Christiana Mall in Newark, Delaware which opened in November 2009. Internationally, in Brazil, our joint venture opened Caxias Shopping (an approximately 275,500 square foot center in Rio de Janeiro) in November 2008 and, in 2009, Boulevard Brasilia (an approximately 182,000 square foot project in Brasilia) and Boulevard Shopping Belem (approximately 366,000 square feet of retail space in Belem) in June and November, respectively.
Prior to and through the acquisition of The Rouse Company in November 2004 (the "TRC Merger"), acquisitions have been a key contributor to our growth. Since 2005, our only major acquisition has been the July 6, 2007 acquisition of the fifty percent interest owned by New York State Common Retirement Fund ("NYSCRF") in the GGP/Homart I portfolio of 19 regional shopping malls, one community center and three regional shopping malls owned with NYSCRF pursuant to an election by NYSCRF to exercise its exchange right with respect to its ownership in GGP/Homart I and the February 29, 2008 acquisition of the Shoppes at the Palazzo in Las Vegas Nevada (Note 3).
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reference is made to Note 16 for information regarding our segments.
NARRATIVE DESCRIPTION OF BUSINESS
Retail and Other Segment
Our Retail and Other segment consists of retail centers, office and industrial buildings and mixed-use and other properties.
The retail properties in our retail and other segment ("Retail Portfolio") is comprised primarily of regional shopping centers, but also includes festival market places, urban mixed-use centers and strip/community centers. Most of our shopping centers are strategically located in major and middle markets
throughout the United States where they have strong competitive positions. Most of these properties contain at least one major department store or other large retail store with Gross Leaseable Area ("GLA") greater than 30,000 square feet (an "Anchor"). We also own non-controlling interests in various international joint ventures in Brazil, Turkey and Costa Rica and we believe the Retail Portfolio's geographic diversification mitigates the effects of regional economic conditions and local factors. We entered into an agreement to sell our investment in Costa Rica for $7.5 million, yielding a nominal gain that we expect will be recognized in the first quarter of 2010.
A detailed listing of the principal properties in our Retail Portfolio is included in Item 2 of this Annual Report.
The majority of the income from the properties in the Retail Portfolio is derived from rents received through long-term leases with retail tenants. These long-term leases generally require the tenants to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases during the term of the lease. Another component of income is Overage Rent ("Overage Rent"). Overage Rent is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage Rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease, the majority of which is typically earned in the fourth quarter. Our leases include both a base rent component and a component which requires tenants to pay amounts related to all, or substantially all, of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The revenue earned attributable to real estate tax and operating expense recoveries are recorded as "Tenant recoveries."
The following table reflects retail tenant representation by category for the domestic Consolidated Properties as of December 31, 2009. In general, similar percentages existed for the Unconsolidated Properties.
For the year ended December 31, 2009, our largest tenant (based on common parent ownership) accounted for approximately 3% of consolidated rents.
Other Office, Industrial and Mixed-Use Buildings
Office and other properties are primarily components of large-scale mixed-use properties (which include retail, parking and other uses) located in urban markets. In addition, we own certain free-standing office or industrial properties in office parks in the Baltimore/Washington, D.C. and Las Vegas markets. We own approximately seven million square feet of leaseable office and industrial space, including properties adjacent to our retail centers.
Master Planned Communities Segment
The Master Planned Communities segment is comprised primarily of the following large-scale, long-term community development projects:
We develop and sell land in these communities to builders and other developers for residential, commercial and other uses. Additionally, certain saleable land within these properties may be transferred to our Retail and Other segment to be developed as commercial properties for either our own use or to be operated as investment rental property. Finally, our 215 unit residential condominium project (Nouvelle at Natick in Natick (Boston), Massachusetts) has been reflected within this segment.
OTHER BUSINESS INFORMATION
The nature and extent of the competition we face varies from property to property within each segment of our business. In our Retail and Other segment, our direct competitors include other publicly-traded retail mall development and operating companies, retail real estate companies, commercial property developers and other owners of retail real estate that engage in similar businesses.
Within our Retail Portfolio, we compete for retail tenants. We believe the principal factors that retailers consider in making their leasing decision include:
Based on these criteria, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets. Because our revenue potential is linked to the success of our retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These dynamics include general competition from other regional shopping centers, including outlet malls and other discount shopping centers, as well as competition with discount shopping clubs, catalog companies, internet sales and telemarketing. We believe that we have a competitive advantage with respect to operational retail property management as our expertise allows us to evaluate existing retail properties for their increased profit potential through expansion, remodeling, re-merchandising and more efficient management of the property.
With respect to our office and other properties, we experience competition in the development and management of our properties similar to that of our Retail Portfolio. Prospective tenants generally consider quality and appearance, amenities, location relative to other commercial activity and price in determining the attractiveness of our properties. Based on the quality and location of our properties, which are generally in urban markets or are concentrated in the commercial centers of our master planned communities, we believe that our properties are viewed favorably among prospective tenants.
In our Master Planned Communities segment, we compete with other landholders and residential and commercial property developers in the development of properties within the Baltimore/Washington, D.C., Las Vegas and Houston markets. Significant factors which we believe allow us to compete effectively in this business include:
Under various Federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with our ownership and operation of our properties, we, or the relevant joint venture through which the property is owned, may be potentially liable for such costs.
Substantially all of our properties have been subject to Phase I environmental assessments, which are intended to evaluate the environmental condition of the surveyed and surrounding properties. The Phase I environmental assessments included a historical review, a public records review, a preliminary investigation of the site and surrounding properties, screening for the presence of asbestos, polychlorinated biphenyls ("PCBs") and underground storage tanks and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations. A Phase II assessment, when necessary, was conducted to further investigate any issues raised by the Phase I assessment. In each case where Phase I and/or Phase II assessments resulted in specific recommendations for remedial actions required by law, management has either taken or scheduled the recommended action.
Neither the Phase I nor the Phase II assessments have revealed any environmental liability that we believe would have a material adverse effect on our overall business, financial condition or results of operations. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability or the current environmental condition of our properties will not be adversely affected by tenants and occupants of the properties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of underground storage tanks) or by third parties unrelated to us.
Future development opportunities may require additional capital and other expenditures in order to comply with federal, state and local statutes and regulations relating to the protection of the environment. However, we may not have sufficient liquidity to comply with such statutes and regulations and may be required to halt or defer such development projects. We cannot predict with any certainty the magnitude of any such expenditures or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on our operating results or competitive position in the past but could have such an effect in the future.
As of December 31, 2009, we had approximately 3,200 employees.
Qualification as a Real Estate Investment Trust and Taxability of Distributions
GGP currently qualifies as a real estate investment trust pursuant to the requirements contained in Sections 856-858 of the Internal Revenue Code of 1986, as amended (the "Code"). If, as we contemplate, such qualification continues, GGP will not be subject to Federal tax on its real estate investment trust taxable income. During 2009, GGP met its distribution requirements to its common stockholders as provided for in Section 857 of the Code (Notes 1 and 7).
