GENERAL GROWTH PROPERTIES INC - S-3 - 20040520 - SECURITIES_DESCRIPTION
DESCRIPTION OF SERIES F PREFERRED STOCK
On May 1, 2000, PDC LP issued 320,000 8.75% Series C Cumulative Redeemable
Preferred Units of limited partnership interest (the "PDC Series C Preferred
Units") to an institutional investor. At any time on
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or after May 1, 2010 (or earlier in certain circumstances), the holders of PDC
Series C Preferred Units have the right to exchange all (but not part) of the
PDC Series C Preferred Units for cash in an amount equal to the liquidation
preference thereof or shares of our Series F Preferred Stock at a conversion
rate of 0.025 shares of Series F Preferred Stock per PDC Series C Preferred Unit
(subject to adjustment), with the form of consideration to be selected by us.
A holder of each share of Series F Preferred Stock will be entitled to
receive, when, as and if declared by our board of directors, a cumulative
preferential cash distribution per quarter at the per annum rate of 8.75% of the
per share liquidation preference. The liquidation preference per share is $1,000
plus accrued and unpaid dividends thereon.
We have the right to redeem all (but not part) of the Series F Preferred
Stock on or after May 1, 2005 at a redemption price equal to the liquidation
preference thereof. The redemption price must be paid out of the proceeds of the
sale of GGP equity securities.
The shares of Series F Preferred Stock, none of which are currently issued
or outstanding, rank senior to our common stock and on parity with the Series B
Preferred Stock, the Series C Preferred Stock, the Series E Preferred Stock, the
Series G Preferred Stock and the Series H Preferred Stock as to payment of
dividends and amounts upon GGP's liquidation, dissolution or winding-up.
Holders of Series F Preferred Stock generally do not have any voting
rights, except as described below and as provided by applicable law. If
dividends on the Series F Preferred Stock are in arrears for six or more
quarterly periods (including quarterly periods on the PDC Series C Preferred
Units), holders of Series F Preferred Stock (voting separately as a class with
all other series of preferred stock upon which like voting rights have been
conferred and are then exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until all
accumulated dividends and the dividends for the then current period have been
paid. In addition, holders of Series F Preferred Stock will have the right to
approve the issuance of additional senior securities, certain mergers,
consolidations and transfers of assets involving GGP and certain changes to our
certificate of incorporation.
DESCRIPTION OF SERIES G PREFERRED STOCK
In April 2002, GGPLP L.L.C. issued $60 million in principal amount of 8.95%
Series B Cumulative Redeemable Preferred Units of membership interest ("GGPLP
L.L.C. Series B Preferred Units") to an institutional investor. Holders of the
GGPLP L.L.C. Series B Preferred Units are entitled to receive cumulative
preferential cash distributions per unit at a per annum rate of 8.95% of the
$250 liquidation preference thereof (or $5.59375 per quarter) prior to any
distributions by GGPLP L.L.C. to the Operating Partnership.
At any time on or after April 23, 2012 and subject to certain limitations,
the holders of at least 51% of the outstanding GGPLP L.L.C. Series B Preferred
Units may elect to exchange all but not less than all of the GGPLP L.L.C. Series
B Preferred Units for the number of shares of Series G Preferred Stock, par
value $100 per share, equal to the quotient of (A) the sum of the capital
accounts of the holders of GGPLP L.L.C. Series B Preferred Units divided by (B)
$1,000. A holder or holders of GGPLP L.L.C. Series B Preferred Units also may
elect to exchange GGPLP L.L.C. Series B Preferred Units for shares of our common
stock, as specified in the operating agreement of GGPLP L.L.C., in the event
that (a) accumulated and unpaid distributions on the GGPLP L.L.C. Series B
Preferred Units exceed a specified amount on or after April 23, 2007 or (b) a
holder concludes that there is an imminent and substantial risk that its
interest in GGPLP L.L.C. could exceed more than a specified percentage of the
total profit or capital interests in GGPLP L.L.C. If a written notice of
exchange has been delivered to us, then we may, at our option, within ten
business days after receiving the exchange notice, elect to purchase or cause
GGPLP L.L.C. to redeem all or a portion of the GGPLP L.L.C. Series B Preferred
Units (for which an exchange notice was delivered) for cash or our common stock
based upon a 20 trading day average of the closing price of the common stock.
The shares of Series G Preferred Stock, none of which are currently issued
or outstanding, rank senior to our common stock and rank on parity with the
Series B Preferred Stock, the Series C Preferred Stock, the
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Series E Preferred Stock, the Series F Preferred Stock and Series H Preferred
Stock as to payment of dividends and amounts upon GGP's liquidation, dissolution
or winding-up. Holders of Series G Preferred Stock generally do not have any
voting rights, except as provided by applicable law.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK
For GGP to remain qualified as a REIT under the Code, the following
conditions must be satisfied:
- not more than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) at any time during the last half of a
taxable year; and
- the capital stock must be beneficially owned, without regard to any rules
of attribution of ownership, by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year.
Accordingly, our certificate of incorporation contains provisions which limit
the value of the outstanding capital stock that may be owned by any stockholder.
This limit is referred to as the 'Ownership Limit."
Subject to certain exceptions, the Ownership Limit provides that no
stockholder, other than Martin Bucksbaum (now deceased), Matthew Bucksbaum,
their families and related trusts, may own, or be deemed to own by virtue of the
applicable attribution provisions of the Code, more than the Ownership Limit.
The Ownership Limit was originally set at 6.5% of the value of the outstanding
capital stock, and was increased to 7.5% of the value of the outstanding capital
stock as a result of legislation passed in 1993. Our board of directors is
authorized to further increase the Ownership Limit to not more than 9.8% of the
value of the outstanding capital stock. Our certificate of incorporation permits
the Bucksbaums to exceed the Ownership Limit. Currently, the Bucksbaums exceed
such limit. The Ownership Limit provides that the Bucksbaums may acquire
additional shares pursuant to certain rights granted to them in connection with
our initial public offering or from other sources so long as the acquisition
does not result in the five largest beneficial owners of capital stock holding
more than 50% of the outstanding capital stock.
Our board of directors may waive the Ownership Limit if presented with
satisfactory evidence that such ownership will not jeopardize GGP's status as a
REIT. As a condition of such waiver, our board of directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving GGP's REIT status. The Ownership Limit will not apply if
the board of directors and the holders of capital stock determine that it is no
longer in GGP's best interest to attempt to qualify, or to continue to qualify,
as a REIT. If shares of capital stock in excess of the Ownership Limit, or
shares which would cause us to be beneficially owned by fewer than 100 persons,
are issued or transferred to any person, such issuance or transfer shall be null
and void and the intended transferee will acquire no rights to such shares.
Our certificate of incorporation further provides that upon a transfer or
other event that results in a person owning (either directly or by virtue of the
applicable attribution rules) capital stock in excess of the applicable
Ownership Limit (referred to as "Excess Shares"), such person (known as a
"Prohibited Owner") will not acquire or retain any rights or beneficial economic
interest in such Excess Shares. Rather, the Excess Shares will be automatically
transferred to a person or entity unaffiliated with and designated by us to
serve as trustee of a trust for the exclusive benefit of a charitable
beneficiary to be designated by us within five days after the discovery of the
transaction which created the Excess Shares. The trustee shall have the
exclusive right to designate a person who may acquire the Excess Shares without
violating the applicable ownership restrictions (a "Permitted Transferee") to
acquire all of the shares held by the trust. The Permitted Transferee must pay
the trustee an amount equal to the fair market value (determined at the time of
transfer to the Permitted Transferee) for the Excess Shares. The trustee shall
pay to the Prohibited Owner the lesser of (a) the value of the shares at the
time they became Excess Shares and (b) the price received by the trustee from
the sale of the Excess Shares to the Permitted Transferee. The beneficiary will
receive the excess, if any, of (i) the sale proceeds from the transfer to the
Permitted Transferee over (ii) the amount paid to the Prohibited Owner, in
addition to any dividends paid with respect to the Excess Shares.
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The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limit would require an amendment to our certificate of incorporation. Amendments
to our certificate of incorporation require the affirmative vote of holders
owning a majority of our outstanding capital stock. In addition to preserving
GGP's status as a REIT, the Ownership Limit may preclude an acquisition of
control over us without the approval of our board of directors.
All certificates representing capital stock will bear a legend referring to
the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 7.5% of the value of the outstanding capital stock must file
an affidavit with us containing the information specified in our certificate of
incorporation within 30 days after January 1 of each year. In addition, each
stockholder shall upon demand be required to disclose to us in writing such
information with respect to the direct, indirect and constructive ownership of
shares as our board of directors deems necessary to comply with the provisions
of the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency. United States Treasury Regulations
currently require us to send annual written statements requesting information as
to the actual ownership of the capital stock from each record holder of more
than 1% of our outstanding capital stock. Depending upon the number of record
holders of the capital stock, the reporting threshold required by the Treasury
Regulations can fall as low as 0.5%. Record holders that fail to submit a
written statement in response to the request must attach to their federal income
tax returns specified information regarding the actual ownership of shares of
capital stock of which they are the record holder.
LIMITATION OF LIABILITY OF DIRECTORS
Our certificate of incorporation provides that a director will not be
personally liable for monetary damages to us or to our stockholders for breach
of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or to our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
While our certificate of incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, our certificate of incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of our certificate of incorporation described above apply to an
officer of our company only if he or she is a director of our company and is
acting in his or her capacity as director, and do not apply to officers of our
company who are not directors.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our officers
and directors. The indemnification agreements require, among other things, that
we indemnify our officers and directors to the fullest extent permitted by law,
and advance to the officers and directors all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. We must also indemnify and advance all expenses incurred by officers
and directors seeking to enforce their rights under the indemnification
agreements, and cover them under our directors' and officers' liability
insurance. Although the form of the indemnification agreement offers
substantially the same scope of coverage afforded by provisions in our
certificate of incorporation and bylaws, it provides greater assurance to the
directors and officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the board of
directors or by stockholders to eliminate the rights it provides.
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DELAWARE ANTI-TAKEOVER STATUTE
GGP is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of our
outstanding voting stock) from engaging in a "business combination" (as defined
in Section 203) with us for three years following the date that person becomes
an interested stockholder unless:
- before that person became an interested stockholder, our board of
directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;
- upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who are
also our officers and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or
- following the transaction in which that person became an interested
stockholder, the business combination is approved by our board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of our outstanding voting
stock not owned by the interested stockholder.
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving us and a
person who was not an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a majority of our
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
then in office.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the federal income tax considerations
anticipated to be material to prospective holders of GGP preferred or common
stock. This summary is based upon interpretations of the Internal Revenue Code
of 1986, as amended, existing, temporary and currently proposed regulations
promulgated under the Code, judicial decisions and administrative rulings as of
the date of this prospectus, all of which are subject to change or differing
interpretations, including changes and interpretations with retroactive effect.
