General Growth Properties (GGWPQ.PK)

coldnose's pick

There are some excellent upthump pitches recently on General Growth Properties from some of my most respected fellow "fools". I do agree that General Growth's debt refinancing, lower interest rates, and prospects after coming out of BK protection are very good, but I believe the core issue of General Growth is still prevelant and actual earnings/dividend potential very small for the next several years. True, Mr. Market gets overly excited on comebacks, and especially excited on stocks that are well below their five year lows. There seems to be a lot of misconception that you can value a company by past performance. In many cases, in a stable market and a stable company you can get a good feel for future performance, but one that specializes in Mall operations and planned communties in a recession? The over capacity from chains going bankrupt will continue. That lenders are extending debt repayment shows some confidence in General Growth, but then again, what else can lenders do? Do they want to be a mall owner of an empty mall? General Growth did keep their growth expansions isolated from each other and the mountain of debt is clearly divisible across the individual parts. The current economy, however, still has General Growth with substantial quarterly losses. Even after cutting a half billion in dividends, the road is still rocky. Yes, General Growth is not a Bankruptcy candidate. Yes it was grown relatively smartly, but the mounds of debt bite them. Long term potential is for slow growth and at $6.30 per share, increased restrictions placed on them by lenders, and an unlikely return of a dividend anytime soon, General Growth may be a long term play, but barring continued speculation by Mr. Market, there is little left to wring out of this one.

will exit bankruptcy.

Bill Ackman.

HT BB, AllStarPortfolio

equity will likely need to be diluted, wiped out.

General Growth Properties Inc. (GGWPQ.PK) resides under bankruptcy protection. To grasp its potential, it’s beneficial to look into its history as to how it ended up in its current bankruptcy status. Brothers Martin and Matthew Bucksbaum started with a Marshalltown Iowa family grocery store, and borrowed $1,200,000 in 1954 (when a dollar was worth something) to build a shopping center in Cedar Rapids, Iowa. From that model, the brothers built shopping centers throughout the Midwest, went public in 1993, moved its headquarters from Des Moines to Chicago, and began an acquisition spree of upscale shopping malls, including the purchase of Rouse Co, the owner of 30 malls that included Chicago’s Water Tower Place. In the last decade, the company had grown to become the nation's second-largest shopping mall company, with more than 200 centers, but with those properties the company was saddled with $27 billion of debt. Each property is held in a special purpose subsidiary and is financed in large part by debt financing that is collateralized by a mortgage on the property. Lenders often will take a pool of mortgaged backed loans, bundle them together into commercial mortgage backed securities (CMBS), and sell those securities into the markets.

As credit markets began drying up in 2007 and real estate properties have been losing their value, the company filed for bankruptcy in April 2009 to obtain protection from its creditors. U.S. Department of Treasury rules governing the CMBS market historically have prohibited the restructuring of CMBS loans unless the borrower is in payment default of its loan. So a “performing” loan that has an out-of-date interest rate or repayment schedule could not be modified until the loan would become “nonperforming.” In a first round of relief to the CMBS market, the Treasury has released new tax rules to allow modifications of loans even if the collateral is currently generating cash that meets a loans minimum payment requirements. Details are available in this WSJ article: http://online.wsj.com/article/SB125306317643414339.html

The company lobbied for these new rules and, now that they are implemented, it is in prime position to take advantage of them by restructuring the loans on its many properties. Modifying the CMBS loans will allow the company to take advantage of lower interest rates and to extend the loan maturities over the extended life of the properties. As these changes are negotiated and applied to the portfolio of properties, I expect several positive results: (1) nonperforming loans and loans that are barely performing will become fully performing, thus taking a special purpose subsidiary owning the now-performing property off of creditwatch; (2) with lower rates and extended maturities, less of the properties current cash flow will be needed to service current maturities of long-term debt, thereby freeing up cash to make needed improvements on the properties and to distribute cash to the parent company; (3) the thawing of the old rules will bring the commercial property credit markets to resume lending, which should ease the gridlock over real property transactions currently experienced in almost all major markets; and (4) the culmination, as least from the viewpoint of the company, will be its emergence from bankruptcy protection. Through October 2009, the bankruptcy judge ruling on the parallel bankruptcies of GGWPQ and its many special purpose subsidiaries has consistently rejected various motions and requests put forth by secured creditors who are attempting to unwind the bankruptcies of the subsidiaries.

