General Growth is Progressing on Schedule
It is time for another update on General Growth. What a great day / week GGP has had in the stock market. Today, GGP (GGWPQ.PK on OTC) was as high as $3.35 and closed at $3.12. The reason for the run is the accumulating market knowledge that:
(A) the bankruptcy court (Gropper) is going to allow time and market forces to work out the debt refinancing issues of GGP;
(B) the marketplace for Commercial Real Estate (CRE) continues to improve as does the lending industry to the CRE . Further, it appears TALF funds will be available to resolve troublesome CMBS securitized loans in particular, if needed;
(C) the financial performance of GGP as reported to the SEC on August 4, was very positive for the current market, which many in the press and blogosphere continue to (incorrectly) say is experiencing a consumer boycott. Not according to the financials of GGP;
I will take each subject in order with supporting data and reports. From the Chicago Tribune, today, Wednesday, August 12:
CHICAGO (AP) — Shopping mall operator General Growth Properties Inc. said Tuesday night that a bankruptcy judge has denied a motion by a group of lenders to keep a handful of its subsidiaries out of bankruptcy.
The lenders, led by ING Clarion Capital Loan Services, had argued that some of the company's shopping centers, including the Tucson Mall in Arizona and the Stonestown Mall in San Francisco, were financially stable and did not need to seek Chapter 11 protection.
The creditors claimed General Growth had "swept" the properties into bankruptcy to benefit from their slightly better financial condition.
"We are pleased with the court's decision and we look forward to moving ahead with the restructuring of the company," said Adam Metz, CEO of General Growth Properties, in a statement....
...General Growth owns and manages more than 200 U.S. malls, including Glendale Galleria in Southern California and the South Street Seaport in Manhattan. The company included about 166 properties in the bankruptcy filing.
Another ruling by Judge Gropper in July was even more persuasive in that he declared he postponed any rulings until at least April 2010, to buy time and force the lenders to negotiate. It worked. A few days later, GGP was able to renegotiate its leases on excellent terms.
NEW YORK, Aug 3 (Reuters) - General Growth Properties last week, possibly in a shrewd negotiating tactic, said it may yet pursue a controversial strategy in its bankruptcy that could upset the legal basis for thousands of asset securitizations.
The second-largest U.S. shopping mall owner at a hearing said it was considering ways to treat some of its subsidiaries as a single debtor and override their status as separate companies, according to a transcript of the hearing.
Potential for such a move is raising concern among investors because borrowing against commercial real estate and other assets is tied to the notion that borrowers are isolated from external events at a parent or other units. It is enough to sound alarms over the credibility of billions of dollars in bond agreements, even though a "substantive consolidation" is tough to achieve, analysts said.
"This was a surprising development that was probably saber-rattling on General Growth's part," said Daniel Rubock, a senior vice president at Moody's, who attended the hearing......
...Consolidating the special-purpose entities (SPEs) would hit at the heart of asset securitizations, which helped fund more than $600 billion for office buildings, apartments and shopping malls in 2005 and 2006. The threat comes as Federal Reserve and Treasury officials have focused on restarting lending to commercial properties in a bid to reduce the sector's drag on the U.S. economy.
Addressing concerns at a hearing last week, General Growth attorney Marcia Goldstein affirmed the judge's understanding that consolidation was not in court papers but noted the company needs to assess "inter-relationships" of the debtors.
"And one of the things we're looking at is whether there are some subgroups that should be appropriately substantively consolidated," Goldstein said at the hearing, and confirmed to Reuters on Monday. "We have not reached any conclusions on that at this point."
General Growth may be looking to negotiate a "global settlement" that rewrites all loans to easier terms with its creditors, said Richard Jones, co-chair of Dechert LLP's finance and real estate group.
More good news: In late July, Prudential Insurance filed with the court indicating it will agree to extend financing to GGP on the properties it has liened. This should be the first of many agreements due to the court's obvious direction to encourage the parties to work out their differences:
"Prudential reaffirms that it is ready and willing to take concrete steps to reach understandings with Harbor Place, 1160/1180, and Rivertown Crossing with respect to plan treatment and reiterates that the primary issues to be resolved – extension of maturities and establishment of new market interest rates"
Karl Denninger, another regular contributor on SeekingAlpha.com, also made a post today regarding how the concept of SPE (Special Purpose Entities) which the lenders are trying to use against GGP to break it into pieces by mortgage package, is also being challenged by Judge Gropper through his rulings in the GGP case:
The judge in General Growth Properties Inc.'s bankruptcy case rejected creditors' motions to dismiss several properties from the case, clearing the way for the mall owner to begin talks with its lenders about long-term debt extensions that would eventually allow it to exit bankruptcy court.
In a decision Tuesday, Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan ruled against the arguments of loan servicers ING Capital Loan Services LLC and Helios AMC LLC and lender Metropolitan Life Insurance Co. The three had separately argued that the General Growth malls they financed with mortgages are structured as individual "special purpose entities" that shouldn't be included in a broad corporate bankruptcy filing.
Although General Growth reported last week that its revenue and profits were down, still very notably, there were profits. Not many bankrupt companies are profitable three months into their bankruptcy. Given the very tough consumer retail climate, this news is very encouraging. To provide the highlights:
NEW YORK (Reuters) - General Growth Properties Inc (Other OTC:GGWPQ.PK - News), the large U.S. mall operator that filed for bankruptcy in April, on Tuesday (August 4) reported a 2.1 percent decline in quarterly net operating income from its retail properties, citing weakness in the economy and falling occupancy rates.
Second-quarter net operating income in the "retail and other" segment, measuring cash flow that properties generate, declined to $615.8 million from $629.1 million a year earlier. (but note: still quite positive) The Chicago-based real estate investment trust said a sale of three office buildings in 2008 contributed to the decline.
Overall, quarterly funds from operations (FFO) fell 74 percent from a year earlier to $58.2 million, or 18 cents per share. Core FFO, excluding net operating income from the master planned communities segment and a provision for income taxes, fell 44 percent to $124.6 million, or 39 cents per share.
And finally, to culminate our update, here is the most recent 10Q filing from GGP to the SEC on Monday, August 10:
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Peter Quinn
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