The discussion below does not address all federal income tax considerations, or
any state, local or foreign tax consequences. Your tax treatment may differ
depending upon your particular situation. Also, the discussion does not address
various tax rules that may apply to stockholders subject to special treatment
under the Code, such as foreign persons, traders and dealers in securities,
tax-exempt entities, insurance companies and other financial institutions,
persons that hold the preferred or common stock as part of a straddle, hedge or
conversion transaction, or holders subject to the alternative minimum tax,
except to the extent discussed below under "-- Taxation of Tax-Exempt U.S.
Stockholders" and "-- Taxation of Non-U.S. Stockholders". In addition, this
discussion is limited to persons who hold the preferred or common stock as a
capital asset within the meaning of Section 1221 of the Code.
You should consult with your own legal and tax advisors regarding the tax
consequences arising from the receipt, holding or disposition of GGP preferred
or common stock.
TAXATION OF GGP
GENERAL
This section is a summary of certain federal income tax matters of general
application pertaining to REITs and their stockholders under the Code. The
provisions of the Code pertaining to REITs are highly technical and complex and
sometimes involve mixed questions of fact and law. This summary is qualified in
its entirety by the applicable Code provisions, regulations, and administrative
and judicial interpretations thereof, all of which are subject to change,
possibly retroactively.
In the opinion of Neal, Gerber & Eisenberg LLP, our tax counsel, beginning
with GGP's taxable year ended December 31, 1993, GGP has been organized and
operated in conformity with the requirements for qualification as a REIT under
the Code. GGP intends to continue to operate in a manner that will enable it to
continue to so qualify. No assurance can be given, however, that GGP has so
qualified or will continue to so qualify. GGP's ability to qualify as a REIT
under the requirements of the Code and the regulations promulgated thereunder is
dependent upon its ability to meet on a continuing basis, through actual annual
operating results, the various requirements under the Code with regard to, among
other things, the sources of its gross income, the composition and values of its
assets, its distribution levels and its diversity of stock ownership.
If GGP qualifies as a REIT, GGP generally will not be subject to federal
corporate income tax on its net income that is currently distributed to its
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation. However, notwithstanding GGP's qualification as a REIT, GGP will
be subject to federal income tax as follows:
- GGP will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
- GGP may, under certain circumstances, be subject to the "alternative
minimum tax" on its items of tax preference.
- If GGP has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other than
foreclosure property), such income will be subject to a 100% tax.
- If GGP has (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property acquired through
foreclosure or after a default on a loan secured by the property
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or a lease of the property) which is held primarily for sale to customers
in the ordinary course of business, or (b) other nonqualifying income
from foreclosure property, GGP will be subject to tax at the highest
corporate rate on this income.
- If GGP should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met,
GGP will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of (i) the excess of 75% of its gross
income over the amount of such income attributable to sources which
qualify under the 75% gross income test (discussed below) and (ii) the
excess of 90% of its gross income over the amount of such income
attributable to sources which qualify under the 95% income test
(discussed below), multiplied by (b) a fraction intended to reflect its
profitability.
- If GGP should fail to distribute during each calendar year at least the
sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its
REIT capital gain net income for such year (other than certain long-term
capital gains that GGP elects to retain and pay the tax thereon), and (c)
any undistributed taxable income from prior periods, GGP would be
subjected to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
- A 100% excise tax may be imposed on some items of income or expense that
are directly or constructively paid between a taxable REIT subsidiary (as
described below) and a REIT if and to the extent that the Internal
Revenue Service ("IRS") successfully adjusts the reported amounts of
these items.
- If GGP acquires assets from a subchapter C corporation in a "conversion
transaction" (i.e., a transaction in which the adjusted tax basis of the
assets in its hands is determined by reference to the adjusted tax basis
of such assets in the hands of the subchapter C corporation), GGP
generally would be subject to tax at the highest regular corporate tax
rate on any "built-in gain" it recognizes on the disposition of any such
converted property during the ten-year period beginning on the day on
which GGP acquires such property. Similarly, if GGP acquires the stock of
a subchapter C corporation for which a REIT election is made (a "New
REIT"), such New REIT generally would be subject to tax at the highest
regular corporate tax rate on any "built-in gain" it recognizes on the
disposition during the ten-year period beginning on the first day of the
REIT's first taxable year of any of the assets it owned at the beginning
of such period. Built-in gain generally is the amount by which an asset's
fair market value exceeds its adjusted basis (each determined as of (a)
the acquisition date, in the case of GGP's acquisition of subchapter C
corporation assets or (b) as of the beginning of the ten year recognition
period, in the case of GGP's acquisition of the stock of a subchapter C
corporation for which a REIT election is made). In lieu of the treatment
described above, the transferring or electing subchapter C corporation
may elect to recognize any net built-in gain that would have been
realized if the subchapter C corporation had sold such assets to an
unrelated party at fair market value.
Furthermore, notwithstanding GGP's status as a REIT, GGP may have to pay
certain state and local income taxes because not all states and localities treat
REITs the same as they are treated for federal income tax purposes. GGP could
also be subject to foreign taxes on investments and activities in foreign
jurisdictions. In addition, certain of GGP's subsidiaries are subchapter C
corporations, the earnings of which are subject to federal corporate income tax.
Finally, GGP could also be subject to tax in certain situations and on certain
transactions not presently contemplated.
REQUIREMENTS FOR QUALIFICATION AS A REIT
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
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(3) which would be taxable as a domestic corporation, but for the
provisions of Sections 856 through 860 of the Code;
(4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than
50% in value of the outstanding stock is owned, directly or indirectly, by
or for five or fewer individuals (as defined in the Code to include certain
entities); and
(7) which meets certain other requirements described below (including
tests with respect to the nature of its income and assets and the amount of
its distributions).
The Code provides that the first four conditions must be met during the
entire taxable year, and that the fifth condition must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. For purposes of the sixth condition,
certain tax-exempt entities (but generally excluding trusts described in Section
401(a) and exempt under Section 501(a) of the Code) are treated as individuals.
We believe that GGP has been organized and operated in a manner so as to
satisfy each of the above conditions. In addition, with regard to the fifth and
sixth conditions described above, GGP's certificate of incorporation provides
certain restrictions regarding transfers of its shares, which provisions are
intended to assist it in satisfying these share ownership requirements. For more
information regarding these restrictions, see "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock." These
restrictions, however, may not ensure that GGP will, in all cases, be able to
satisfy these share ownership requirements. If GGP fails to satisfy these share
ownership requirements (or otherwise fails to meet the conditions described
above), it will fail to qualify as a REIT. See "-- Failure to Qualify as a
REIT." However, if GGP complies with certain rules contained in applicable
Treasury Regulations (described in further detail below) that require GGP to
ascertain the actual ownership of its shares, and GGP does not know, or would
not have known through the exercise of reasonable diligence, that it failed to
meet the requirement described in the sixth condition described above, GGP will
be treated as having met this requirement.
To monitor compliance with the share ownership requirements, GGP is
required to maintain records regarding the actual ownership of its shares. To do
so, GGP must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are to disclose the
actual owners of the shares (i.e., the persons required to include in gross
income the REIT dividends). A stockholder who fails or refuses to comply with
the demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information.
In addition, GGP must use a calendar year for federal income tax purposes,
satisfy all relevant filing and other administrative requirements established by
the IRS that must be met to elect and maintain REIT status, and comply with the
recordkeeping requirements of the Code and regulations promulgated thereunder.
GGP has had and will continue to have a calendar year, and believes that it has
satisfied and will continue to satisfy the relevant filing, administrative,
recordkeeping, and other requirements established by the IRS, the Code, and
regulations promulgated thereunder that must be met to elect and maintain REIT
status.
GROSS INCOME TESTS
In order to maintain qualification as a REIT, GGP must satisfy two gross
income requirements on an annual basis. First, at least 75% of GGP's gross
income (excluding gross income from prohibited transactions, i.e., certain sales
of property held primarily for sale to customers in the ordinary course of
business) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property," dividends from other REITs and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of GGP's gross income
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(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, and from dividends, interest and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing).
Rents that GGP receives will qualify as "rents from real property" in
satisfying the gross income requirements described above, only if certain
conditions, including the following, are met. First, the amount of rent
generally must not depend in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from qualifying as "rents from real property" solely by reason of being based on
a fixed percentage or percentages of receipts or sales. Second, except for rents
received from a taxable REIT subsidiary, rents received from a tenant will not
qualify as "rents from real property" if the REIT (or an actual or constructive
owner of 10% or more of the REIT) actually or constructively owns 10% or more of
the tenant. Amounts received from the rental of up to 10% of a property to a
taxable REIT subsidiary will qualify as "rents from real property" so long as at
least 90% of the leased space of the property is rented to third parties (i.e.,
persons other than taxable REIT subsidiaries or related parties) and the rents
received are substantially comparable to rents received from other tenants of
the property for comparable space. Third, if rent attributable to personal
property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property."
In addition, for rents received to qualify as "rents from real property," a
REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from which the REIT derives no revenue or through a taxable REIT
subsidiary. A REIT is permitted to directly perform services that are "usually
or customarily rendered" in connection with the rental of space for occupancy
only and are not otherwise considered rendered to the occupant of the property.
Moreover, a REIT may provide non-customary services to tenants of, or operate or
manage, a property without disqualifying all of the rent from the property if
the payment for such services or operation or management of the property does
not exceed 1% of the total gross income from the property. For purposes of this
test, the income received from such non-customary services or operation or
management is deemed to be at least 150% of the direct cost of providing the
services or providing the operation or management.
Although the Operating Partnership and other affiliates of GGP may perform
development, construction and leasing services for, and may operate and manage,
certain properties directly without using an "independent contractor," we
believe that, in almost all instances, the only services to be provided to
lessees of these properties will be those usually or customarily rendered in
connection with the rental of space for occupancy only. To the extent any
noncustomary services or operation or management are provided, such services,
operation or management will generally (although not necessarily in all cases)
be performed by a taxable REIT subsidiary. In any event, we intend that the
amounts received by GGP for noncustomary services or operation or management
that may constitute "impermissible tenant service income" from any one property
will not exceed 1% of the total amount collected from such property during the
taxable year.
GGP's share of any dividends received from its corporate subsidiaries (and
from other corporations in which GGP owns an interest) will generally qualify
under the 95% gross income test but not under the 75% gross income test. We do
not anticipate that GGP will receive sufficient dividends to cause it to exceed
the limit on nonqualifying income under the 75% gross income test.
If the IRS successfully asserts that any amount of interest, rent, or other
deduction of a taxable REIT subsidiary for amounts paid to GGP exceeds amounts
determined at arm's length, the IRS's adjustment of such an item could affect
GGP's ability to satisfy the income tests described above (in addition to the
fact that a 100% excise tax would be imposed on the portion that is excessive,
as described above under "Taxation of GGP -- General"). Similarly, any
prohibited transaction income (as described below under "Taxation of
GGP -- Prohibited Transactions") may also adversely affect GGP's ability to
satisfy the income tests for qualification as a REIT.
Taking into account GGP's actual and anticipated sources of nonqualifying
income, we believe that GGP's aggregate gross income from all sources has
satisfied and will continue to satisfy the income tests applicable to GGP.
However, GGP may not always be able to maintain compliance with the gross income
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tests for REIT qualification despite periodic monitoring of its income. If GGP
fails to satisfy one or both of the 75% or 95% gross income tests for any
taxable year, GGP may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if GGP's failure to meet such tests was due to
reasonable cause and not due to willful neglect, GGP attached a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances GGP would be entitled to the
benefit of these relief provisions. If these relief provisions are inapplicable
to a particular set of circumstances involving GGP, GGP will not qualify as a
REIT. See "-- Failure to Qualify as a REIT." As discussed above in "-- Taxation
of GGP -- General," even where these relief provisions apply, GGP would be
subject to a penalty tax based upon the amount of its non-qualifying income.
ASSET TESTS
At the close of each quarter of its taxable year, GGP must meet certain
tests relating to the nature and diversification of its assets. First, at least
75% of the value of GGP's total assets at the end of each calendar quarter must
consist of real estate assets, cash or government securities. In addition, at
the close of each calendar quarter, GGP generally must satisfy the following
requirements: (a) not more than 25% of the value of its total assets may be
represented by securities (other than government securities or other assets that
qualify for the 75% test described in the preceding sentence); (b) not more than
20% of the value of its total assets may be represented by securities of one or
more "taxable REIT subsidiaries"; and (c) except with respect to any "taxable
REIT subsidiary" and securities that qualify for the 75% test described in the
preceding sentence, (i) not more than 5% of the value of GGP's total assets may
be represented by the securities of any one issuer, (ii) GGP may not hold
securities possessing more than 10% of the total voting power of the outstanding
securities of any one issuer, and (iii) GGP may not hold securities having a
value of more than 10% of the total value of the outstanding securities of any
one issuer, other than certain "straight debt obligations" that are exempt from
the 10% value test, as described in more detail below.
Securities, for purposes of the asset tests, may include debt that GGP
holds. However, debt GGP holds in an issuer will not be taken into account for
purposes of the 10% value test if the debt securities meet the "straight debt"
safe harbor and either (a) the issuer is an individual, (b) the only securities
of the issuer that GGP holds are straight debt, or (c) if the issuer is a
partnership, GGP holds at least a 20% profits interest in the partnership. Debt
will meet the "straight debt" safe harbor if the debt is a written unconditional
promise to pay on demand or on a specified date a sum certain in money (i) which
is not convertible, directly or indirectly, into stock and (ii) the interest
rate or the interest payment dates of which are not contingent on the profits,
the borrower's discretion or similar factors.
After initially meeting the asset tests after the close of any calendar
quarter, GGP will not lose its status as a REIT if it fails to satisfy the asset
tests at the end of a later calendar quarter solely by reason of changes in the
relative values of its assets. If a failure to satisfy the asset tests results
wholly or partly from the acquisition of securities or other property during a
calendar quarter, the failure can be cured by a disposition of sufficient
non-qualifying assets within 30 days after the close of that calendar quarter.
We intend to maintain adequate records of the value of GGP's assets to ensure
compliance with the asset tests and to take any available actions within 30 days
after the close of any calendar quarter as may be required to cure any
noncompliance with the asset tests. We cannot ensure, however, that these steps
always will be successful. If we were to fail to cure any such noncompliance
with the asset tests within this 30-day period, GGP would fail to qualify as a
REIT. See "-- Failure to Qualify as a REIT."
Except where an exception to the asset tests is expected to apply, we
believe that (a) commencing with its taxable year ended December 31, 1993, GGP
has satisfied the asset tests in effect with respect to its qualification as a
REIT, and (b) as of the time of this prospectus:
- at least 75% of the value of GGP's total assets consists of real estate
assets, cash or government securities;
- the aggregate value of securities held by GGP (exclusive of securities
counted for purposes of the 75% asset test) does not exceed 25% of the
total value of GGP's assets;
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- the aggregate value of the securities of GGP's taxable REIT subsidiaries
does not exceed 20% of the total value of its assets;
- the aggregate value of securities of any one issuer held by GGP
(exclusive of securities counted for purposes of the 75% asset test and
interests in taxable REIT subsidiaries) does not exceed 5% of the total
value of GGP's assets;
- GGP complies with the 10% voting securities limitation and 10% value
limitation with respect to securities held by GGP (exclusive of
securities counted for purposes of the 75% asset test and interests in
taxable REIT subsidiaries, and taking into account the "straight debt"
exceptions with respect to certain issuers).
With respect to GGP's compliance with each of these asset tests, however, we
cannot provide any assurance that the IRS might not disagree with our
determinations, or that the IRS will be unsuccessful if it contends that GGP has
violated one of the asset tests described above. If the IRS could successfully
assert that GGP had failed to comply with the applicable asset tests, GGP would
fail to qualify as a REIT. See "-- Failure to Qualify as a REIT."
APPLICATION OF THE ASSET AND GROSS INCOME TESTS TO PARTNERSHIPS, QUALIFIED
REIT SUBSIDIARIES AND TAXABLE REIT SUBSIDIARIES
In the case of a REIT which is a partner in a partnership, such as GGP,
regulations provide that a REIT will be deemed to own its proportionate share of
the assets of the partnership and will be deemed to earn the income of the
partnership attributable to such share. For purposes of satisfying the asset and
income tests described above, the character of the gross income and assets in
the hands of the partnership remains the same when allocated to a REIT.
Accordingly, GGP's proportionate share of the assets, liabilities and items of
income of the Operating Partnership will be treated as assets, liabilities, and
items of income of GGP for purposes of its qualification as a REIT, and are so
treated for purposes of the description in this prospectus.
Similarly, for purposes of the asset and income tests, a REIT is deemed to
directly own the income and assets of any "qualified REIT subsidiary." A
qualified REIT subsidiary is any corporation, 100% of whose stock is held by GGP
and which has not elected to be treated as a "taxable REIT subsidiary," as
discussed below. Because a REIT is deemed to directly own the income and assets
of any "qualified REIT subsidiary," references herein to GGP's income and assets
include the income and assets of each qualified REIT subsidiary owned by GGP.
The Code provides that for taxable years beginning after December 31, 2000,
REITs may own up to 100% of the voting power and value of securities in taxable
REIT subsidiaries. A corporation is treated as a taxable REIT subsidiary if a
REIT owns stock in the corporation and the REIT and the corporation jointly
elect such treatment and certain other conditions are met. In the event such an
election is made, any corporation (other than a REIT or a qualified REIT
subsidiary) of which the taxable REIT subsidiary owns directly or indirectly
more than 35% of the total voting power or value of the outstanding securities
is also treated as a taxable REIT subsidiary.
Although the activities and income of taxable REIT subsidiaries are subject
to corporate-level tax, taxable REIT subsidiaries are permitted to engage in
activities that the REIT could not engage in itself. Additionally, under certain
limited conditions, income received by a REIT from a taxable REIT subsidiary may
qualify as rent. See the discussion under "-- Taxation of GGP -- Income Tests"
above. As discussed more fully under "-- Taxation of GGP -- Asset Tests," not
more than 20% of the fair market value of a REIT's assets can consist of
securities of taxable REIT subsidiaries, and stock of a taxable REIT subsidiary
is not a qualified asset for purposes of the 75% asset test.
The amount of interest that a taxable REIT subsidiary may deduct on related
party debt is limited. In general, a taxable REIT subsidiary may not deduct
interest payments made in any year to an affiliated REIT to the extent that such
payments exceed 50% of the taxable REIT subsidiary's adjusted taxable income for
that year (although the taxable REIT subsidiary may carry forward to, and deduct
in, a succeeding year the disallowed interest amount if the 50% test is
satisfied in that year). Further, a 100% excise tax applies to any
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interest payments by a taxable REIT subsidiary to its affiliated REIT to the
extent the interest rate is set above a commercially reasonable level.
The Code allows the IRS to reallocate costs between a REIT and its taxable
REIT subsidiary. Any deductible expenses allocated away from a taxable REIT
subsidiary would increase its tax liability, and the amount of such increase
would be subject to interest charges. Further, any amount by which a REIT
understates its deductions and overstates those of its taxable REIT subsidiary
will, subject to certain exceptions, be subject to a 100% excise tax.
DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, GGP must distribute to its stockholders
dividends (other than capital gains dividends) in an amount at least equal to
(1) the sum of (a) 90% (95% for taxable years prior to 2001) of its REIT taxable
income (as computed without regard to net capital gains or the dividends-paid
deduction) and (b) 90% (95% for taxable years prior to 2001) of its net income
(after tax) from foreclosure property, minus (2) the sum of certain non-cash
items, for each taxable year.
Such distributions generally must be made in the taxable year to which they
relate, or in the following taxable year if declared before GGP timely files its
tax return for such year and if paid with or before the first regular dividend
payment after such declaration. To the extent that GGP distributes less than
100% of its "REIT taxable income," as adjusted (but satisfies the distribution
requirements), it will be subject to tax on such income at ordinary corporate
tax rates. In any year, GGP may elect to retain, rather than distribute, its net
long-term capital gains and pay tax on such gains. In such a case, GGP's
stockholders would include their share of such undistributed long-term capital
gains in income and receive a credit for their share of the tax paid by GGP.
GGP's stockholders would then increase the adjusted basis of their GGP shares by
the difference between the designated amounts included in their long-term
capital gains and the tax deemed paid with respect to their shares.
GGP believes that it has made, and intends to make, timely distributions
sufficient to satisfy the foregoing annual distribution requirement. It is
possible, however, that GGP, from time to time, may not have sufficient cash to
meet the 90% distribution requirement due to timing differences between (a) the
actual receipt of cash (including receipt of distributions from the Operating
Partnership), and (b) the inclusion of certain items in income by GGP for
federal income tax purposes. In the event that such timing differences occur, in
order to meet the 90% distribution requirement, GGP may find it necessary to
arrange for short-term, or possibly long-term, borrowings, or to pay dividends
in the form of taxable distributions of property.
Under certain circumstances, GGP may be able to rectify a failure to meet
the 90% distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in GGP's deduction for
dividends paid for the earlier year. Thus, GGP may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, GGP will be required to
pay interest based on the amount of any deduction taken for deficiency
dividends.
In addition, if GGP should fail to distribute during each calendar year (or
in the case of distributions with declaration and record dates falling in the
last three months of the calendar year, by the end of January immediately
following such year) at least the sum of: (a) 85% of its REIT ordinary income
for such year; (b) 95% of its REIT capital gain net income for such year
(excluding retained long-term capital gains); and (c) any undistributed taxable
income from prior periods, GGP would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. GGP
believes that it has made, and GGP intends to make, timely distributions
sufficient to satisfy this annual distribution requirement.
PROHIBITED TRANSACTIONS
As discussed above in "-- Taxation of GGP -- General," any gain realized by
GGP on the sale of any property held as inventory or other property held
primarily for sale to customers in the ordinary course of business (including
GGP's share of any such gain realized by the Operating Partnership, either
directly or through its subsidiaries) generally will be treated as income from a
prohibited transaction that is subject to a
30
100% penalty tax. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances surrounding
the particular transaction. The Operating Partnership intends to hold its
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing and owning its properties and to make
occasional sales of the properties as are consistent with the Operating
Partnership's investment objectives. However, the IRS may successfully contend
that some or all of the sales made by the Operating Partnership or its
subsidiaries are prohibited transactions. GGP would be subject to the 100%
penalty tax on its allocable share of the gains resulting from any such sales.
FAILURE TO QUALIFY AS A REIT
Failure of GGP to qualify during any taxable year as a REIT could, unless
certain relief provisions were available, have a material adverse effect upon
investors. If disqualified for taxation as a REIT for a taxable year, GGP would
also be disqualified for taxation as a REIT for the next four taxable years,
unless the failure was due to reasonable cause rather than willful neglect and
certain other conditions were met. In addition, if disqualified for taxation as
a REIT for a taxable year, GGP would be subject to federal income tax at
corporate rates on all of its taxable income and would not be able to deduct
dividends paid, which could result in a discontinuation of or substantial
reduction in distributions paid to stockholders. Dividends would also be subject
to the regular tax rules applicable to dividends received by stockholders of
corporations. Should the failure to qualify be determined to have occurred
retroactively in an earlier tax year of GGP, the imposition of a substantial
federal income tax liability on GGP attributable to nonqualifying tax years may
adversely affect GGP's ability to make distributions to its stockholders.
TAX ASPECTS OF GGP'S INVESTMENT IN THE OPERATING PARTNERSHIP
Substantially all of GGP's investments are held through the Operating
Partnership. In turn, the Operating Partnership holds a substantial portion of
its real estate properties through subsidiary partnerships (including limited
liability companies that GGP treats as partnerships for federal income tax
purposes). In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. As discussed
above, GGP will include in its income its share of the foregoing items of the
Operating Partnership (and its subsidiary partnerships) for purposes of the
various REIT income tests and in the computation of its REIT taxable income.
Moreover, for purposes of the REIT asset tests, GGP will include its
proportionate share of assets held by the Operating Partnership (and its
subsidiary partnerships). See "-- Taxation of GGP -- Application of the Asset
and Gross Income Tests to Partnerships, Qualified REIT Subsidiaries and Taxable
REIT Subsidiaries."
ENTITY CLASSIFICATION
GGP's interests in the Operating Partnership and the subsidiary
partnerships involve special tax considerations, including the possibility of a
challenge by the IRS with respect to the status of the Operating Partnership or
a subsidiary partnership as a partnership (as opposed to an association taxable
as a corporation) for federal income tax purposes. If the Operating Partnership
or a subsidiary partnership were treated as an association, it would be taxable
as a corporation and therefore subject to an entity-level tax on its income. In
such a situation, the character of GGP's assets and items of gross income would
change and preclude it from satisfying the asset tests and possibly the income
tests (see "-- Taxation of GGP -- Asset Tests" and "-- Taxation of GGP -- Income
Tests"). This, in turn, would prevent GGP from qualifying as a REIT. See
"-- Failure to Qualify as a REIT" for a discussion of the effect of GGP's
failure to meet these tests for a taxable year. In addition, a change in the
Operating Partnership's or a subsidiary partnership's status for tax purposes
might be treated as a taxable event. If so, GGP might incur a tax liability
without receiving any related cash distributions.
The continued classification of the Operating Partnership and each
subsidiary partnership as a partnership for federal income tax purposes will
depend upon the Operating Partnership and each such subsidiary
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partnership not being classified as a "publicly traded partnership" ("PTP")
taxable as a corporation within the meaning of Section 7704 of the Code. Under
Section 7704 of the Code, a partnership is classified as a PTP if interests in
the partnership are traded on an established securities market or are readily
tradable on a secondary market or the substantial equivalent thereof. If so
classified, the PTP is taxable as a corporation unless it qualifies for a
special "90% qualifying income exception" under Section 7704(c) of the Code.
Under that exception, a PTP is not subject to corporate-level tax if 90% or more
of its gross income consists of dividends, interest, "rents from real property"
(as that term is defined for purposes of the REIT rules, with certain
modifications), gain from the sale or other disposition of real property, and
certain other types of qualifying income.
If a PTP fails to meet the 90% qualifying income exception for a taxable
year, and (a) the IRS determines that the failure was inadvertent, (b) the
partnership takes steps to once again comply with the 90% qualifying income
exception, and (c) the partnership makes such adjustments (including with
respect to the partners) or payments as may be required by the IRS, then the
partnership will be treated as continuing to satisfy the 90% qualifying income
exception.
There is a risk that the ability of the holders of units in the Operating
Partnership and certain of its subsidiary partnerships to exchange their units
in such partnerships for GGP shares could cause the interests in the Operating
Partnership and/or such subsidiary partnerships to be viewed as readily tradable
on a secondary market or the substantial equivalent thereof. In that event,
unless certain safe harbor provisions of the applicable regulations continue to
be available and are satisfied, the Operating Partnership and/or certain of its
subsidiary partnerships would be classified as a PTP. However, any such entity
that became classified as a PTP would not be subject to corporate-level tax
provided it met the 90% qualifying income exception. In this regard, the tax
rules that define the 90% qualifying income exception are very similar to those
that define the 95% qualifying gross income test with which REITs, such as GGP,
must comply. We believe that the proposed method of operations of the Operating
Partnership and its subsidiary partnerships would permit them to meet the 90%
qualifying income test. However, there can be no assurance that the Operating
Partnership and/or its subsidiary partnerships will be able to avoid
classification as a PTP that is taxable as a corporation in subsequent taxable
years.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
As discussed above, a partnership is not a taxable entity for federal
income tax purposes. Rather, a partner is required to take into account its
allocable share of a partnership's income, gains, losses, deductions and credits
for any taxable year of the partnership ending within or with the taxable year
of the partner, without regard to whether the partner has received or will
receive any distributions from the partnership. Although a partnership agreement
will generally determine the allocation of income and losses among partners,
such allocations will be disregarded for federal income tax purposes if they do
not comply with the provisions of Section 704(b) of the Code and the regulations
promulgated thereunder as to substantial economic effect.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of the Operating Partnership and subsidiary partnerships are intended to
comply with the requirements of Section 704(b) of the Code and the regulations
promulgated thereunder.
Under the Code and the regulations, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution, and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
32
not affect the book capital accounts or other economic or legal arrangements
among the partners. Where a partner contributes cash to a partnership that holds
appreciated property, the regulations provide for a similar allocation of such
items to the other partners.
In general, investors contributing appreciated properties to the Operating
Partnership or other subsidiary partnerships will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on the sale by the Operating Partnership or other subsidiary partnerships of the
contributed properties. While this will tend to eliminate the Book-Tax
Difference over the life of these partnerships, the foregoing special
allocations do not always entirely rectify the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed properties in the hands of the Operating
Partnership or other subsidiary partnerships may cause GGP to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
GGP to recognize taxable income in excess of cash proceeds, which might
adversely affect its ability to comply with the REIT distribution requirements.
See "-- Taxation of GGP -- Distribution Requirements."
TAXATION OF TAXABLE U.S. STOCKHOLDERS
GENERAL
As used below, the term "U.S. Stockholder" means a holder of shares of
capital stock who (for United States federal income tax purposes) is: a citizen
or resident of the United States; a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any state
thereof or in the District of Columbia, unless, in the case of a partnership,
regulations provide otherwise; an estate the income of which is subject to
United States federal income taxation regardless of its source; or a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust.
As long as GGP qualifies as a REIT, distributions made to its stockholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taxable to its taxable U.S. Stockholders as
ordinary income. U.S. Stockholders that are corporations will not be entitled to
the dividends-received deduction with respect to such distributions. In general,
such distributions received by U.S. Stockholders will not qualify for the
reduced maximum tax of 15% on dividends (effective through 2008). However, U.S.
Stockholders that are individuals in general are taxed at the reduced maximum
tax of 15% on dividends designated by and received from GGP to the extent that
the dividends are attributable to (i) income retained by GGP in the prior
taxable year on which GGP was subject to corporate level income tax (less the
amount of tax); (ii) dividends received by GGP from taxable REIT subsidiaries or
other taxable subchapter C corporations; or (iii) income in the prior taxable
year from the sales of "built-in gain" property acquired by GGP from subchapter
C corporations in carryover basis transactions (less the amount of corporate tax
on such income).
Distributions that are designated by GGP as capital gain dividends will
generally be taxable to its U.S. Stockholders as long-term capital gains (to the
extent they do not exceed GGP's actual net capital gain for the taxable year)
without regard to the period for which the U.S. Stockholder has held its stock.
Corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Subject to certain limitations, capital gains
dividends received by a U.S. Stockholder that is an individual may be eligible
for the 15% capital gains rate of tax (effective through 2008). However, in
certain circumstances, capital gains attributable to the sale of depreciable
real property held for more than a year may be subject to a 25% maximum federal
income tax rate for taxpayers who are individuals. Distributions in excess of
GGP's current and accumulated earnings and profits generally will not be taxable
to a U.S. Stockholder to the extent that such distributions do not exceed the
adjusted basis of the U.S. Stockholder's shares, but rather, will be a
nontaxable reduction in such stockholder's adjusted basis in such shares to the
extent thereof and thereafter will be taxed as capital gain.
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Any dividend declared by GGP in October, November or December of any year
payable to a stockholder of record on a specified date in any such month will be
treated as both paid by GGP and received by the stockholder on December 31 of
such year, provided that the dividend is actually paid by GGP during January of
the following calendar year.
Stockholders holding capital stock at the close of GGP's taxable year will
be required to include, in computing their long-term capital gains for the
taxable year in which the last day of GGP's taxable year falls, such amount as
GGP may designate in a written notice mailed to its stockholders. For this
purpose, GGP may not designate amounts in excess of its undistributed net
capital gain for the taxable year. Each stockholder required to include such a
designated amount in determining such stockholder's long-term capital gains will
be deemed to have paid, in the taxable year of the inclusion, such stockholder's
share of the tax paid by GGP in respect of such undistributed net capital gains.
Stockholders subject to these rules will be allowed a credit or a refund, as the
case may be, for the tax deemed to have been paid by such stockholders.
Stockholders will increase their basis in their capital stock by the difference
between the amount of such includable gains and the tax deemed paid by the
stockholder in respect of such gains.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of GGP. Instead, such losses would be carried
over by GGP for potential offset against its future income (subject to certain
limitations). Taxable distributions from GGP and gain from a stockholder's
disposition of GGP's capital stock will not be treated as passive activity
income and, therefore, stockholders generally will not be able to apply any
"passive activity losses" (such as losses from certain types of limited
partnerships in which the stockholder is a limited partner) against such income.
In addition, taxable distributions from GGP and gain from the disposition of
GGP's capital stock generally will be treated as investment income for purposes
of the investment interest limitations, except qualified dividend income and net
capital gain generally will not be taken into account for the investment
interest limitation. GGP will notify the stockholders after the close of its
taxable year as to the portions of the distributions attributable to that year
that constitute ordinary income, return of capital, and capital gain. In
general, any gain or loss realized upon a taxable disposition of the capital
stock by a stockholder who is not a dealer in securities will be treated as
long-term capital gain if the capital stock has been held for more than one year
and otherwise as short-term capital gain or loss. Long-term capital gain of an
individual U.S. Stockholder with respect to the sale of stock is generally
subject to a maximum tax rate of 15%. However, any loss upon a sale or exchange
of capital stock by a stockholder who has held such stock for six months or less
(after applying certain holding period rules) will be treated as long-term
capital loss to the extent of distributions from GGP that are required to be
treated by such stockholder as long-term capital gain. All or a portion of any
loss realized upon a taxable disposition of GGP's capital stock may be
disallowed if other shares of its capital stock are purchased within 30 days
before or after the disposition.
TAX TREATMENT OF CONVERSION OF PREFERRED STOCK
By their terms, shares of the Series H Preferred Stock of GGP are
convertible into GGP's common stock on the basis of 48.6558 shares of GGP common
stock for one share of Series H Preferred Stock, but subject to adjustment for
anti-dilution. See "Description of Capital Stock -- Description of Series H
Preferred Stock -- Conversion." A holder of Series H Preferred Stock in GGP that
elects to convert some or all of its Series H Preferred Stock into GGP common
stock generally should not recognize gain or loss with respect to the conversion
for federal income tax purposes, except (a) gain or loss will be recognized with
respect to any cash received in lieu of fractional shares and (b) the fair
market value of any shares of common stock attributable to dividend arrearages
will be treated as a constructive distribution and taxed similar to an actual
distribution as described above (see "-- Taxation of Taxable U.S.
Stockholders -- General"). The adjusted tax basis of the common stock (including
fractional share interests) so acquired (other than common stock treated as a
constructive distribution) will be equal to the tax basis of the shares of
preferred stock exchanged and the holding period of such common stock will
include the holding period of the preferred stock exchanged. The tax basis of
any common stock treated as a constructive distribution will be equal to its
fair market value on the date of the exchange.
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DEEMED DISTRIBUTIONS
The conversion price at which the Series H Preferred Stock is converted to
shares of common stock is subject to adjustment in certain circumstances.
Adjustments (or failures to make adjustments) to the conversion price that have
the effect of increasing the proportionate interest of any holders of GGP
capital stock in GGP's assets or earnings can give rise to deemed distributions
to those holders. However, adjustments to conversion price made pursuant to a
bona fide reasonable adjustment formula which has the effect of preventing the
dilution of the interest of the holders of the Series H Preferred Stock
generally will not be considered to result in a constructive distribution of
stock.
The tax consequences of receiving a deemed distribution are generally the
same as those of receiving an actual distribution. See "-- Taxation of Taxable
U.S. Stockholders -- General." Thus, as a result of a deemed distribution, a
holder might recognize taxable dividend income despite the fact that such holder
does not receive any cash or property.
TAX TREATMENT OF SALES OR OTHER DISPOSITIONS
Upon a sale or other disposition of preferred or common stock (other than a
conversion of preferred stock into common stock pursuant to a conversion
privilege), a U.S. Stockholder generally will recognize capital gain or loss
equal to the difference between the amount considered realized for tax purposes
(i.e., the sum of the cash and fair market value of other property received) and
the adjusted tax basis in the shares sold or disposed of. This capital gain or
loss will be long-term if the holding period for the shares sold or disposed of
is more than one year. Long-term capital gain of an individual U.S. Stockholder
with respect to the sale of stock is generally subject to a maximum tax rate of
15%.
BACKUP WITHHOLDING AND INFORMATION REPORTING
GGP will report to its U.S. Stockholders and to the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. Stockholder may be subject to
backup withholding at the fourth lowest rate of tax specified in Section 1(c) of
the Code (which at the time of this prospectus was equal to 28%) with respect to
dividends paid unless such holder: (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact; or (b)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder that does not provide us with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability or may entitle the stockholder to a refund,
provided that the required information is furnished to the IRS. In addition, GGP
may be required to withhold a portion of capital gain distributions to any
stockholders that fail to certify their non-foreign status to GGP.
TAXATION OF TAX-EXEMPT U.S. STOCKHOLDERS
The IRS has ruled that amounts distributed as a dividend by a REIT will be
treated as a dividend by the recipient and excluded from the calculation of
unrelated business taxable income when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt stockholder has not held its shares as
"debt financed property" within the meaning of the Code and the shares are not
otherwise used in an unrelated trade or business, dividend income on GGP stock
should not be unrelated business taxable income to a tax-exempt stockholder,
except as described below. Likewise, gain from the sale of shares should not
constitute unrelated business taxable income unless such shares are "debt
financed property" or were used in an unrelated trade or business. For
tax-exempt stockholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in GGP shares will constitute unrelated business taxable income
unless such amounts are properly set aside or placed in reserve for certain
purposes.
35
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which is described in Section 401(a) of the Code and holds
more than 10%, by value, of the interests in the REIT. Tax-exempt pension funds
that are described in Section 401(a) of the Code are referred to below as
"qualified trusts."
A REIT is a "pension-held REIT" if (a) it would not have qualified as a
REIT but for the provisions of Section 856(h)(3) of the Code which provides that
stock owned by a qualified trust shall be treated as owned by the beneficiaries
of the trust, rather than by the trust itself, for certain purposes; and (b)
either at least one qualified trust holds more than 25%, by value, of the
interests in the REIT, or one or more qualified trusts, each of which owns more
than 10%, by value, of the interests in the REIT, hold in the aggregate more
than 50%, by value, of the interests in the REIT. The percentage of any REIT
dividend paid by a pension-held REIT to a qualified trust that is treated as
unrelated business taxable income is equal to the ratio of (i) the unrelated
business taxable income earned by the REIT, treating the REIT as if it were a
qualified trust and therefore subject to tax on unrelated business taxable
income, to (ii) the total gross income (less certain expenses) of the REIT. A de
minimis exception applies where the percentage is less than 5% for any year.
Based on the current estimated ownership of GGP common and preferred stock, and
as a result of certain limitations on transfer and ownership of common and
preferred stock contained in GGP's certificate of incorporation, GGP does not
believe that it is, and does not expect to be, classified as a "pension-held
REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of capital stock by persons that are, for this purpose,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and we do not attempt to provide more than a brief summary of these rules in
this section. Accordingly, the discussion below does not address all aspects of
United States federal income tax and does not address state, local or foreign
tax consequences that may be relevant to a Non-U.S. Stockholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which may change, and assumes that GGP qualifies for taxation as a REIT.
Prospective Non-U.S. Stockholders should consult with their own tax advisers to
determine the impact of federal, state, local and foreign income tax laws with
regard to an investment in GGP capital stock, including any reporting
requirements.
Distributions by GGP to a Non-U.S. Stockholder that are neither
attributable to gain from sales or exchanges by GGP of United States real
property interests nor designated by GGP as capital gains dividends will be
treated as dividends of ordinary income to the extent that they are made out of
GGP's current or accumulated earnings and profits. These distributions will
ordinarily be subject to United States federal income tax on a gross basis, that
is, without allowance of deductions, at a 30% rate, or any lower rate that may
be specified by an applicable income tax treaty, unless the dividends are
treated as effectively connected with the conduct by the Non-U.S. Stockholder of
a United States trade or business. GGP expects to withhold United States federal
income tax at the rate of 30% on the gross amount of any distributions of this
kind made to a Non-U.S. Stockholder unless (a) a lower treaty rate applies and
any required form or certification evidencing eligibility for that reduced rate
is filed with GGP or (b) the Non-U.S. Stockholder files an IRS Form W-8ECI with
GGP claiming that the distribution is effectively connected income. Dividends
that are effectively connected with a United States trade or business will be
subject to tax on a net basis, that is, after allowance of deductions, at
graduated rates, in the same manner as domestic stockholders are taxed with
respect to dividends of this kind. Withholding generally does not apply to these
dividends. An additional branch profits tax at a 30% rate, or any lower rate
that may be specified by an applicable income tax treaty, may also apply to any
dividends of this kind received by a Non-U.S. Stockholder that is a corporation.
Distributions in excess of GGP's current and accumulated earnings and
profits (other than those arising from the disposition of a United States real
property interest, as discussed below) will not be taxable to a Non-U.S.
Stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's GGP capital stock, but rather will reduce the adjusted basis of
the GGP capital stock. To the extent that these distributions exceed the
adjusted basis of a Non-U.S. Stockholder's GGP capital stock, they will give
rise to gain from the sale or exchange of GGP capital stock, the tax treatment
of which is described below. However,
36
GGP cannot be certain at the time of a distribution that no earnings or profits
will exist because events which take place prior to the end of the year could
create earnings and profits when none currently exist. Thus, GGP currently
intends to withhold at a rate of 30%, or a lower applicable treaty rate, on the
entire amount of any distribution. However, a Non-U.S. Stockholder may seek a
refund of these amounts from the IRS if it is subsequently determined that the
distribution was, in fact, in excess of GGP's current and accumulated earnings
and profits, and the amount withheld exceeded the Non-U.S. Stockholder's United
States tax liability, if any, with respect to the distribution.
United States federal income taxation generally will not apply to
distributions to a Non-U.S. Stockholder that are designated by GGP at the time
of distribution as capital gains dividends, other than those arising from the
disposition of a United States real property interest, unless (a) the investment
in the capital stock is effectively connected with the Non-U.S. Stockholder's
United States trade or business, in which case the same treatment will apply to
the Non-U.S. Stockholder as to U.S. Stockholders with respect to the gain,
except that a stockholder that is a foreign corporation may also have to pay the
30% branch profits tax, as discussed above, or (b) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will have to pay a 30% tax on the
individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a Non-U.S. Stockholder that are attributable to gain from sales
or exchanges by GGP of United States real property interests, whether or not
designated as a capital gain dividend, will cause the Non-U.S. Stockholder to be
treated as recognizing the gain as income effectively connected with a United
States trade or business. Non-U.S. Stockholders would thus generally be taxed at
the same rates applicable to U.S. Stockholders, or might have to pay a special
alternative minimum tax in the case of nonresident alien individuals. GGP is
required to withhold 35% of any distribution of this kind. That amount is
creditable against the Non-U.S. Stockholder's United States federal income tax
liability. Also, a 30% branch profits tax might apply to a gain of this kind in
the hands of a Non-U.S. Stockholder that is a corporation, as discussed above.
United States federal income tax generally will not apply to gain
recognized by a Non-U.S. Stockholder upon the sale or exchange of capital stock
unless the shares constitute a "United States real property interest" within the
meaning of FIRPTA. The capital stock will not constitute a "United States real
property interest" so long as GGP is a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT in which at all times during the
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. However, gain from the sale or exchange of
capital stock to which FIRPTA does not otherwise apply will be taxable to a
Non-U.S. Stockholder if (a) the investment in the capital stock is effectively
connected with the Non-U.S. Stockholder's United States trade or business, in
which case the same treatment will apply to the Non-U.S. Stockholder as to U.S.
Stockholders with respect to the gain, except that a stockholder that is a
foreign corporation may also have to pay the 30% branch profits tax, as
discussed above, or (b) the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will have to pay a 30% tax on the individual's
capital gains.
We believe that GGP is, and will continue to be, a "domestically controlled
REIT," and therefore that taxation under FIRPTA generally will not apply to the
sale of GGP capital stock by Non-U.S. Stockholders. However, because GGP's
capital stock is publicly traded, GGP might not continue to be a "domestically
controlled REIT." If GGP fails to qualify as a "domestically controlled REIT,"
United States taxation under FIRPTA still would not apply to gain arising from
the sale or exchange by a Non-U.S. Stockholder of capital stock as a sale of a
"United States real property interest," if (a) the capital stock is "regularly
traded," as defined by applicable regulations, on an established securities
market such as the NYSE, and (b) the selling Non-U.S. Stockholder held 5% or
less of the value of the outstanding class or series of shares being sold at all
times during a specified testing period. If taxation under FIRPTA applied to
gain on the sale or exchange of GGP capital stock, the Non-U.S. Stockholder
would have to pay regular United States income tax with respect to the gain in
the same manner as a U.S. Stockholder, or might have to pay any applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals, and the purchaser of GGP capital stock would be
required to withhold and remit to the IRS 10% of the purchase price.
37
Certain issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. For example, GGP may be
required to withhold a portion of capital gains distributions to any
stockholders who fail to certify their foreign status on Form W-8BEN. Non-U.S.
Stockholders should consult their tax advisors with respect to any information
reporting and backup withholding requirements.
LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. New federal tax legislation or other provisions may be
enacted into law or new interpretations, rulings or Treasury Regulations could
be adopted which could adversely affect an investment in GGP or the Operating
Partnership.
STATE, LOCAL AND FOREIGN TAXES
The Operating Partnership and its partners and GGP and its stockholders may
be subject to state, local or foreign taxation in various jurisdictions,
including those in which it or they transact business, own property or reside.
The state, local or foreign tax treatment of the Operating Partnership and its
partners and GGP and its stockholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the application and effect of state, local and
foreign tax laws on an investment in the Operating Partnership or GGP.
SELLING STOCKHOLDERS
The selling stockholders named below may use this prospectus for the resale
of the shares of Series H Preferred Stock and common stock being registered by
this prospectus, although no selling stockholder is obligated to sell any such
shares. Each of the selling stockholders is a holder of Series C Preferred Units
of limited partnership interest in the Operating Partnership which are
convertible, at the holder's option, into common units of limited partnership
interest in the Operating Partnership. As described under "General Growth
Properties, Inc. -- The Redemption Rights," we may, under certain circumstances,
issue the shares of Series H Preferred Stock offered hereby in connection with
the redemption of the Series C Preferred Units, and we may issue the shares of
common stock offered hereby upon conversion of the Series H Preferred Stock or,
under certain circumstances, upon the redemption of the common units into which
the selling stockholders may have converted their Series C Preferred Units, or
in any combination of the foregoing. None of the selling stockholders is an
affiliate of ours.
The table below sets forth certain information regarding the selling
stockholders and the shares of Series H Preferred Stock and common stock
beneficially owned by each of them. Because the selling stockholders may sell
all, some or none of the shares of Series H Preferred Stock and common stock
being offered hereby, no estimate can be made of the actual number of shares
that will be sold hereby.
BENEFICIAL OWNERSHIP OF
SHARES PRIOR TO THE NUMBER OF SHARES
OFFERING BEING OFFERED
----------------------- ---------------------
NUMBER OF
SHARES OF NUMBER OF
SERIES H SHARES OF SERIES H
PREFERRED COMMON PREFERRED COMMON
NAME OF SELLING STOCKHOLDER STOCK(1) STOCK(2) STOCK STOCK
--------------------------- ---------- ---------- --------- ---------
JSG, LLC................ 2,100 102,177 2,100 102,177
Alderson Children's Trust,
John E. Alderson
Trustee............... 7,699 374,644 7,699 374,644
Gary B. Conrad.......... 1,713 83,372 1,713 83,372
James G. Degnan and Isobel
R. Degnan jointly and
severally with rights of
survivorship.......... 3,111 151,371 3,111 151,371
BENEFICIAL OWNERSHIP AFTER THE OFFERING(3)
-------------------------------------------------------
NUMBER OF PERCENTAGE OF
SHARES OF TOTAL SERIES H NUMBER OF PERCENTAGE OF
SERIES H PREFERRED SHARES OF TOTAL COMMON
PREFERRED SHARES COMMON SHARES
NAME OF SELLING STOCKHOLDER STOCK OUTSTANDING(4) STOCK OUTSTANDING(5)
--------------------------- --------- -------------- --------- --------------
JSG, LLC................ 0 * 0 *
Alderson Children's Trust,
John E. Alderson
Trustee............... 0 * 0 *
Gary B. Conrad.......... 0 * 0 *
James G. Degnan and Isobel
R. Degnan jointly and
severally with rights of
survivorship.......... 0 * 0 *
38
BENEFICIAL OWNERSHIP OF
SHARES PRIOR TO THE NUMBER OF SHARES
OFFERING BEING OFFERED
----------------------- ---------------------
NUMBER OF
SHARES OF NUMBER OF
SERIES H SHARES OF SERIES H
PREFERRED COMMON PREFERRED COMMON
NAME OF SELLING STOCKHOLDER STOCK(1) STOCK(2) STOCK STOCK
--------------------------- ---------- ---------- --------- ---------
Daniel W. Donahue Revocable
Trust, Patrick S. Donahue
Trustee............... 8,956 435,766 8,956 435,766
Patrick and Paula Donahue
Family Trust, Patrick S.
Donahue Trustee....... 575 28,010 575 28,010
Haskell Family Trust, John
Haskell Trustee....... 243 11,859 243 11,859
Jack Jensen............. 923 44,938 923 44,938
Jones Living Trust, Nelson
D. Jones Trustee...... 5,825 283,467 5,825 283,467
William J. Kenney, Jr.... 1,167 56,797 1,167 56,797
Joy Moulton............. 93 4,561 93 4,561
Glenn C. Myers Family
Trust, Glenn C. Myers
Trustee............... 243 11,859 243 11,859
Thomas L. Schriber
Revocable Trust, Thomas
L. Schriber Trustee... 4,763 231,769 4,763 231,769
Stuart Family Revocable
Living Trust, Jari L.
Stuart Trustee........ 3,507 170,647 3,507 170,647
Richard A. Zak.......... 206 10,035 206 10,035
------ --------- ------ ---------
Total................... 41,124 2,001,272 41,124 2,001,272
====== ========= ====== =========
BENEFICIAL OWNERSHIP AFTER THE OFFERING(3)
-------------------------------------------------------
NUMBER OF PERCENTAGE OF
SHARES OF TOTAL SERIES H NUMBER OF PERCENTAGE OF
SERIES H PREFERRED SHARES OF TOTAL COMMON
PREFERRED SHARES COMMON SHARES
NAME OF SELLING STOCKHOLDER STOCK OUTSTANDING(4) STOCK OUTSTANDING(5)
--------------------------- --------- -------------- --------- --------------
Daniel W. Donahue Revocable
Trust, Patrick S. Donahue
Trustee............... 0 * 0 *
Patrick and Paula Donahue
Family Trust, Patrick S.
Donahue Trustee....... 0 * 0 *
Haskell Family Trust, John
Haskell Trustee....... 0 * 0 *
Jack Jensen............. 0 * 0 *
Jones Living Trust, Nelson
D. Jones Trustee...... 0 * 0 *
William J. Kenney, Jr.... 0 * 0 *
Joy Moulton............. 0 * 0 *
Glenn C. Myers Family
Trust, Glenn C. Myers
Trustee............... 0 * 0 *
Thomas L. Schriber
Revocable Trust, Thomas
L. Schriber Trustee... 0 * 0 *
Stuart Family Revocable
Living Trust, Jari L.
Stuart Trustee........ 0 * 0 *
Richard A. Zak.......... 0 * 0 *
-- -- -- --
Total................... 0 * 0 *
== == == ==
* The percentage of shares to be held by the selling stockholder will be less
than 1%.
(1) The number set forth in this column represents the number of shares of
Series H Preferred Stock that may be received by the selling stockholders
upon redemption of the Series C Preferred Units owned by them, at an initial
conversion rate of 0.05 shares of Series H Preferred Stock for each Series C
Preferred Unit, subject to adjustment.
(2) The number set forth in this column represents the maximum number of shares
of common stock that would be received by the selling stockholders upon
conversion of the Series H Preferred Stock, at a conversion rate of 48.6558
shares of common stock for each share of Series H Preferred Stock, subject
to adjustment, or upon redemption of the common units into which the Series
C Preferred Units may have been converted, at an initial redemption rate of
one share of common stock for each common unit, subject to adjustment, or in
any combination of the foregoing.
(3) Assumes that all shares of Series H Preferred Stock and common stock being
offered and registered hereunder are sold, although no selling stockholder
is obligated to sell any such shares.
(4) Based upon a total of 41,124 shares of Series H Preferred Stock being
offered by this prospectus.
(5) Based upon a total of 217,784,209 shares of common stock outstanding as of
March 31, 2004.
39
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholder. The term "selling stockholder" includes
pledgees, donees, transferees or other successors in interest who may sell
shares received after the date of this prospectus from the selling stockholders
as a pledge, gift or other non-sale related transfer. We have registered the
shares for resale to provide the selling stockholder with freely tradeable
securities. However, registration of the shares does not necessarily mean that
the selling stockholder will offer or sell any of the shares.
The selling stockholder may from time to time offer the shares registered
hereby in one or more transactions (which may involve block transactions) on the
New York Stock Exchange or otherwise, in special offerings, exchange
distributions or secondary distributions pursuant to and in accordance with the
rules of the New York Stock Exchange, where our common stock is listed for
trading, in the over-the-counter market, in negotiated transactions, through the
writing of options on the shares registered hereby (whether such options are
listed on an options exchange or otherwise), or a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
To the extent required at the time a particular offer of shares is made, a
prospectus supplement will be distributed that will set forth the names of any
underwriters, dealers or agents and any commissions and other terms constituting
compensation from the selling stockholder and any other required information.
The selling stockholder may effect such transactions by selling shares to
or through broker-dealers or through other agents, and such broker-dealers or
agents may receive compensation in the form of commissions from the selling
stockholder, which will not exceed those customary in the types of transactions
involved, and/or the purchasers of shares for whom they may act as agent. The
selling stockholder and any dealers or agents that participate in the
distribution of shares may be deemed to be "underwriters" within the meaning of
the Securities Act and any profit on the sale of shares by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting commissions under the Securities Act.
In the event of a "distribution" of the shares, the selling stockholder,
any selling broker-dealer or agent and any "affiliated purchasers" may be
subject to Rule 102 under the Securities Exchange Act, which would prohibit,
with certain exceptions, any such person from bidding for or purchasing any
security which is the subject of such distribution until their participation in
that distribution is completed.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers.
We have agreed to indemnify the selling stockholder against certain
liabilities, including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the securities offered hereby and certain federal income
tax matters will be passed upon for us by Neal, Gerber & Eisenberg LLP of
Chicago, Illinois. Marshall E. Eisenberg, a partner of Neal, Gerber & Eisenberg,
LLP is our Secretary.
EXPERTS
The consolidated financial statements of General Growth Properties, Inc.
(the "Company"), except GGP/Homart, Inc. and GGP/Homart II L.L.C., which are
unconsolidated joint venture investments of the Company that are accounted for
by use of the equity method, as of December 31, 2003 and 2002, and for each of
the three years in the period ended December 31, 2003 and the related financial
statement schedules incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 2003 have
been audited by Deloitte & Touche LLP as stated in their reports, which are
incorporated herein by reference (which reports express an unqualified opinion
and include an explanatory
40
paragraph relating to the change in method of accounting for derivative
instruments and hedging activities in 2001 and the change in accounting for debt
extinguishment costs in 2003), in the registration statement. The financial
statements of GGP/Homart, Inc. and GGP/Homart II L.L.C. not presented separately
herein have been audited by KPMG LLP, as stated in their reports incorporated
herein by reference. Such financial statements of the Company are incorporated
herein by reference in reliance upon the respective reports of such firms given
upon their authority as experts in accounting and auditing. Each of the
foregoing firms are independent auditors.
The consolidated financial statements of GGP/Homart, Inc. and subsidiaries
and GGP/Homart II L.L.C. and subsidiaries as of December 31, 2003 and 2002, and
for each of the years in the three-year period ended December 31, 2003, have
been incorporated by reference herein in reliance upon the reports of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. Their reports
refer to a change in the method of accounting for intangible assets in 2002.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act and, therefore, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the SEC's Public Reference Room. You
also can request copies of such documents, upon payment of a duplicating fee, by
writing to the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain
copies of such documents from the SEC's web site at http://www.sec.gov or our
web site at http://www.generalgrowth.com. However, information contained in our
web site is not incorporated by reference in this prospectus and, therefore, is
not part of this prospectus.
We have filed a registration statement on Form S-3 with the SEC covering
the securities that may be sold under this prospectus. For further information
about us and the securities, you should refer to our registration statement and
its exhibits. This prospectus summarizes material provisions of contracts and
other documents that we refer you to. Because the prospectus may not contain all
the information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents:
1. Our Annual Report on Form 10-K for the year ended December 31,
2003.
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2004.
3. Our Current Reports on Form 8-K, filed with the SEC January 27,
2004, April 14, 2004, April 27, 2004 and April 28, 2004 and Current Report
on Form 8-K/A filed with the SEC January 14, 2004.
4. The portions of our Proxy Statement for our 2004 Annual Meeting of
Stockholders that have been incorporated by reference into our Annual
Report on Form 10-K.
5. The description of our Preferred Stock Purchase Rights contained in
our Registration Statement on Form 8-A which was filed with the SEC on
November 18, 1998, pursuant to Section 12(b) of the Securities Exchange
Act.
41
6. The description of our common stock contained in our Registration
Statement on Form 8-A which was filed with the SEC on January 12, 1993,
pursuant to Section 12(b) of the Securities Exchange Act.
7. All documents filed by us with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act after the date of this
prospectus and prior to the termination of this offering.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits), you may call or write General Growth
Properties, Inc., 110 North Wacker Drive, Chicago, Illinois 60606, Attention:
Director of Investor Relations, Telephone 312-960-5000.
You should rely only on the information provided or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the cover page of such documents.
42
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of securities being registered.
General Growth will bear all of the foregoing expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
General Growth is a Delaware corporation. In its Certificate of
Incorporation, General Growth has adopted (a) the provisions of Section
102(b)(7) of the Delaware General Corporation Law (the "Delaware Law"), which
enables a corporation in its certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for monetary
damages for breach of the director's fiduciary duty, except (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware Law
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit and (b) the provisions of
Section 145 of the Delaware Law, which provide that a corporation may indemnify
any persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that
such person was an officer, director, employee or agent of the corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interest and, with respect to criminal
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify officers or directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against expenses
(including attorneys' fees) that such officer or director actually and
reasonably incurred.
General Growth has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements, among other things,
require the indemnification of General Growth's officers and directors to the
fullest extent permitted by law, and require that General Growth advance to the
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Such
indemnification agreements also provide for the indemnification and advance of
all expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements, and require General Growth to cover
officers and directors under its directors' and officers'
II-1
liability insurance. Although the indemnification agreements offer substantially
the same scope of coverage afforded by provisions in General Growth's
Certificate of Incorporation and the Bylaws, such agreements provide greater
assurance to directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights they provide.
ITEM 16. EXHIBITS.
4.1 Specimen certificate representing shares of common stock
(incorporated by reference to General Growth's Registration
Statement on Form S-11 (File No. 33-56640), filed on April
6, 1993).
4.2 Redemption Rights Agreement (Series C Preferred Units),
dated November 27, 2002, by and among General Growth
Properties, Inc., GGP Limited Partnership and JSG, LLC
(incorporated by reference to General Growth's Annual Report
on Form 10-K for the year ended December 31, 2002).
4.3 Redemption Rights Agreement (Common Units), dated November
27, 2002, by and among General Growth Properties, Inc., GGP
Limited Partnership and JSG, LLC (incorporated by reference
to General Growth's Annual Report on Form 10-K for the year
ended December 31, 2002).
4.4 Certificate of Designations, Preferences and Rights of 8.95%
Cumulative Redeemable Preferred Stock, Series B
(incorporated by reference to General Growth's Current
Report on Form 8-K dated June 13, 2000).
4.5 Certificate of Amendment and Restatement of Certificate of
Designations, Preferences and Rights of 8.95% Cumulative
Redeemable Preferred Stock, Series B (incorporated by
reference to General Growth's Current Report on Form 8-K
dated July 10, 2002).]
4.6 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Convertible Preferred Stock, Series C
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.7 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Redeemable Preferred Stock, Series E
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.8 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Redeemable Preferred Stock, Series F
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.9 Certificate of Designations, Preferences and Rights of 8.95%
Cumulative Redeemable Preferred Stock, Series G
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.10 Certificate of Designations, Preferences and Rights relating
to our 7% Cumulative Convertible Preferred Stock, Series H
(incorporated by reference to General Growth's Annual Report
on Form 10-K for the year ended December 31, 2003).
5.1 Opinion of Neal, Gerber & Eisenberg LLP.
8.1 Tax Opinion of Neal, Gerber & Eisenberg LLP.
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Neal, Gerber & Eisenberg LLP (included in its
opinion filed as Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
II-2
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs 1(i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on May 20, 2004.
GENERAL GROWTH PROPERTIES, INC.
(Registrant)
By: /s/ JOHN BUCKSBAUM
------------------------------------
John Bucksbaum
Chief Executive Officer
We, the undersigned officers and directors of General Growth Properties,
Inc., hereby severally constitute John Bucksbaum, Robert Michaels and Bernard
Freibaum, and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, any and all amendments, including post-effective
amendments, to this registration statement, and to sign a new registration
statement pursuant to Rule 462(b) of the Securities Act of 1933, and generally
to do all such things in our name and behalf in such capacities to enable
General Growth Properties, Inc. to comply with the applicable provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission, and we hereby ratify and confirm our signatures as they may be
signed by our said attorneys, or any of them, to any and all such amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on May 20, 2004, by the following
persons in the capacities indicated:
SIGNATURE TITLE
--------- -----
/s/ MATTHEW BUCKSBAUM Chairman of the Board
------------------------------------------------
Matthew Bucksbaum
/s/ JOHN BUCKSBAUM Chief Executive Officer (Principal Executive
------------------------------------------------ Officer)
John Bucksbaum
/s/ ROBERT MICHAELS President, Chief Operating Officer and Director
------------------------------------------------
Robert Michaels
/s/ BERNARD FREIBAUM Executive Vice President, Chief Financial Officer
------------------------------------------------ (Principal Financial and Accounting Officer) and
Bernard Freibaum Director
Director
------------------------------------------------
Anthony Downs
/s/ BETH STEWART Director
------------------------------------------------
Beth Stewart
/s/ ALAN COHEN Director
------------------------------------------------
Alan Cohen
II-4
SIGNATURE TITLE
--------- -----
/s/ JOHN RIORDAN Director
------------------------------------------------
John Riordan
/s/ FRANK PTAK Director
------------------------------------------------
Frank Ptak
II-5
EXHIBIT INDEX
4.1 Specimen certificate representing shares of common stock
(incorporated by reference to General Growth's Registration
Statement on Form S-11 (File No. 33-56640), filed on April
6, 1993).
4.2 Redemption Rights Agreement (Series C Preferred Units),
dated November 27, 2002, by and among General Growth
Properties, Inc., GGP Limited Partnership and JSG, LLC
(incorporated by reference to General Growth's Annual Report
on Form 10-K for the year ended December 31, 2002).
4.3 Redemption Rights Agreement (Common Units), dated November
27, 2002, by and among General Growth Properties, Inc., GGP
Limited Partnership and JSG, LLC (incorporated by reference
to General Growth's Annual Report on Form 10-K for the year
ended December 31, 2002).
4.4 Certificate of Designations, Preferences and Rights of 8.95%
Cumulative Redeemable Preferred Stock, Series B
(incorporated by reference to General Growth's Current
Report on Form 8-K dated June 13, 2000).
4.5 Certificate of Amendment and Restatement of Certificate of
Designations, Preferences and Rights of 8.95% Cumulative
Redeemable Preferred Stock, Series B (incorporated by
reference to General Growth's Current Report on Form 8-K
dated July 10, 2002).
4.6 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Convertible Preferred Stock, Series C
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.7 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Redeemable Preferred Stock, Series E
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.8 Certificate of Designations, Preferences and Rights of 8.5%
Cumulative Redeemable Preferred Stock, Series F
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.9 Certificate of Designations, Preferences and Rights of 8.95%
Cumulative Redeemable Preferred Stock, Series G
(incorporated by reference to General Growth's Current
Report on Form 8-K dated July 10, 2002).