Our Internet website address is www.ggp.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Interactive Data Files, Current Reports on Form 8-K and amendments to those reports are available and may be accessed free of charge through the Investment section of our Internet website under the Shareholder Info subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. Our Internet website and included or linked information on the website are not intended to be incorporated into this Annual Report.
As a result of our Chapter 11 filing, we are now required to periodically file various documents with, and provide certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by Chapter 11 or the U. S. Trustee, as well as certain financial information on an unconsolidated basis. Such materials will be prepared according to requirements of Chapter 11. While we believe that these documents and reports provide then-current information required under Chapter 11, they are prepared only for the Debtors and, hence, certain operational entities are excluded. In addition, they are prepared in a format different from that used in this Annual Report and other reports we file with the SEC and there has not been and there will not be any association of our independent registered public accounting firm with such information. Accordingly, we believe that the substance and format of our bankruptcy related filed reports do not allow meaningful comparison with our regular publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities, or for comparison with other financial information filed with the SEC.
We filed for protection under Chapter 11 of the Bankruptcy Code
As more fully described in Item 1 Business, the Debtors filed voluntary petitions to reorganize under Chapter 11 on April 16 and April 22, 2009. As of December 31, 2009, the Track 1A Debtors have emerged from bankruptcy protection pursuant to confirmed plans of reorganization. The Chapter 11 Cases relating to certain Track 1 Debtors and the 2010 Track Debtors, however, are still pending. During the remaining Chapter 11 Cases, we plan to continue to operate our business as it relates to these Debtors as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11. Our operations, including our ability to execute our business plan, are subject to the risks and uncertainties associated with the continuing bankruptcy proceedings of certain Debtors, including, but not limited to, the following:
The ultimate impact that events that occur during the bankruptcy proceedings will have on our business, financial condition and results of operations cannot be predicted or quantified.
Our DIP Credit Agreement may not provide sufficient liquidity during the remaining Chapter 11 Cases
In the event that cash flows and borrowings under the DIP Credit Agreement are not sufficient to meet our liquidity requirements, including the emergence costs for the Track 1 Debtors, we may be required to seek additional financing. There can be no assurance that such additional financing would be available or, if available, would be offered on acceptable terms. Failure to secure any necessary additional financing would have a material adverse impact on our operations and ongoing viability.
Operating under Chapter 11 may restrict our ability to pursue our business strategies
Under Chapter 11, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:
The pursuit of the Chapter 11 Cases has consumed and will consume a substantial portion of the time and attention of our corporate management and will impact how our business is conducted, which may have an adverse effect on our business and results of operations
The requirements of the Chapter 11 Cases has consumed and will continue to consume a substantial portion of our corporate management's time and attention and leave them with less time to devote to the operations of our business. Our management has spent considerable time developing the emergence plans for the Track 1 Debtors and the 2010 Track Debtors and the business plan for the Company. This diversion of corporate management's attention may have a material adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.
Our employees are facing considerable distractions and uncertainty due to the Chapter 11 Cases
As a result of the Chapter 11 Cases, our employees are facing considerable distractions and uncertainty. A material erosion of employee morale could have a material adverse effect on our business, particularly if the Chapter 11 Cases are protracted.
The Company's business could suffer from the Chapter 11 Cases
The Chapter 11 Cases may negatively impact the operations of the Company. While the potential negative impact cannot be predicted or quantified, risks include:
The Company's businesses could suffer from a long and protracted restructuring
The Company's future results are dependent upon the successful filing, confirmation and implementation of plans of reorganization for the 2010 Track Debtors. Failure to complete the reorganization process in a timely manner could adversely affect the Company's operating results, including its relationships with tenants and suppliers. If a liquidation or protracted reorganization were to occur, there is a significant risk that the value of the Company's enterprise would be substantially eroded to the detriment of all stakeholders.
Furthermore, the Company cannot predict the ultimate amount of all settlement terms for the Debtors' liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is implemented, the Company's operating results may be adversely affected by the possible reluctance of prospective lenders, tenants, and suppliers to do business with a company that recently emerged from bankruptcy proceedings.
Our ability to emerge from the Chapter 11 Cases will depend on obtaining sufficient exit financing or capital or the pursuit of a change of control transaction
For the TopCo Plan of Reorganization to be effective, we will need to obtain and demonstrate the sufficiency of exit financing or capital to fund the remaining emergence costs of the Track 1 Debtors and the emergence costs of the 2010 Track Debtors. In addition to funding ongoing operational needs, exit financing or capital must be sufficient to fund certain emergence costs of the Track 1 Debtors as well as the TopCo Debtors to the extent existing cash reserves or operating cash flows are not sufficient. We cannot presently determine the final terms of such financing, nor can there be any assurances of our success in obtaining it. In addition to pursuing traditional and non-traditional forms of exit financing or capital, we also intend to explore potential merger and acquisition or other change of control transactions with financial and strategic investors. Failure to obtain exit financing or capital or conclude a change of control transaction may further delay the emergence of the 2010 Track Debtors from bankruptcy protection.
We may not have sufficient cash to maintain our operations and fund our emergence costs
As discussed above under "Bankruptcy Risks," our DIP Credit Facility may not provide sufficient liquidity during the remaining Chapter 11 Cases and exit financing or capital may not be sufficient to support our operations post-emergence. Our operating cash flows and exit financing or capital may not be sufficient to pay our debt as it comes due, interest on our debt, emergence costs and other operating expenses. We face significantly higher operating expenses due in part to payments to our financial and legal advisors, as well as fees and other amounts payable to our lenders in connection with loan restructurings. Because we have limited short-term sources of cash, in the event such sources are insufficient to fund our needs, we may be unable to successfully emerge from bankruptcy or implement our plan of reorganization.
We may be subject to claims that will not be discharged in the Chapter 11 Cases
The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation and specified debts arising afterwards. With few exceptions, all claims that arose prior to the Petition Date and before confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization or (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization. We currently do not believe that the aggregate amount of claims that will not be subject to treatment under the plan of reorganization or not discharged, will be material, although such aggregate amount are not expected to have a material adverse effect on our liquidity position.
We may not be able to raise capital through the sale of properties
Our ability to sell our properties to raise capital is limited. The retail economic climate negatively affects the value of our properties and therefore reduces our ability to sell these properties on acceptable terms. Our ability to sell our properties is also negatively affected by the weakness of the credit markets, which increases the cost and difficulty for potential purchasers to acquire financing, as well as by the illiquid nature of real estate. Finally, our Chapter 11 Cases may encourage potential purchasers to offer less attractive terms for our properties and may delay any potential sale transaction and any such transaction contemplated by a Debtor must be approved by the Bankruptcy Court. See "Business Risks" for a further discussion of the effects of the retail economic climate on our properties, as well as the illiquid nature of our investments in our properties.
