One Last Look at General Growth Properties
All good things must come to an end. In the case of my ownership of General Growth Properties stock (GGP was its ticker before bankruptcy filing), the end is near. Why? Anyone following GGP will already know this, but just in case you don’t, the price per share moved from $4 to $7 in a matter of a couple weeks. This move, and the reasons for it, mean it is now time to part ways with a very good stock pick (originally bought in April at $0.63 / share).
Three good things happened for GGP the past two weeks:
1. GGP released its 3rd Quarter financials on Monday, November 9. They were better than expected. Year over Year (YOY) results were down, naturally, given the near depression we have experienced since Q3 2008. But they were down much less than had been expected by analysts still following the company. Cash Flow (FFO) was actually positive by $671M ($2/share) when $700M of one-time, non-cash expeneses are added back while revenue and operating earnings were down only marginally (less than 5%). The ”comprehensive” earnings were down substantially because of the large non-cash impairment charge to reserve for future unknown expenses attributable to the very weak economy. But all in all, the Q3 report was very encouraging.
2. The second big news event happened early last week (November 17) when Simon Properties (SPG), the other really big mall REIT other than GGP, did a SEC filing that it had retained a law firm (Wachtel, et al) and investment firm Lazard to explore acquiring some or all of GGP’s assets. This creates a market for the malls owned by GGP, which will definitely help its valuation. Part of the problem for GGP and other CRE companies the past 18 months has been an increasingly dreary commercial real esatate market as financing disappeared. Just as with the derivatives market, when buyers disappear, the market value of the assets get marked down dramatically. Now that there is a buyer on the horizon, I expect the GGP Board of Directors to work towards a sale of the properties at a price near the current market value. Bill Ackman and Pershing Square Capital have a large equity stake in GGP and sit on the board. It is Ackman’s job to realize value for his fund investors and will therefore likely work towards an exit strategy. He needs a large buyer to absorb his 23% share and SPG looks like just that buyer.
3. And third, on Thursday this past week, mortgage holders / lenders on (170) of the mall properties that were in bankruptcy, agreed “in principle” to refinance $8.9B of the mortgages for GGP properties by extending maturities. This agreement eliminates the pressure to liquidate those properties which were in technical default when many mortgages came due at a time late last year and earlier this year 2009) when there was no ability to refinance in a frozen credit market.
All these are very positive situations and increased the value of GGP in some ways that are admittedly hard to measure at this point in time. How much are GGP’s assets worth to Simon Properties? Are they willing to pay a fair price based on cash flow (FFO) or do they think they can get a steal based on the depressed CRE market? And how fast does the economy recover?
For the reasons that the stock now seems fully valued with the balance sheet owners equity at $5 per share and a small premium now available due to the brighter future prospects, I have liquidated all my position in GGP as of Monday, November 23. Sure, the stock could even go higher. It was near $60 in early 2007 and could be worth north of $20 if everything goes perfectly from here. But best not to get greedy. It was a very good ride while it lasted.
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