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Here's Why Hold Strategy Is Apt For GGP Stock Right Now

Published 03/25/2018, 11:40 PM
Updated 07/09/2023, 06:31 AM

GGP Inc. (NYSE:GGP) enjoys a portfolio of high-quality retail properties across attractive locations in the United States. Further, its tenant roster includes a number of reputed names. GGP also focuses on omni-channel retailing and other initiatives which are encouraging. Nevertheless, declining traffic at malls, store closures and bankruptcies have emerged as a pressing concern for GGP as the trend is curtailing demand for the retail real estate space.

Though the company is making efforts to counter the pressure through various initiatives, the implementation of such measures requires a decent upfront cost and will likely limit any robust growth in profit margins in the near term.

In February, the retail REIT, GGP reported fourth-quarter 2017 funds from operations (FFO) per share of 48 cents, beating the Zacks Consensus Estimate by a cent. The figure was also higher than the prior-year quarter tally of 43 cents. Results indicated growth in same-store net operating income of 1.3% from the prior-year period.

Notably, retailers are continuously evolving and in order to maximize revenues, they are using brick-and-mortar presence and internet together. Amid this, GGP is focusing on omni-channel retailing as it generates higher sales. Since early 2011, the company invested around $2.86 billion, improving its centers. It is providing tenants with access to retail, dining and entertainment hubs in some of the best trade areas in the United States.

Such moves are strategic fits as they boost the shopping experience and enhance sales volume at tenant stores, consequently raising demand for the company’s assets. Furthermore, GGP has been making efforts to add residential units to its retail centers in order to densify its retail centers. Such developments lower the distance between housing and retail destinations while steering a dependable traffic.

Recently, as per a Reuters report, asset manager, Brookfield Property Partners made a revised acquisition offer to GGP. Per people familiar with the matter, the revised offer boasts of an elevated cash component. Notably, in November 2017, Brookfield offered $14.8 billion or $23 per share in a cash-and-stock offer to acquire the remaining 66% stake in GGP. However, GGP’s special board committee rejected the offer. The negotiations between the companies are ongoing and the exact value of the new offer is not known. The special board committee has yet to accept the offer.

However, the U.S. retail real estate market has been plagued with issues like downsizing and bankruptcies of retailers in recent times. This is because mall traffic continues to suffer amid a rapid shift in customers’ shopping preferences and patterns with online purchases growing by leaps and bounds.

This has emerged as a pressing concern for retail REITs including Simon Property Group, Inc. (NYSE:SPG) , The Macerich Company (NYSE:MAC) , Federal Realty Investment Trust (NYSE:FRT) , GGP and others as the trend is curtailing demand for the retail real estate space considerably and curbing the landlord’s pricing power and occupancy level of properties. Moreover, such a choppy environment has led tenants to demand substantial lease concessions but mall landlords are finding these unjustified.

Shares of this Zacks Rank #3 (Hold) stock outperformed its industry in the past six months. During this time, the stock gained 2.2% compared with industry’s decline of 10.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Simon Property Group, Inc. (SPG): Free Stock Analysis Report

Macerich Company (The) (MAC): Free Stock Analysis Report

General Growth Properties, Inc. (GGP): Free Stock Analysis Report

Federal Realty Investment Trust (FRT): Free Stock Analysis Report

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