We have a low tax basis in many of our properties relative to the fair market value of such properties. As a result of this low tax basis, we could recognize a substantial taxable gain upon the sale of such properties, which would impact the amount of net proceeds we would retain from any such sales as a result of the REIT distribution requirements.
We may not be able to refinance, extend or repay our portion of substantial indebtedness at our Unconsolidated Properties, which could have a material adverse affect on our business, financial condition, results of operations and common stock price
Our Unconsolidated Properties have a substantial amount of debt which they not be able to extend, refinance or repay. As of December 31, 2009, our share of indebtedness secured by our Unconsolidated Properties was $3.12 billion (Note 5). There can be no assurance that our Unconsolidated Properties will be able to refinance or extend their debt on acceptable terms or otherwise. The ability to refinance this debt is negatively affected by the current condition of the credit markets, which have significantly reduced the levels of capacity of commercial lending. The ability to successfully refinance or extend this debt may also be negatively affected by our bankruptcy
proceedings as well as the real or perceived decline in the value of our Unconsolidated Properties based on general and retail economic conditions, as discussed further below.
Our substantial indebtedness adversely affects our financial health and operating flexibility
Our indebtedness could have important consequences to us and the value of our common stock, including:
Refinanced debt contains restrictions and less attractive covenants
We have refinanced $10.65 billion of secured mortgage debt since the Petition Date. The terms of certain debt require us to satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests, including ratios and tests based on leverage, interest coverage and net worth. The covenants and other restrictions under our debt agreements affect, among other things, our ability to:
Due to the current lending environment, our bankruptcy proceedings, our financial condition and general economic factors, this refinanced debt contains certain terms which are less attractive than the terms contained in the debt being refinanced. Such terms include more restrictive operational and financial covenants, restrictions on the distribution of cash flows from properties serving as collateral for the debt and higher fees and, in certain instances, higher interest rates. These fees and cash flow restrictions may affect our ability to fund our on-going operations from our operating cash flows and we may be significantly limited in our operating and financial flexibility and thus may be limited in our ability to respond to changes in our business or competitive activities.
COMMON STOCK RISKS
Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. It is possible our common stock will be cancelled and that holders of such common stock will not receive any distribution with respect to, or be able to recover any portion of, their investments
It is not possible to determine if the TopCo Plan of Reorganization will allow for distributions with respect to our common stock and other outstanding equity interests. It is possible that these equity interests will be cancelled and extinguished upon the approval of the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of a cancellation of these equity interests, amounts invested by such holders in our outstanding equity securities will not be recoverable. Consequently, our currently outstanding common stock would have no value. Trading prices for our common stock are very volatile and may bear little or no relationship to the actual recovery, if any, by the holders of such securities in the Chapter 11 Cases. Accordingly, we urge that extreme caution be exercised with respect to existing and future investments in our equity securities and any of our other securities.
Our common stock was delisted from the Exchange and is not listed on any other national securities exchange
On April 17, 2009, the Company's common stock began trading in the over the counter market in the Pink Sheets under the symbol GGWPQ. The last day that the Company's common stock traded on the Exchange was April 16, 2009.
We can provide no assurance that we will be able to re-list our common stock on a national securities exchange or that the stock will continue being traded on the Pink Sheets. The trading of our common stock on the Pink Sheets rather than the Exchange may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders. In addition, securities that trade on the Pink Sheets are not eligible for margin loans and make our common stock subject to the provisions of Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock rule."
Risks of trading in an over the counter market
Securities traded in the over-the-counter market generally have significantly less liquidity than securities traded on a national securities exchange, through factors such as a reduction in the number of investors that will consider investing in the securities, the number of market makers in the securities, reduction in securities analyst and news media coverage and lower market prices than might otherwise be obtained. As a result, holders of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all. Furthermore, because of the limited market and generally low volume of trading in our common stock that could occur, the share price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the markets perception of our business, and announcements made by us, our competitors or parties with whom we have business relationships. With
respect to the Company, in some cases, we may be subject to additional compliance requirements under applicable state laws in the issuance of our securities. The lack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future.
If holders of common stock recover any portion of their investment they may be subject to substantial dilution as a result of future issuances of our common stock
We may issue common stock to satisfy creditors of the TopCo Debtors and the TopCo Plan of Reorganization may include an equity-based incentive compensation plan. The amount and dilutive effect of any such issuance can not be determined at this time.
We may also issue shares of our common stock to meet our obligations under the Contingent Stock Agreement under which we assumed the obligations of TRC to the beneficiaries thereunder (the "CSA"). In addition, we have reserved a number of shares of common stock for issuance under our restricted stock and option plans for employees and directors and in connection with certain other obligations, including convertible debt and these shares will be available for sale from time to time. Finally, we issued approximately 4.9 million shares of common stock as a taxable stock dividend in order to satisfy the requirements for qualification of a REIT and we currently expect to continue to issue taxable stock dividends to satisfy the requirements for REIT qualification.
Economic conditions, especially in the retail sector, may have an adverse affect on our revenues and available cash
General and retail economic conditions continue to be weak, and we do not expect a near term return to the economic conditions that prevailed in 2007. High unemployment, weak income growth, tight credit and the need to pay down existing debt are expected to continue to negatively impact consumer spending. Given these economic conditions, we believe there is a significant risk that the sales of stores operating in our centers will either not improve, or will improve slowly which will have the following negative effect on our operations:
Ability to lease and collect rent. Our results of operations depend on our ability to continue to lease space in our properties on economically favorable terms. If the sales of certain stores operating in our centers do not improve sufficiently, tenants might be unable to pay their existing minimum rents or expense recovery charges, since these rents and charges would represent a higher percentage of their sales. If our tenants' sales do not improve, new tenants would be less likely to be willing to pay minimum rents as high as they would otherwise pay. In addition, as substantially all of our income is derived from rentals of real property, our income and cash available for debt service, operations or distribution to our stockholders would be adversely affected if a significant number of tenants were unable to meet their obligations to us.
Bankruptcy or store closures of tenants. Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and a number of companies in the retail industry, including some of our tenants, have declared bankruptcy or voluntarily closed certain of their stores in recent years. The bankruptcy or closure of a major tenant, particularly an Anchor, may have a material adverse effect on the retail properties affected and the income produced by these properties and may make it substantially more difficult to lease the remainder of the affected retail properties. As a result, the bankruptcy or closure of a major tenant and potential additional closures as a result of co-tenancy requirements could result in a lower level of revenues and cash available.
