RICHARD WALKER / RWALKER@STARBULLETIN.COM A recent acquisition was one reason cited by General Growth Properties, owner of Ala Moana Center, for a 78 percent decline in first-quarter earnings. Above, shoppers mobbed Ala Moana Center on the last Saturday before Christmas.

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Ala Moana Center owner
reports drop in net income

Its recent purchase of the Rouse Co.
caused a 78 percent drop in
first-quarter earnings

General Growth Properties Inc., the owner of Ala Moana Center and Victoria Ward shopping centers, said first-quarter earnings fell 78 percent on higher costs and interest expenses related to a recent acquisition.

Net income fell to $13.1 million, or 6 cents a share, from $59.1 million, or 27 cents, a year earlier, the Chicago-based company said yesterday.

Revenue almost doubled to $709.5 million from $359.8 million because of an increase in rents and store sales.

The company's revenue was helped by rising U.S. retail industry sales and its $11.3 billion purchase of Rouse Co., which added 37 malls and four shopping centers. The acquisition also increased the company's depreciation and amortization costs and interest expenses, Chief Financial Officer Bernard Freibaum said in an interview.

"Earnings per share were down because we have a huge amount of depreciation, a non-cash expense, that comes from the purchase of the Rouse Co.," Freibaum said. Interest expenses also climbed because the acquisition "was done primarily with debt."

General Growth's funds from operations, a measure of cash flow used by real estate investment trusts, rose 26 percent to $209.6 million, or 72 cents a share, from $163.7 million, or 60 cents. On that basis, which doesn't comply with generally accepted accounting principles, results beat the 71-cent average estimate of 13 analysts surveyed by Thomson Financial.

Freibaum said rising retail sales have benefited the mall owner, which receives a percentage of tenants' revenue.

"Consumers are more than two-third of the economy and they continue to spend," he said. "That's directly tied into our business. We have lots of retailers who want to open up new stores."

Comparable center net operating income rose 5 percent in the first quarter. Mall-shop occupancy fell to 90 percent at the end of the quarter from 90.4 percent a year earlier.

Sales per square foot, on a trailing 12-month basis as of March 31, rose to $416 from $359.

General Growth owns stakes in and manages 209 regional malls in 44 U.S. states, encompassing about 200 million square feet of space. The company is second in size to Simon Property Group Inc., which controls 202 million square feet of space. Simon last week said that its first-quarter earnings rose 34 percent as revenue jumped the most in 5 1/2 years.