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Should General Growth Properties be in Your Portfolio?

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Retail REIT – General Growth Properties, Inc. – has decided to change its name officially to GGP Inc. effective Jan 27. Moreover, on Jan 30, 2017, the company is slated to report its fourth-quarter 2016 results. The Zacks Consensus Estimate for the fourth quarter funds from operations (FFO) per share is currently pegged at 43 cents.

But is it worthwhile to add this stock to your portfolio now? Let us explore.

Headquarter in Chicago, IL, General Growth Properties was founded in 1954. Initially a real estate developer of grocery anchor strip centers, the company acquired its first shopping center two years later.

Over time, the company has grown its portfolio, and currently it owns and operates 126 retail properties in 40 states. In fact, according to its CEO, Sandeep Mathrani, General Growth Properties “control eight percent, approximately 100 million square feet, of the best retail real estate in the country.”

The company has transformed its shopping hubs into swanky entertainment zones and as such, its regional shopping centers now combine supermarkets and lifestyle stores as well as dining and entertainment venues. Amid rising competition from online retailers, such measures will aid in increasing traffic.

Apart from these, General Growth Properties enjoyed a historical cash flow growth (3–5 years) of 37.23%, which comfortably exceeded the industry’s growth of 16.79%. Further, its current cash flow growth of 79.58% is way ahead of the industry’s rate of 10.27%. Its Return on Equity (ROE) ratio is 15.75% compared with the industry average of 12.40%, indicating that the company reinvests more efficiently compared with the industry.

Though online sales remain a woe and shares have underperformed the Zacks categorized REIT and Equity Trust – Retail industry in the past one year (GGP shares declined 5.6%, compared with 4.4% increase of the industry), the company’s portfolio repositioning moves, strategic buyouts and solid tenant base are expected to drive its growth going forward amid a recovering economy. The stock currently has a Zacks Rank #2 (Buy).



Moreover, 91 of 95 vacant department stores and boxes have been redeveloped by the company since 2011, for a total cost of $1.5 billion, reaping an annual return of 11%, which is encouraging.

Further in Sep 2016, mall landlords General Growth Properties and Simon Property Group, Inc. (SPG - Free Report) together with brand development company Authentic Brands Group announced that the acquisition of the apparel and accessories brand, Aeropostale, has been finalized. This acquisition was a noble way for mall landlords to retain the top-performing malls and avoid bulk store closures resulting from any liquidation move.

Finally, solid dividend payouts are arguably the biggest attraction for REIT investors, and concurrent with its third-quarter 2016 earnings release, the company announced a fourth-quarter common stock dividend of 22 cents per share, up 16% year over year. Also, in December, the company declared a special cash dividend of 26 cents per share. This special dividend is payable on Jan 27, 2017, to shareholders of record as of Dec 27, 2016. These moves boost investors’ confidence.

Key Picks

Investors interested in the REIT industry can also consider other similarly-ranked stocks like Mack-Cali Realty Corp. and Urban Edge Properties (UE - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali’s 2016 FFO per share estimates inched up 1.9%, over the past 60 days, to $2.20.

For Urban Edge Properties, the projected growth rate for FFO per share is 37.6% for 2016 and 6.3% for 2017.

Note: Funds from operations (“FFO”) a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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