Department store productivity. Department store consolidations, as well as declining sales productivity in certain instances, are resulting in the closure of existing department stores and we may
be unable to re-lease this area or to re-lease it on comparable or more favorable terms. Other tenants may be entitled to modify the terms of their existing leases, including those pertaining to rent payment, in the event of such closures. Additionally, department store closures could result in decreased customer traffic which could lead to decreased sales at other stores.
Ability to attract new tenants. The factors described above not only affect our current tenants and operations, but also affect our ability to attract new tenants.
It may be difficult to buy and sell real estate quickly, and transfer restrictions apply to some of our properties
Equity real estate investments are relatively illiquid, and this characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available to us would be adversely affected. If it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available to us.
If we have a change in control, as defined in section 382 of the Code, our ability to use our net operating loss and interest expense carryforwards to offset future cash taxes may be reduced or eliminated. The significant stock activity we have recently experienced and the possibility of issuing additional equity to address our liquidity needs increases the risk of this provision impacting us in the future.
We invest primarily in regional shopping centers and other properties, which are subject to a number of significant risks which are beyond our control
Real property investments are subject to varying degrees of risk that may affect the ability of our properties to generate sufficient revenues. A number of factors may decrease the income generated by a retail property, including:
Our Master Planned Communities are also affected by some of the above factors, as well as the significant weakening of the housing market which began in 2007 and is expected to continue.
If we are unable to generate sufficient revenue from our properties, including those held by joint ventures, we will be unable to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions from our joint ventures and then, in turn, to our stockholders.
We develop and expand properties, and this activity is subject to various risks
Although we have significantly reduced our development and expansion activities, certain development and expansion projects will be undertaken. In connection with any development or expansion, we will be subject to various risks, including the following:
If a development project is unsuccessful, our investment in the project may not be fully recoverable from future operations or sale.
We may incur costs to comply with environmental laws
Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for some of our redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with the ownership, operation and management of our properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.
Our properties have been subjected to varying degrees of environmental assessment at various times. However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us.
We are in a competitive business
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. Our Chapter 11 Cases may impair the desirability and competitiveness of our shopping facilities. In addition, retailers at our properties face continued competition from retailers at other regional shopping centers, including outlet malls and other discount shopping centers, discount shopping clubs, catalog companies, internet sales and telemarketing. Competition of this type could adversely affect our revenues and cash available for repayment of our debt and distribution to our stockholders.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other REITs, investment banking firms and private institutional investors.
Some of our properties are subject to potential natural or other disasters
A number of our properties are located in areas which are subject to natural disasters. For example, two of our properties, located in the New Orleans area, suffered major hurricane and/or vandalism damage in 2005. It is uncertain as to whether the New Orleans area will recover to its prior economic strength. Certain of our properties are located in California or in other areas with higher risk of earthquakes. In addition, many of our properties are located in coastal regions, and would therefore be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors.
Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations
Future terrorist attacks in the United States, and other acts of violence, including terrorism or war, might result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. A decrease in retail demand could make it difficult for us to renew or release our properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower, or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.
Some potential losses are not insured
We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.
Inflation may adversely affect our financial condition and results of operations
Should inflation increase in the future, we may experience any or all of the following:
Inflation also poses a potential threat to us due to the probability of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable-rate debt as well as result in higher interest rates on new fixed-rate debt.
We have certain ownership interests outside the United States which may increase in relative significance over time
We hold interests in joint venture properties in Brazil, Turkey and Costa Rica. International development and ownership activities carry additional risks that are different from those we face with our domestic properties and operations. These additional risks include:
Although our international activities currently are a relatively small portion of our business (international properties represented less than approximately one percent of the NOI of all of our properties in 2009), to the extent that we expand our international activities, these additional risks could increase in significance and adversely affect our results of operations and financial condition.
Payments by our direct and indirect subsidiaries of dividends and distributions to us may be adversely affected by prior payments to these subsidiaries' creditors and preferred security holders
Substantially all of our assets are owned through our general partnership interest in the Operating Partnership, including The Rouse Company LP ("TRCLP"). The Operating Partnership holds substantially all of its properties and assets through subsidiaries, including subsidiary partnerships, limited liability companies and corporations that have elected to be taxed as REITs. The Operating Partnership therefore derives substantially all of its cash flow from cash distributions to it by its subsidiaries, and we, in turn, derive substantially all of our cash flow from cash distributions to us by the Operating Partnership. The creditors and preferred security holders, if any, of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary's obligations to them, when due and payable, before that subsidiary may make distributions to us. Thus, the Operating Partnership's ability to make distributions to its partners, including us, depends on its subsidiaries' ability first to satisfy obligations to their creditors and preferred security holders, if any, and then to make distributions to the Operating Partnership. Similarly, our ability to pay dividends to holders of our common stock depends on the Operating Partnership's ability first to satisfy its obligations to its creditors and preferred security holders and then to make distributions to us.
In addition, we will have the right to participate in any distribution of the assets of any of our direct or indirect subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary only after the claims of the creditors, including trade creditors, and preferred security holders, if any, of the subsidiary are satisfied. Our common stockholders, in turn, will have the right to participate in any
distribution of our assets upon the liquidation, reorganization or insolvency of us only after the claims of our creditors, including trade creditors, and preferred security holders, if any, are satisfied.
We share control of some of our properties with other investors and may have conflicts of interest with those investors
While we generally make all operating decisions for the Unconsolidated Properties, we are required to make other decisions with the other investors who have interests in the relevant property or properties. For example, the approval of certain of the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties, as well as to bankruptcy decisions related to the Unconsolidated Properties and related joint ventures. We might not have the same interests as the other investors in relation to these transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducement to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and rights apply to sales or transfers of interests in our jointly owned properties. These may work to our disadvantage because, among other things, we might be required to make decisions about buying or selling interests in a property or properties at a time that is disadvantageous to us.
Bankruptcy of joint venture partners could impose delays and costs on us with respect to the jointly owned retail properties
The bankruptcy of one of the other investors in any of our jointly owned shopping centers could materially and adversely affect the relevant property or properties. Under the bankruptcy laws, we would be precluded from taking some actions affecting the estate of the other investor without prior approval of the bankruptcy court, which would, in most cases, entail prior notice to other parties and a hearing in the bankruptcy court. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.
We are impacted by tax-related obligations to some of our partners
We own properties through partnerships which have arrangements in place that protect the deferred tax situation of our existing third party limited partners. Violation of these arrangements could impose costs on us. As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.
Several of our joint venture partners are tax-exempt. As such, they are taxable to the extent of their share of unrelated business taxable income generated from these properties. As the managing partner in these joint ventures, we have obligations to avoid the creation of unrelated business taxable income at these properties. As a result, we may be restricted with respect to decisions such as financing and revenue generation with respect to these properties.
We may not maintain our status as a REIT
One of the requirements of the Code for a REIT generally is that it distribute or pay tax on 100% of its capital gains and distribute at least 90% of its ordinary taxable income to its stockholders. We may not have sufficient liquidity to meet these distribution requirements.
If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to stockholders in computing our taxable income and federal income tax. The corporate level income tax, including any applicable alternative minimum tax, would apply to our taxable income at regular corporate rates. As a result, the amount available for distribution to stockholders would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, unless we were entitled to relief under the relevant statutory provisions, we would be disqualified from treatment as a REIT for four subsequent taxable years.
An ownership limit and certain anti-takeover defenses and applicable law may hinder any attempt to acquire us
The ownership limit. Generally, for us to maintain our qualification as a REIT under the Code, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year. The Code defines "individuals" for purposes of the requirement described in the preceding sentence to include some types of entities. In general, under our current certificate of incorporation, no person other than Martin Bucksbaum (deceased), Matthew Bucksbaum, their families and related trusts and entities, including M.B. Capital Partners III, may own more than 7.5% of the value of our outstanding capital stock. However, our certificate of incorporation also permits our company to exempt a person from the 7.5% ownership limit upon the satisfaction of certain conditions which are described in our certificate of incorporation.
Selected provisions of our charter documents. Our board of directors is divided into three classes of directors. Directors of each class are chosen for three-year staggered terms. Staggered terms of directors may reduce the possibility of a tender offer or an attempt to change control of our company, even though a tender offer or change in control might be in the best interest of our stockholders. Our charter authorizes the board of directors:
Stockholder rights plan. We have a stockholder rights plan which will impact a potential acquirer unless the acquirer negotiates with our board of directors and the board of directors approves the transaction.
Selected provisions of Delaware law. We are a Delaware corporation, and Section 203 of the Delaware General Corporation Law applies to us. In general, Section 203 prevents an "interested stockholder," as defined in the next sentence, from engaging in a "business combination," as defined in the statute, with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs:
stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer
The statute defines "interested stockholder" to mean generally any person that is the owner of 15% or more of our outstanding voting stock or is an affiliate or associate of us and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination.
Each item discussed above may delay, deter or prevent a change in control of our Company, even if a proposed transaction is at a premium over the then current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.
We may make forward-looking statements in this Annual Report and in other reports which we file with the SEC or with the Bankruptcy Court. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others.
Forward-looking statements include:
In this Annual Report, for example, we make forward-looking statements discussing our expectations about:
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or similar expressions. Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made and we might not update them to reflect changes that occur after the date they are made.
There are several factors, many beyond our control, which could cause results to differ significantly from our expectations. Factors such as our bankruptcy proceedings, credit, market, operational, liquidity, interest rate and other risks are described elsewhere in this Annual Report. Any factor described in this Annual Report could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition. There are also other factors that we have not described in this Annual Report that could cause results to differ from our expectations.
Our investment in real estate as of December 31, 2009 consisted of our interests in the properties in our Retail and Other and Master Planned Communities segments. We generally own the land underlying the properties in our Retail and Other segment. However, at certain of the Retail and Other segment properties, all or part of the underlying land is owned by a third party that leases the land to us pursuant to a long-term ground lease. The leases generally contain various purchase options and typically provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. We own the land in the Master Planned Community Segment. Information regarding encumbrances on the Retail and Other segment properties and Master Planned Communities properties is included in Schedule III of this Annual Report.
The following tables set forth certain information regarding the Consolidated Properties and the Unconsolidated Properties in our Retail Portfolio as of December 31, 2009. These tables do not reflect subsequent activity in 2010. Anchors include all department stores or other large retail stores with GLA (measured in square feet) greater than 30,000 square feet. Significant tenants includes certain large retail stores that are approximately 10,000 square feet. Combined occupancy for Consolidated Properties and Unconsolidated Properties as of December 31, 2009 was 91.6%.
Anchors have traditionally been a major component of a regional shopping center. Anchors are frequently department stores whose merchandise appeals to a broad range of shoppers. Anchors generally either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rates that are generally lower than the rents charged to Mall Store tenants. We also typically enter into long-term reciprocal agreements with Anchors that provide for, among other things, mall and Anchor operating covenants and Anchor expense participation. The centers in the Retail Portfolio receive a smaller percentage of their operating income from Anchors than from stores (other than Anchors) that are typically specialty retailers who lease space in the structure including, or attached to, the primary complex of buildings that comprise a shopping center. While the market share of many traditional department store Anchors has been declining, strong Anchors continue to play an important role in maintaining customer traffic and making the centers in the Retail Portfolio desirable locations for Mall Store tenants.
The following table indicates the parent company of certain Anchors and sets forth the number of stores and square feet owned or leased by each Anchor in the Retail Portfolio (excluding properties owned by our Brazil and Turkey Unconsolidated Real Estate Affiliates) as of December 31, 2009.
The GLA of freestanding retail stores in locations that are not attached to the primary complex of buildings that comprise a shopping center is defined as ("Freestanding GLA") and "Mall GLA" is the gross leaseable retail space, excluding Anchors and Freestanding GLA, measured in square feet. At December 31, 2009, our Mall GLA and our Freestanding GLA aggregated 57.6 million square feet for our consolidated retail properties and 19.9 million square feet for our unconsolidated retail properties. The following table indicates various lease expiration information related to the consolidated minimum rent for our currently existing retail leases at December 31, 2009. See Note 2 for our accounting policies for revenue recognition from our tenant leases and Note 8 for the future minimum rentals of our operating leases.
See Item 1 "Narrative Description of Business" for information regarding our other properties (office, industrial and mixed-use buildings) and our Master Planned Communities segment.
Other than our current Chapter 11 cases described in this Annual Report, neither the Company nor any of the Unconsolidated Real Estate Affiliates is currently involved in any material pending legal proceedings nor, to our knowledge, is any material legal proceeding currently threatened against the Company or any of the Unconsolidated Real Estate Affiliates.
On April 16, 2009, the Company's common stock was suspended from trading on the Exchange. On April 17, 2009, the Company's common stock began trading on the Pink Sheets under the symbol GGWPQ. The Company's common stock was delisted from the Exchange on May 21, 2009. As of February 24, 2010, our common stock was held by 4,125 stockholders of record.
The following table summarizes the quarterly high and low bid quotations prices per share of our common stock as reported on the Pink Sheets since April 17, 2009 and by the high and low sales prices on the Exchange prior to the date trading was suspended by the Exchange. The Pink Sheet quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
The following table summarizes quarterly distributions per share of our common stock.
The Company's Board of Directors suspended our dividend in October 2008 and, accordingly, there were no dividends declared or paid from the fourth quarter of 2008 through the third quarter of 2009. There were no repurchases of our common stock during 2009.
See Note 10 for information regarding shares of our common stock that may be issued under the employment agreements of our CEO, and our President and Chief Operating Officer, under our equity compensation plans as of December 31, 2009, Note 12 for information regarding redemptions of the common units of GGP Limited Partnership held by limited partners (the "Common Units") for common stock and Note 14 for information regarding the issuance of common stock related to the CSA.
The following table sets forth selected financial data which is derived from, and should be read in conjunction with, the Consolidated Financial Statements and the related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report. As of January 1, 2009 we adopted two accounting pronouncements (related to convertible debt instruments that may be settled in cash upon conversion and noncontrolling interests) that required retrospective application, in which all periods presented reflect the necessary changes (Note 2).
Real Estate Property Net Operating Income (NOI")
The Company believes that NOI is a useful supplemental measure of the Company's operating performance. The Company defines NOI as operating revenues (rental income, land sales, tenant recoveries and other income) less property and related expenses (real estate taxes, land sales operating costs, repairs and maintenance, marketing and other property expenses). As with FFO described below, NOI has been reflected on a consolidated and unconsolidated basis (at the Company's ownership share). Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to other REITs.
Because NOI excludes general and administrative expenses, interest expense, retail investment property impairment or other non-recoverable development costs, depreciation and amortization, gains and losses from property dispositions, allocations to non-controlling interests, reorganization items, and extraordinary items, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact on operations from trends in occupancy rates, rental rates, land values (with respect to the Master Planned Communities) and operating costs. This measure thereby provides an operating perspective not immediately apparent from GAAP operating or net income attributable to controlling interests. The Company uses NOI to evaluate its operating performance on a
property-by-property basis because NOI allows the Company to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company's operating results, gross margins and investment returns.
In addition, management believes that NOI provides useful information to the investment community about the Company's operating performance. However, due to the exclusions noted above, NOI should only be used as an alternative measure of the Company's financial performance. For reference, and as an aid in understanding management's computation of NOI, a reconciliation of NOI to consolidated operating income as computed in accordance with GAAP has been presented.
Reconciliation of Real Estate Property Net Operating Income ("NOI") to GAAP Operating Income
Funds From Operations
Consistent with real estate industry and investment community practices, we use FFO as a supplemental measure of our operating performance. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains or losses from cumulative effects of accounting changes, extraordinary items and sales of operating rental properties, plus real estate related depreciation and amortization and after adjustments for the preceding items in our unconsolidated partnerships and joint ventures.
We consider FFO a useful supplemental measure for equity REITs and a complement to GAAP measures because it facilitates an understanding of the operating performance of our properties. FFO does not include real estate depreciation and amortization required by GAAP since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO provides investors with a clearer view of our operating performance, particularly with respect to our rental properties.
In order to provide a better understanding of the relationship between FFO and net income available to common stockholders, a reconciliation of FFO to net income available to common stockholders has been provided. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to GAAP net income and is not necessarily indicative of cash available to fund cash requirements.
Reconciliation of FFO to Net Income Available to Common Stockholders
All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Annual Report and which descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") have the same meanings as in such Notes.
The Company is currently operating as a Debtor in Possession under Chapter 11.
We are the owner or manager of over 200 regional shopping malls in 43 states and the owner of five master planned communities, of which we operate in two reportable business segments: Retail and Other and Master Planned Communities.
From the third quarter of 2008 through the filing of the Chapter 11 Cases and first half of 2009, liquidity was our primary issue. Unable to refinance, extend or otherwise restructure our past due debt due to the collapse of the credit markets, we voluntarily chose to restructure our debt under court supervision. A total of 388 Debtors with approximately $21.83 billion of debt filed for Chapter 11 protection.
The Chapter 11 Cases created the protections necessary for the Debtors to develop and execute plans of reorganization to restructure the Debtors and extend mortgage maturities, reduce corporate debt and overall leverage and establish a sustainable long-term capital structure. We have a long-term business plan necessary to effect the objectives we sought to achieve through the Chapter 11 process. The business plan contemplates the continued operation of retail shopping centers, divestiture of non-core assets and businesses and certain non-performing retail assets, and select development projects. We have pursued a deliberate two-stage strategy. The first stage entails the restructuring of our property-level secured mortgage debt. This second stage is the restructuring of the debt of the TopCo Debtors and our public equity.
As of March 1, 2010, 205 Track 1 Debtors owning 108 properties with $10.65 billion of secured mortgage debt have restructured such debt and emerged from bankruptcy. The Track 1 Plans generally provide, in exchange for payment of certain extension fees and cure of previously unpaid amounts due on the applicable mortgage loans (primarily, principal amortization otherwise scheduled to have been paid since the Petition Date), the extension of the secured mortgage loans at previously existing non-default interest rates. As a result of the extensions, the $10.65 billion of secured mortgage debt of the Track 1 Debtors that have emerged as of March 1, 2010 matures at various dates after January 1, 2014. In addition, the Track 1 Plans provide for the payment in full of all undisputed claims of creditors of the Track 1 Debtors.
We have identified thirteen of the properties of the Track 1 Debtors with $751.7 million of secured mortgage debt as non-performing retail assets (the "Special Consideration Properties"). Pursuant to the terms of the agreements with the lenders for these properties, the Debtors have until two days following emergence of the TopCo Debtors to determine whether the collateral property for these loans should be deeded to the respective lender or the property should be retained with further modified loan terms. Prior to emergence of the TopCo Debtors, all cash produced by the property is under the control of respective lenders and we are required to pay any operating expense shortfall. In addition, prior to emergence of the TopCo Debtors, the respective lender can change the manager of the property or put the property in receivership and GGP has the right to deed the property to the lender, but no such actions have yet occurred.
We have also identified three properties (Silver City, Montclair and Highland) owned by our Unconsolidated Real Estate Affiliates with approximately $457.4 million of secured mortgage debt, of which our share is $230.1 million, as non-performing assets. With respect to each of the properties owned by such Unconsolidated Real Estate Affiliates, all cash produced by such properties are under the control of the applicable lender. In the event we are unable to satisfactorily modify the terms of each of the loans associated with these properties, the collateral property for any such loan we are unable to satisfactorily restructure may be deeded to the respective lender.
We are continuing to pursue consensual restructurings for the Remaining Secured Debtors and we will seek Bankruptcy Court approval of non-consensual restructuring plans for these loans in the event we are unable to reach an agreement with these lenders.
While completion of the restructurings of the property-level debt remains a priority, we believe that we have achieved substantial progress with respect to the first phase of our restructuring strategy and are now in the midst of the second phaseresolving the TopCo Debtors' capital structure. Resolution of the TopCo capital structure involves reducing corporate debt and overall leverage and establishing a long-term capital structure. Our long-term business plan currently projects that we will need approximately $1.5 billion of new capital to emerge from bankruptcy and restructure on a stand alone basis. We have commenced a process to explore all potential alternatives for emergence, including an evaluation of the financing sources for a stand alone restructuring, as well as potential merger and acquisition or other change of control transactions with financial and strategic investors.
