|This company has recently filed for protection under Chapter 11 of the U.S. Bankruptcy Code.|
General Growth Properties is the 2nd largest Real Estate Investment Trust ("REIT") in the United States by revenue. GGP's primary business is managing shopping malls, and it owns properties in 44 states. As of 12/31/08, GGP has ownership interest in, or management responsibility for, over 200 regional shopping malls in 44 states, as well as ownership in master planned communities and commercial office buildings. GGP's properties are usually major shopping centers with at least one large "anchor" department store to draw customers and attract additional tenants. Mall tenants rent store space and pay rent to GGP; these rental fees, along with management fees received from third party owners who manage the malls themselves, are the source of GGP's revenues.
General Growth Properties is larger than most of its competitors, excluding Simon Property Group. It is one of the few retail REITs to own international assets, with projects underway in Brazil, Costa Rica, and Turkey as of December 31, 2007. Within the US it also has a more diversified geographic scope than many of its competitors, operating in 44 of the 50 states. As of February 20, 2009, the company had approximately 3,500 employees. 
This diversity did not save the firm from the volatile U.S. Housing Market in 2007, which led to approximately $130M in asset writedowns for the company. As discussed below, GGP owns approximately 18,000 acres of land in preplanned residential communities that it holds for sale to residents and developers. Because of the recent drop in home prices, GGP was forced to write down the value of that land. A large debt balance, one of the largest in the industry and a source of risk for the company, is forcing GGP to focus on developing its existing properties rather than aggressively expanding earnings through acquisitions. The company is exposed to shifts in national economic conditions, and a macroeconomic downturn hurts GGP's Mall business by lowering its tenants' revenues, decreasing demand for its properties and perhaps causing some tenants to become insolvent.
During 2008, the global economy entered into a significant downturn. For the domestic retail market, the recession resulted in sales declines, reduced margins and cash flows and, bankruptcies for some tenants. Consequently, revenue and occupancy declines have occurred on GGP's properties, as a function of terminations, reduced demand for rental space, and reductions in rents that can be charged and collected. Additionally, the commercial lending market has came to a standstill. Accordingly, GGP has been unable to refinance or repay a number of their existing loans which had scheduled 2008 maturities, triggering certain cross-default provisions on certain other financing arrangements. To temporarily forestall foreclosure or bankruptcy proceedings, they have entered into a number of short-term extension and forbearance agreements with various lender groups. Such agreements have imposed lender operational oversight on their operations and, with respect to certain properties, have resulted in lender control of operational cash receipts. Reduced cash flows, increased borrowing costs and the suspension of their common stock dividend have raised liquidity concerns in the equity markets such that their stock price as of December 31, 2008 has declined by almost 97% since December 31, 2007.
On April 16, 2009, General Growth Properties, Inc., filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. General Growth will continue to manage their properties and operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.  Currently, General Growth Properties trades in the OTC with the ticker symbol: GGWPQ.
On April 15, 2009, General Growth obtained a commitment letter from Williams Ackman's Pershing Square Capital Management, L.P., as agent, to provide GGP with bankruptcy financing, referred to as a DIP Credit Agreement. In connection with the Commitment Letter, the Company paid Pershing a fee of $15 million.
The DIP Credit Agreement provides for a term loan in the aggregate amount of $375 million, which will be used to refinance certain pre-petition secured indebtedness and will be available to fund GGP's working capital requirements. The DIP Credit Agreement provides that principal outstanding on the DIP Term Loan will bear interest at an annual rate equal to LIBOR plus 12%. This is subject to a minimum LIBOR floor of 3%.
The DIP Credit Agreement further provides that upon the effective date of a plan of reorganization for GGP, the company will issue warrants to Pershing and its designees to acquire for a nominal exercise price:
In connection with a plan of reorganization, if GGP offers to sell any newly issued equity securities, they will be obligated to offer to sell to Pershing and its designees up to an aggregate of 4.9% of such equity securities (on a fully-diluted basis) on the same terms. 
GGP's primary source of revenue is the 200 malls that the company owns and manages. GGP's operating structure has been to purchase under-performing mall assets, financing the acquisitions with floating rate debt. GGP purchases an under-performing property using primarily floating rate debt. It then renovates the property, and then refinances, paying off the floating rate debt with less volatile fixed rate debt. This strategy, while lucrative, has led GGP to accumulate a large debt balance and now it is attempting to shift its focus away from acquisitions and to development.
The company's Master Planned Community Segment is involved in residential real estate, and has developed communities in three states, including Summerlin in Nevada, The Woodlands and Bridgeland in Texas, and Columbia in Maryland. The company builds residential developments, then sells the land to developers for residential and commercial uses. As of December 31st 2007 it had held approximately 18,000 acres available for sale in 5 residential communities in Maryland, Nevada and Texas.
In July of 2007 GGP acquired the remaining ownership stake in 23 properties co-owned by GGP and the New York State Retirement Fund. Prior to this transaction GGP had owned a 50% stake in these properties, with the NYSRF an institutional partner. The transaction left GGP with 100% ownership in 20 of the 23 regional malls in the portfolio, and was completed at a cost of $2.24B ($1.2B in cash and $1.04B in the assumption of debt). This acquisition is one of the primary reasons revenues increased in 2007.
From 2006 to 2007 revenues and income changed primarily due to:
Though revenues have been steadily increasing, operating income as a percentage of revenues has been falling. This suggests that as the company grows it is not realizing economies of scale and is actually suffering from higher incremental costs.
The graph of Net Income on FFO is also telling. Funds From Operations (FFO) is a measure commonly used in the real estate industry, and it is a company's net income, excluding any gain on real estate sold during the period and excluding any depreciation/amortization. It measures a company’s funds produced that are available for reinvestment or distribution to shareholders. FFO continued to rise as the company expanded, but until 2007 the company's net income continued to fall due to greater depreciation costs from that expansion. This increase in depreciation caused net income as a percentage of FFO to fall below 5% in 2006. Though net income shot up in 2007 this was the result of a one time tax benefit due to internal restructuring, not any change in the fundamental operating characteristics of the company.
GGP competes with numerous other firms to both acquire properties and lease tenants. Competing REITs include:
The table below provides competitive data comparing GGP with some of its close competitors.
|Company||Revenues (12/31/2007, Millions)||Market Cap(Billions, 04/17/08)||Operating Properties||Number of States With Operating Properties|
|General Growth Properties (GGP)||3261.80 ||9.92 ||200 ||45 |
|Simon Property Group (SPG)||3650.80 ||22.75 ||320 ||41 |
|Macerich Company (MAC)||896.37 ||5.35 ||94 ||19 |
|Taubman Centers (TCO)||626.82 ||2.96 ||23 ||10 |
|CBL & Associates Properties (CBL)||1040.63 ||1.62 ||159 ||27 |
The nature of competition varies from property to property in each segment. The principal factors that retailers consider in making their leasing decision include:
Market share is listed by FFO. Globally there were 38 REITs focusing on retail properties. Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000. Among all retail REITs GGP's market share is about 11%.
According the SEC Filing, hedge fund manager William Ackman's Pershing Square Capital Management LP disclosed that it owns a 7.5% stake or 20,080,690 common shares in General Growth Properties. Pershing Square also has an additional economic exposure to approximately 48,500,000 common shares under certain cash-settled total return swaps ("swaps"), bringing their total aggregate economic exposure to 68,580,690 common shares, which amounts to approximately 25.6% of the outstanding shares.