General Growth Properties Inc: Will U.S. Consumers Kick Its Growth Into Gear?

General Growth Properties should be able to capitalize on improvements in consumer spending and higher FFO growth and might offer investors a 3% dividend yield soon.

Jul 11, 2014 at 10:14AM
G

Source: Company

General Growth Properties(NYSE:GGP) is one of the largest mall operators in the United States. Owning General Growth Properties is pretty much a big bet on the resurgence of U.S. consumer spending which could provide significant boosts for GGP's funds from operation (FFO) and dividend growth.

Net operating income growth, occupancy increases, potential acquisitions and portfolio development are all approaches with which General Growth Properties can create value for shareholders. In addition, investors get to enjoy a 2.5% dividend yield which will likely increase in the future.

Rebounding consumer spending
It has been said before, but it is worth repeating: U.S. GDP growth depends on the loose wallets of the American consumer.

G

Source: Tradingeconomics

More than any other country, the United States depends on consumer spending to keep the economy and job growth going.

Consumer spending has recovered significantly from the lows in 2008 and higher job growth and income gains will immediately translate into higher discretionary income to be showered on malls across the United States.

The cycle of spending and earning income is what fuels economic growth and General Growth Properties. Through its diversified asset footprint, the company should be able to benefit nicely on a broad based recovery in the U.S. economy. With cyclical tailwinds ahead, investors in GGP have a lot to look forward to.

Diversified property footprint
General Growth Properties owns and operates 120 regional malls with a presence in 40 states. The REIT is the second largest retail property REIT in the sector after Simon Property Group with a market capitalization of $21 billion.

G

Source: General Growth Properties Investor Presentation, Q2 2014

The consistent rebound in U.S. consumer spending since 2009 certainly is an encouraging signal that customers are exercising less restraint when it comes to their shopping tours. The primary beneficiary: Mall investors like General Growth Properties, among many other retail outlets,

Consumer confidence certainly is high and could increase even further with continued employment gains.

General Growth Properties' 2013 results have already highlighted meaningful improvement in the REIT's financial performance -- and if good news from the consumer spending front continue to trickle in, I wouldn't be too surprised if the REIT increases its optimistic outlook going into 2015.

Strong underlying business performance
General Growth Properties has achieved healthy 2013 results which included 6% year-over-year same store net operating income growth and an 18% increase in FFO.

The REIT's FFO per share trend is encouraging and funds from operations have increased 20% since 2011. More importantly, the REIT expects continued FFO momentum and a 13% y-o-y increase in its FFO to $1.31 per share.

General Growth Properties' dividends also have regularly been more than handsomely covered by its FFO.

G
Source: General Growth Properties Investor Presentation, Q2 2014

Dividends
General Growth Properties currently pays investors $0.15 quarterly per share which equates to a dividend yield of 2.5%. If the REIT indeed benefits from continued NOI and FFO growth momentum (GGP expects full-year 2014 NOI growth of 4.0-4.5%), further dividend hikes will be likely and investors could see a dividend yield of 3% sooner than later.

Valuation
As illustrated above, General Growth Properties expects a 2014 FFO of $1.31 per share, which works out to an 18x FFO multiple.

Given GGP's focus on class A and B+ malls, the strongest performance malls across the retail property spectrum, and its high dividend coverage ratio of 2.2x (2014 FFO/dividend), the valuation remains reasonable.

The Foolish Bottom Line
Real estate is cyclical, and this is especially true for malls. Going forward, I generally expect the real estate asset class to do well and benefit from higher consumer spending and NOI growth.

Wits its focus on high-quality mall properties throughout the United States, General Growth Properties is a diversified, low-risk bet on increasing FFO and dividends.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Kingkarn Amjaroen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers