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

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.


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.


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.

Source: General Growth Properties Investor Presentation, Q2 2014

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.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information