4.10 Certificate of Designations, Preferences and Rights relating
to our 7% Cumulative Convertible Preferred Stock, Series H
(incorporated by reference to General Growth's Annual Report
on Form 10-K for the year ended December 31, 2003).
5.1 Opinion of Neal, Gerber & Eisenberg LLP.
8.1 Tax Opinion of Neal, Gerber & Eisenberg LLP.
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Neal, Gerber & Eisenberg LLP(included in its
opinion filed as Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
EXHIBIT 5.1
[LETTERHEAD OF NEAL, GERBER AND EISENBERG LLP]
May 20, 2004
General Growth Properties, Inc.
110 North Wacker Drive
Chicago, Illinois 60606
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to General Growth Properties, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of up to 41,124 shares of its 7% Cumulative
Convertible Preferred Stock, Series H (the "Series H Preferred Stock"), and up
to 2,001,272 shares of its common stock, par value $.10 per share (collectively,
the "Shares"), which may be sold from time to time by the selling stockholders
identified in the Registration Statement on Form S-3 (the "Registration
Statement") to be filed with the Securities and Exchange Commission on or about
May 20, 2004.
As such counsel, we have examined such documents and certificates of
officers of the Company as we deemed relevant and necessary as the basis for the
opinion hereafter expressed. In such examinations, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals and the conformity to original documents of all documents
submitted to us as conformed or photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, upon issuance in connection with the redemption of limited
partnership units of GGP Limited Partnership and/or the conversion of shares of
Series H Preferred Stock as described in the Registration Statement, will be
duly and validly issued and fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the prospectus comprising a part of the Registration Statement.
Please be advised that Marshall E. Eisenberg, a partner in our firm, is the
Secretary of the Company and certain of its affiliates and that certain partners
of our firm and attorneys associated with our firm and members of their
respective families and/or trusts for their benefit are stockholders of or are
beneficial owners of equity securities of the Company or are trustees (or
officers, directors or stockholders of trustees) of stockholders of the Company
or its affiliates.
Very truly yours,
/s/ NEAL, GERBER & EISENBERG LLP
EXHIBIT 8.1
[LETTERHEAD OF NEAL, GERBER AND EISENBERG LLP]
May 20, 2004
General Growth Properties, Inc.
110 Wacker Drive
Chicago, Illinois 60606
Re: General Growth Properties, Inc.
Tax Opinion Issued in Connection with Registration Statement
on Form S-3
Ladies and Gentlemen:
As tax counsel to General Growth Properties, Inc., a Delaware corporation
(the "Company"), we are rendering the opinion contained herein in connection
with the preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Rule 415 under the Securities Act, relating to
the offer and sale from time to time by certain holders of certain preferred
units (the "Units") of GGP Limited Partnership (the "Operating Partnership"),
upon the exchange of such Units, of the following securities: (i) common stock
of the Company, par value $.10 per share, and (ii) 7% Cumulative Convertible
Preferred Stock, Series H of the Company. In so acting and in rendering the
opinion expressed below, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction of such records,
documents, agreements and instruments as we have deemed necessary to the
rendering of these opinions including, without limitation, the representations
(the "Representations") made by the Company and by certain entities in which the
Company holds direct or indirect interests, each dated May 20, 2004. For
purposes of our opinion, we have not made an independent investigation of the
facts set forth in the Representations or in the other records, documents,
agreements and instruments which we have reviewed.
Based upon and subject to the foregoing and subject further to the
assumptions, exceptions and qualifications hereinafter stated, we are of the
opinion that as of the date hereof, (i) the statements set forth in the
Registration Statement under the caption "Material Federal Income Tax
Considerations," insofar as they purport to describe the provisions of federal
tax laws and legal conclusions with respect thereto, are accurate and complete
in all material respects, and (ii) commencing with the Company's taxable year
ending December 31, 1993, the Company has been organized in conformity with the
requirements for qualification as a REIT, and its historic methods of operation
have enabled it to meet the requirements for qualification and taxation as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code").
The opinion expressed herein is subject to the qualification and assumption
that all documents submitted to us as originals and the originals of all
documents submitted to us as certified or photostatic copies are authentic, all
documents submitted to us as certified or photostatic copies conform to the
original documents and all signatures are genuine.
The opinion herein is given as of the date hereof, is based upon the Code,
regulations of the Department of the Treasury, published rulings and procedures
of the Internal Revenue Service, and judicial decisions, all as in effect on the
date hereof. Further, any variation or differences in the facts set forth in the
Registration Statement or the Representations may affect the conclusions stated
herein. Moreover, the Company's qualification and taxation as a REIT depend upon
its ability to meet, through actual annual operating results, requirements under
the Code regarding income, distributions and diversity of stock ownership.
Because the satisfaction of these requirements will depend upon future events,
no assurance can be given that the actual results of its operations for any one
taxable year will satisfy the tests necessary to qualify as or be taxed as a
REIT under the Code. The opinion is limited to the matters expressly set forth
herein and no opinions are to be implied or may be inferred beyond the matters
expressly
so stated. We disclaim any obligation to update this letter
for events, whether legal or factual, occurring after the date hereof.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Company's Registration Statement dated May 20, 2004, and to the reference to our
firm under the captions "Material Federal Income Tax Considerations" and "Legal
Matters." In giving this consent, we do not admit that our firm is, or the
members thereof are, in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Securities
and Exchange Commission issued thereunder.
This letter is given solely for your benefit in connection with the filing
of the Registration Statement. Without our prior written consent, this letter
may not be used or relied upon by any other person or for any other purpose.
Please be advised that Marshall E. Eisenberg, a partner of our firm, is the
Secretary of the Company and certain of its affiliates, and that certain
partners of our firm and attorneys associated with our firm and members of their
respective families and/or trusts for their benefit are stockholders of or are
beneficial owners of equity securities of the Company or are trustees (or
officers, directors or stockholders of trustees) of the Company or its
affiliates.
Very truly yours,
/S/ NEAL, GERBER & EISENBERG LLP
EXHIBIT 12.1
GENERAL GROWTH PROPERTIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
------------ ---------- ---------- ---------- ---------- ----------
Revenues
Minimum rents $ 222,656 $ 781,675 $ 584,260 $ 466,678 $ 437,021 $ 384,590
Tenant recoveries 102,604 333,712 255,526 218,700 212,492 179,558
Overage Rents 8,768 34,928 28,044 22,746 28,263 26,757
Other 8,856 36,275 33,367 24,477 9,600 11,745
Management and other fees 18,701 84,138 75,479 66,764 6,471 5,083
----------- ---------- ---------- ---------- ---------- ----------
Total revenues 361,585 1,270,728 976,676 799,365 693,847 607,733
----------- ---------- ---------- ---------- ---------- ----------
Expenses
Real estate taxes 28,313 89,038 61,096 51,057 49,084 45,213
Management fees to affiliate -- -- -- -- 4,439 6,612
Property operating, property management
and other costs 101,622 381,644 294,069 233,340 162,368 142,067
Provision for doubtful accounts 2,797 7,009 3,859 3,322 2,013 4,361
General and administrative 2,190 8,533 8,720 6,006 6,351 5,857
Depreciation and amortization 73,167 231,172 179,542 144,863 119,337 107,951
Network discontinuance costs -- -- -- 66,000 -- --
----------- ---------- ---------- ---------- ---------- ----------
Total expenses 208,089 717,396 547,286 504,588 343,592 312,061
----------- ---------- ---------- ---------- ---------- ----------
Net operating income 153,496 553,332 429,390 294,777 350,255 295,672
Interest income 420 2,308 3,689 4,655 12,452 16,482
Interest expense (87,087) (278,543) (219,029) (225,057) (225,092) (202,321)
Equity in net income of unconsolidated
affiliates: 17,930 94,480 80,825 60,195 50,063 17,890
Income allocated to minority interest (25,636) (112,111) (86,670) (40,288) (51,676) (32,444)
----------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations $ 59,123 $ 259,466 $ 208,205 $ 94,282 $ 136,002 $ 95,279
=========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges
Earnings:
Income from continuing operations before
minority interest and income from
equity investees $ 66,829 $ 277,097 $ 214,050 $ 74,375 $ 137,615 $ 109,833
Adjustments:
Fixed Charges 99,523 325,219 249,731 257,145 248,998 219,566
Amortization of capitalized interest 844 2,627 2,485 2,147 1,422 986
Distributed income of equity investees 43,214 182,538 130,453 160,646 61,412 119,559
Interest capitalized (1,947) (5,679) (5,195) (16,272) (17,709) (17,166)
Preference security dividend requirements
on consolidated subsidiaries
(Distributions on preferred units of
membership interest) (10,277) (40,257) (25,014) (15,663) (6,091) --
----------- ---------- ---------- ---------- ---------- ----------
Total Earnings $ 198,186 $ 741,545 $ 566,510 $ 462,378 $ 425,647 $ 432,778
=========== ========== ========== ========== ========== ==========
Fixed Charges: $ 99,523 $ 325,219 $ 249,731 $ 257,145 $ 248,998 $ 219,566
Preferred Stock Dividends (PIERS) $ -- $ 13,030 $ 24,467 $ 24,467 $ 24,467 $ 24,467
Ratio of Earnings to Fixed Charges: 1.991 2.280 2.268 1.798 1.709 1,971
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends: 1.991 2.192 2.066 1.642 1.556 1.773
Fixed Charges:
Interest expensed $ 87,087 $ 278,543 $ 219,029 $ 225,057 $ 225,092 $ 202,321
Interest capitalized 1,947 5,679 5,195 16,272 17,709 17,166
Interest expense within rental expense 212 740 493 153 106 79
Preference security dividend requirements
on consolidated subsidiaries
(Distributions on preferred units of
membership interest) 10,277 40,257 25,014 15,663 6,091 --
----------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges $ 99,523 $ 325,219 $ 249,731 $ 257,145 $ 248,998 $ 219,566
=========== ========== ========== ========== ========== ==========
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of General Growth Properties, Inc. on Form S-3 of our reports dated March 10,
2004 (which reports express an unqualified opinion and include an explanatory
paragraph relating to the change in method of accounting for derivative
instruments and hedging activities in 2001 and the change in accounting for debt
extinguishment costs in 2003) appearing in the Annual Report on Form 10-K of
General Growth Properties, Inc. for the year ended December 31, 2003 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Chicago, Illinois
May 19, 2004
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
General Growth Properties, Inc.:
We consent to the incorporation by reference in the registration statement
on Form S-3 of General Growth Properties, Inc. of our report dated February 2,
2004, with respect to the consolidated balance sheets of GGP/Homart, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of income and comprehensive income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2003,
and our report dated February 2, 2004, with respect to the consolidated balance
sheets of GGP/Homart II L.L.C. and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of income and comprehensive
income, members' capital and cash flows for each of the years in the three-year
period ended December 31, 2003, which reports appear in the December 31, 2003
annual report on Form 10-K of General Growth Properties, Inc.
Our reports refer to a change in the method of accounting for intangible
assets in 2002.
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