On February 24, 2010, we reached an agreement in principle with Brookfield Asset Management Inc. ("Brookfield") pursuant to which GGP would be divided into two companies and Brookfield would invest $2.5 billion in cash in GGP and up to $125 million in cash in the new second company, General Growth Opportunities ("GGO"). Terms of the agreement in principle provide that, in exchange for its investment, Brookfield would acquire approximately thirty percent of the common stock of GGP and up to approximately sixteen percent of the total equity of GGO and have the right to nominate three directors to each of the boards of GGP and GGO. Terms of the agreement in principle also provide that the Company will raise an additional $2.5 billion in cash through a combination of new corporate level indebtedness and the consummation of certain asset sales and will raise up to an additional $3.3 billion in equity capital through a separate capital market equity raise process (coupled with
additional asset sales, if appropriate). In lieu of the receipt of any fees that would be customary in similar transactions, the agreement in principle contemplates that GGP will use its reasonable best efforts to obtain entry of a Bankruptcy Court order that provides Brookfield with seven-year warrants to purchase 60 million shares of existing GGP common stock at an exercise price of $15 per share, which warrants will be replaced with warrants to purchase equity of GGO and restructured GGP following the consummation of the contemplated transactions.
The agreement in principle, including the warrants, is subject to definitive documentation, approval of the Bankruptcy Court and higher and better offers pursuant to procedures we will ask the Bankruptcy Court to approve. There is no assurance that the proposed investment, warrants or plan will be approved by the Bankruptcy Court or consummated. The Company is focused on continued progress in the Chapter 11 Cases and a comprehensive capital raise process, and will continue, notwithstanding the agreement in principle, to consider all alternatives to maximize value for all of the Company's stakeholders.
We have filed a motion to extend the exclusivity period for us to file a plan until August 26, 2010 and to solicit acceptances of such plan to October 26, 2010. Our motion is currently scheduled to be heard by the Bankruptcy Court on March 3, 2010. Pending entry on order on our motion, the Bankruptcy Court has entered a bridge order extending the exclusivity period until the date that is 7 days following the date on which an order on our extension motion is entered. If an order is entered by the Bankruptcy Court granting our extension motion, it will supersede the bridge order. If the Bankruptcy Court denies our extension motion, the Company will have 7 days following the entry of an order related to the March 3 hearing before exclusivity expires. If we do not file a plan of reorganization for the 2010 Track Debtors prior to the lapse of the exclusivity period, any party in interest would be able to file a plan of reorganization for any of the 2010 Track Debtors.
As a result of the automatic stay of most actions against a debtor's estate, the resulting suspension of our obligation to pay certain pre-petition liabilities and proceeds from the DIP Facility, as of December 31, 2009, we had approximately $654.4 million of cash. Our liquidity is dependent upon cash flow from operations, which were affected by the severe weakening of the economy in 2009. Retail sales hit their low point in the first quarter of 2009 and gradually improved during the remainder of 2009. However, retail market conditions have not returned to the levels of 2007 and, while we believe that they have stabilized and should continue to show improvement, they continue to impact our ability to generate and increase Retail and Other revenues. In addition, the continued weak housing market has negatively affected our ability to generate income through the sale of residential land in our Master Planned Communities.
As part of our business planning process we reviewed our development and redevelopment projects. At this time we currently plan to complete projects that are already substantially complete and joint venture projects. We also intend to fulfill our other contractual obligations. As a result, we currently expect to complete our expansion and redevelopment projects at Christiana Mall, Fashion Place and Saint Louis Galleria.
Based on the results of our evaluations for impairment of our Consolidated Properties (Note 2), we recognized impairment charges of $410.7 million in 2009 related to our operating retail and other properties, including the Special Consideration Properties and other properties identified as non-performing retail assets. We also recorded impairment charges of $563.8 million in 2009 related to the write-down of various development and pre-development costs that were determined to be non-recoverable as a result of the termination of various development projects. In addition, we recognized impairment charges related to allocated goodwill of $140.6 million in 2009. With respect to our Master Planned Communities Segment we recorded aggregate impairments, in 2009 of $108.7 million as our assumed future pattern in sales (lots or condominium units) changed due to market conditions. While we do not currently expect additional material impairment charges, we can
provide no such assurance that such charges will not occur in future periods. Our tests for impairment at December 31, 2009 were based on the most current information available to us (including our draft plans of reorganization), and if the conditions mentioned above deteriorate, or if our plans regarding our assets change, it could result in additional impairment charges in the future.
In the fourth quarter of 2009, we declared a dividend of $0.19 per share of common stock (to satisfy REIT distribution requirements for 2009) payable in a combination of cash and common stock, provided that the cash component of the dividend could not exceed 10% in the aggregate. As a result of stockholder elections, on January 28, 2010, we paid approximately $5.9 million in cash (excluding cash in lieu of fractional shares) and issued approximately 4.9 million shares of GGP common stock.
Our ability to continue as a going concern is dependent upon our ability to successfully implement a plan of reorganization for the 2010 Track Debtors, and there can be no assurance that we will be able to do so. We have described such concerns in Note 1 and our independent auditors have included an explanatory paragraph in their report expressing substantial doubt as to our ability to continue as a going concern.
OverviewRetail and Other Segment
Our primary business is owning, managing, leasing and developing retail rental property, primarily shopping centers. The substantial majority of our properties are located in the United States, but we also have certain retail rental property operations and property management activities (through unconsolidated joint ventures) in Brazil and Turkey.
We provide on-site management and other services to substantially all of our properties, including properties which we own through joint venture arrangements and which are unconsolidated for GAAP purposes. Our management operating philosophies and strategies are generally the same whether the properties are consolidated or unconsolidated. As a result, we believe that financial information and operating statistics with respect to all properties, both consolidated and unconsolidated, provide important insights into our operating results.
We seek to increase long-term NOI growth through proactive management and leasing of our retail shopping centers. Our management strategy includes strategic reinvestment in our properties, smartly controlled operating expenses and enhancement of the customer experience. Our leasing strategy is to identify and provide the right stores and the appropriate merchandise for each of our retail operating centers.
We believe that the most significant operating factor affecting incremental cash flow and real estate net operating income is increased rents earned from tenants at our properties. These rental revenue increases are primarily achieved by:
The following table summarizes selected operating statistics. Unless noted, all information is as of December 31, 2009.
OverviewMaster Planned Communities Segment
Our Master Planned Communities business consists of the development and sale of residential and commercial land, primarily in large-scale projects in and around Columbia, Maryland; Houston, Texas; and Summerlin, Nevada. Residential sales include standard, custom and high density (i.e. condominium, town homes and apartments) parcels. Standard residential lots are designated for detached and attached single- and multi-family homes, ranging from entry-level to luxury homes. At our Summerlin project, we have further designated certain residential parcels as custom lots as their premium price reflects their larger size and other distinguishing features including gated communities, golf course access and higher elevations. Commercial sales include parcels designated for retail, office, services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.
