The Ewa Wing expansion at Honolulu's Ala Moana Center is part of GGP's strong development pipeline

CHICAGO—Last week, General Growth Properties released its first quarter results and analysts seem pleased with the Chicago-based real estate investment trust’s performance and its overall outlook. The trust reported that its funds from operations per share increased 21.4% to $0.31 per diluted share from $0.25 per diluted share in last year’s first quarter, and funds from operations increased 15.8% to $292 million from $253 million in last year’s first quarter. And its EBITDA increased 4.1% to $501 million from $481 million in last year’s first quarter.

Furthermore, net income for the trust, which has a portfolio of 120 regional malls with about 125-million-square-feet, went up sharply compared to last year’s first quarter, from a net loss of $12 million to a net income of $128 million. “The increase is impacted primarily by lower depreciation expense and a gain on extinguishment of debt,” according to a company statement.

“Tenant sales increased 1.2% to $565-per-square-foot on a trailing 12-month basis,” the statement continued, its leased percentage was 96.2%, an increase of 40 bps from March 31, 2013, and its initial rents for leases beginning this year increased 10.8% to $67.75-per-square-foot when compared to the rents for expiring leases.

“General Growth turned in another very strong quarter in 1Q14 despite continued softness in tenant sales,” according to RBC Capital Markets, which released a report on GGP last week. And “the outlook for the company remains healthy both from an organic growth standpoint and from a deepening development pipeline.” RBC estimates that GGP has about $2.2 billion in active and potential projects. “Since most of the projects are additions or other improvements to already productive assets, there appears to be little risk in these projects.”

Top GGP officials agree. Perhaps the trust’s most significant active project is the 650,000-square-foot Ewa Wing Expansion at its Ala Moana Center in Honolulu. “We are close to 70% leased in the new wing,” Sandeep Mathrani, chief executive officer, said last week on a conference call to discuss the first quarter. In June 2013, Sears closed its store at Ala Moana, which it had occupied since the iconic center opened in 1959. But the new wing will occupy the western portion of the mall once occupied by Sears, and include a 167,000-square-foot Bloomingdale’s department store. GGP plans to open the expansion in 2015. “It’s had a positive impact on the existing mall,” Mathrani added.

“We have raised our 2014 and 2015 FFO/share estimates by $0.04 to $1.31 and $1.38 from $1.27 and $1.34 previously,” the RBC analysts said. “We have also increased our YE14 NAV/share estimate modestly to $22.95 from $22.93 at a 5.25% cap rate.”

“We look for GGP to perform in line with the company’s peers over the next 12 months,” RBC concluded. “The company has shed a good deal of weaker assets, and we expect improvements in the economy to translate into outsized growth for especially better quality regional malls.”

“The primary reason for the continued growth is consumer confidence,” said Mathrani, which has improved significantly since 2011, a trend he expects will continue.