Now that is quite a bit of work to be tackled before the sun is fully shining on the commercial real estate market again. And it may take several years before all of the effects are realized, but the seeds are there. GGWPQ might not ever reclaim its glory days of trading above $70 per share, but in my opinion, the potential problems, risks of bankruptcy, and assumptions of a full-blown economic downturn all seem to be fully baked into the existing stock price.

My original pitch was shared here: http://caps.fool.com/Pitch/GGWPQ.PK/4263464/on-september-16-2009-at-214-am.aspx Due to limitations on that account the position there was closed out. Now I am substantially repeating the original pitch to keep it up for sharing and discussion.

The risk of inflation is simply too great, once rates start going up its going to be a race to get this company out of bankruptcy -- fully intact, without the lion's share of value going to debt holders.

BRAVOBEVO'S pitch

bravobevo

They have made a significant gain from the March lows and appear on the surface to be improving their business. Their margin of error still remains small, with either a W recovery and/or a sudden sustained interest rate increase triggering a return to bankruptcy. This stock is best left to the day traders.

Situation eerily similar to Alexander's, Uhaul (Amerco)....A post-bankruptcy cap rate of 7%-7.5% is looking more and more likely as even Goldman indicated at their latest real estate conference. This would imply a share price several times today's already sharply higher price (from a few months ago) of up to $25 per share. I can't wait....Can we say, "grand slam?"

The rationale is well known, almost a mantra, assets greater than liabilities, cash flow adequate to service debt and pay dividend company victim of credit crunch, reorg in bankruptcy court progressing, several favorable ruling from the court, Bill Ackman on the board, and on board -- and as far as I can see all valid. So I back it to $9.00 by the end of 2010. Believe that extremely conservative.
Disclosure: I am long here.

I pick stocks that are rising and immediatly they turn around on me.

General Growth's bankruptcy was due to the once in a lifetime unprecedented chaos and disruption within the credit markets coinciding with the maturity of a substantial amount of debt.
The fundamentals of the business has actually remained every bit as healthy as cult favorite SPG. If you look at NOI over the past year – you will find that it is performing better than expected.
GGWPQ.PK's asset value far exceeds their liabilities.

The long term earnings power is still greatly intact.

Shares are trading at a fraction of the liquidation value.

Ackman (imo) is dead on with his assessments of what current shareholders will be left with out of bankruptcy.

I find it extremely unlikely that the court would wipe out shareholders – It simply wouldn’t make a single bit of sense.

This isn’t a situation of the debt holders owning the entire company – though they will own a large portion of it in all likelihood.

The good news is that there will be plenty to pass around.

The company is highly cash flow positive:

Operating Cash Flow (ttm):577.01M

Levered Free Cash Flow (ttm):831.18M

Market Cap (intraday):740.49M

Even bearish assessments such as the following come up with valuations = current share price

http://seekingalpha.com/article/142180-ackman-s-pershing-square-misleads-about-general-growth-propert
ies-equity-value
exert:
After dilution, the equity looks pretty close to fair value to us.

That article attempts to dismantle Ackmans presentation – linked below

http://www.docstoc.com/docs/6591134/pershing-square-general-growth-ira-sohn

IMO the upside is large and the downside is next to nil.
There is potential for the equity to increase several hundred percent - while imo worst case scenario for long term investors is very small.

I would not put alot of money into this idea - but as a speculative position - there is plenty of merit to leg into a position.

I am long this stock - approx a 3% position at my 1.30 average cost

going bankrupt.

Here we go again!

Just collecting points until bankrupcy

Bankrupted REIT