Revenues are derived primarily from the sale of finished lots, including infrastructure and amenities, and undeveloped property to both residential and commercial developers. Additional revenues are earned through participations with builders in their sales of finished homes to homebuyers. Revenues and net operating income are affected by such factors as the availability to
purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidences, regional economic conditions in the areas surrounding the projects, levels of homebuilder inventory, other factors affecting the homebuilder business and sales of residential properties generally, availability of saleable land for particular uses and our decisions to sell, develop or retain land. For our more mature commitments such as in Columbia, Maryland, we are also creating new design plans to increase density and additional communities.
Our primary strategy in this segment is to develop and sell land in a manner that increases the value of the remaining land to be developed and sold and to provide current cash flows. Our Master Planned Communities projects are owned by taxable REIT subsidiaries and, as a result, are subject to income taxes. Cash requirements to meet federal income tax requirements will increase in future years as we exhaust certain net loss carry forwards and as certain master planned community developments are completed for tax purposes and, as a result, previously deferred taxes must be paid. Such cash requirements could be significant. Additionally, revenues from the sale of land at Summerlin are subject to the Contingent Stock Agreement as more fully described in Note 14.
The pace of land sales for standard residential lots has declined in recent periods in correlation to the decline in the housing market.
As of December 31, 2009, there have been 84 unit sales at our 215 unit Nouvelle at Natick residential condominium project. As the threshold for profit recognition on such sales has not yet been achieved, the $36.4 million of sales proceeds received to date has been deferred and has been reflected within accounts payable, accrued expenses and other liabilities (Note 11). When such thresholds are achieved, the deferred revenue, and the related costs of units sold, will be reflected on the percentage of completion method within our master planned community segment.
Based on the results of our evaluations for impairment (Note 2), we recognized aggregate impairment charges related to our Master Planned Communities of $108.7 million in 2009, $40.3 million in 2008 and $127.6 million in 2007.
Results of Operations
Our revenues are primarily received from tenants in the form of fixed minimum rents, Overage Rent and recoveries of operating expenses. We have presented the following discussion of our results of operations on a segment basis under the proportionate share method. Under the proportionate share method, our share of segment revenues and expenses of the Unconsolidated Properties are combined with the revenues and expenses of the Consolidated Properties. Other revenues are increased by the real estate net operating income of discontinued operations and are reduced by our consolidated non controlling interest ventures" share of real estate net operating income. See Note 16 for additional information including reconciliations of our segment basis results to GAAP basis results.
Year Ended December 31, 2009 and 2008
Retail and Other Segment
The following table compares major revenue and expense items:
The $87.7 million decrease in minimum rents in 2009 compared to 2008 was due to a decline in occupancy during the year that resulted in a decrease of approximately $16 million. Also contributing to the decrease is a reduction of temporary tenant base rent revenue of $35.7 million in 2009 compared to 2008 and a reduction of straight-line rent of $11.5 million in 2009 compared to 2008. In addition, minimum rents decreased due to a $12.7 million decrease in termination income, which was $29.1 million in 2009 compared to $41.8 million in 2008. The remaining decreases are primarily the result of decreased occupancy rates and a decrease of $4.9 million due to the sale of three office buildings and two office parks in 2008.
Certain of our leases include both a base rent component and a component which requires tenants to pay amounts related to all, or substantially all, of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The portion of the tenant rent from these leases attributable to real estate tax and operating expense recoveries is recorded as tenant recoveries. The decrease in tenant recoveries is primarily attributable to the decrease in certain property operating expenses. In addition, the decrease was due to an allowance of $15.0 million for tenant audit claims recorded in the fourth quarter of 2009. Also contributing to the decrease is the decline in occupancy and tenants converting to gross leases in 2009.
The decrease in Overage Rent is primarily due to a decrease in comparable tenant sales as a result of the current challenging economic environment impacting many of our tenants throughout the Company Portfolio, particularly at The Grand Canal Shoppes, Fashion Show and Ala Moana Center.
Other revenues include all other property revenues including vending, parking, gains or losses on dispositions of certain property transactions, sponsorship and advertising revenues, less NOI of non-controlling interests. The decrease in other revenues is primarily attributable to dispositions of land parcels at Kendall Town Center that resulted in a $3.9 million loss on sale of land in 2009 and as compared to a $4.3 million gain on sale of land in 2008 as well as a $6.4 million gain on sale of a Woodlands office property in 2008. In addition, the decrease in other revenues is also attributable to reduced occupancy and activity in food and beverage revenue at the Woodlands Hotel and Conference
Center in 2009. Finally, the decrease was attributable to lower sponsorship, show and display revenue in 2009.
Real estate taxes increased in 2009 across the Company Portfolio, a portion of which is recoverable from tenants. A portion of the increase is attributable to a decrease in the amount of capitalized real estate taxes due to decreased development activity.
Repairs and maintenance decreased due to decreases in controllable common area and contracted costs, substantially offset by increases related to property preservation and upkeep in 2009.
Marketing expenses decreased in 2009 across the Company Portfolio as the result of continued company-wide efforts to consolidate marketing functions and reduce advertising spending. The largest savings were the result of reductions in advertising costs, contracted services and payroll.
Other property operating costs decreased primarily due to reductions in property specific payroll costs, professional fees, decreased security expense, lower insurance costs, and lower office expenses due to our 2009 implementation of certain cost savings programs.
The provision for doubtful accounts increased across the Company Portfolio in 2009 primarily due to an increase in tenant bankruptcies and increased aging of tenant receivables resulting from the current economic conditions.
Master Planned Communities Segment
The decrease in land sales, land sales operations and NOI in 2009 was the result of a significant reduction in sales volume and lower margins at our Summerlin, Bridgeland and The Woodlands residential communities. These volume decreases were partially offset by the bulk sale in 2009 of the majority of the remaining single family lots in our Fairwood community in Maryland for considerably lower margins than previous Fairwood sales, for which we recorded a $52.8 million provision for impairment in 2009 and the sale of a residential parcel for use in the development of luxury apartments and town homes in our Columbia, Maryland community.
In 2009, we sold 426.4 residential acres compared to 272.5 acres in 2008. We sold 94.8 acres of commercial lots in 2009 compared to 84.6 acres in 2008 as average prices for lots have declined as compared to 2008. As of December 31, 2009, the master planned communities have approximately 17,300 remaining saleable acres.
Finally, we recorded a provision for impairment of $55.9 million in 2009 and $40.3 million in 2008 related to our Nouvelle at Natick condominium project which reflects the change in management's intent and business strategy with respect to marketing and pricing, reduced potential of future price increases and the likelihood that the period to complete unit sales will extend beyond the original project term.
Certain Significant Consolidated Revenues and Expenses