Where is the value?
General Growth is a U.S. based, publicly traded Real Estate Investment Trust. The Company currently has an ownership interest in or management responsibility for a portfolio of more than 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol “GGP”. For more information, visit the Company Web site at www.ggp.com.
GGP carries it's real state holding at cost and according to its 2007 annual report, the total is $28 billion. If we take the 200 million sq. feet of retail space they have, the cost basis is $140 a sq. foot.
Now, let's look at the MIT Transaction based cost index for the 2008 year. This matters because it takes into account what sold for what, not an estimated value.
Retail Current Cost
Using the $195 a sq. foot price from MIT, we get a real estate value for GGP of $39 billion. GGP has a current market cap of $115 million meaning it sells for .3% of its real estate value, that is point 3% not 3%. With $27 billion of debt outstanding and due in 4 years, if we subtract that from the current property value there is still $12 billion or $36 a share of value left in the properties (based on 331 million shares outstanding as of last 8K). Now, of course the actual amount will vary depending on what properties are sold where but we have a good indication by using national numbers because GGP does have holdings nationally.
To further boost a valuation, we can look at the age of the properties. Starting on F-61 of the above linked annual report we see that only $3 billion of the $28 billion total has been acquired since 2007. These properties one could argue were purchased at inflated prices and perhaps worth only equal too or slightly below carrying cost. The majority of the properties are 2002 and earlier giving a large boost to the "carry coast being far less than market value" theory.
Perhaps this is whyBill Ackman has taken a stake in 25% of the company.
On Feb. 12th GGP said:
On February 13, 2009, General Growth Properties, Inc. (the “Company”) and certain of its subsidiaries, including Oakwood Shopping Center Limited Partnership (collectively with the Company, the “Company Parties”), Citicorp North America, Inc., as a lender and as administrative agent for the other lenders party thereto, and certain additional lenders (collectively, the “Lenders”), entered into a First Amendment to Loan Agreement (the “Amendment”) which amended the Loan Agreement dated as of January 30, 2006 by and among the Company Parties and the Lenders for the mortgage loan secured by the Company’s Oakwood Shopping Center located in Gretna Louisiana (the “Loan”). Pursuant and subject to the terms of the Amendment, the maturity date of the Loan was extended to March 16, 2009. The Loan’s original maturity date of February 9, 2009 had previously been extended pursuant to agreements between the Company Parties and the Lenders.
The Company is currently in default under certain of its loans. As previously announced, the Company has entered into forbearance agreements with certain of its lenders pursuant to which such lenders have agreed to forbear from exercising certain of their default related rights and remedies under such loans. However, the forbearance agreements related to mortgage loans secured by the Company’s Fashion Show and Palazzo shopping centers located in Las Vegas, Nevada expired on February 12, 2009. The expiration of these forbearance agreements permitted the lenders under the Company’s 2006 Credit Facility and 2008 secured portfolio facility to terminate the previously announced forbearance agreements related to these loan facilities. However, the Company has not received notice of any such termination, as required by the terms of such forbearance agreements. In addition, the Company has also been unable to enter into or extend forbearance or similar agreements for its other mature secured mortgage loans, and there can be no assurance that it will be able to do so. The Company continues to work with its lenders with respect to loans under which it is in default or may be in default in the near future.
What does it all mean. Simply, even if GGP were forced into bankruptcy, the actual value of it exceeds the debt meaning there is still large value for shareholders. At $.43 cents a share, the upside is stunning and the downside is limited to your investment, $.43 cents.
What will the lenders do? Think about it. Do the lenders really want to start writing down commercial real estate loans for one of the largest property owners in the US by forcing it into bankruptcy? No. Why? In our "mark to market" world we now live in, this would mean that debt on other strapped REIT's would then have to be "marked down" also causing more billion dollar losses for banks. Not good.
This is the reason for the various debt extensions for GGP.
Earnings come out today after being delayed for two weeks. One has to expect some news to accompany them. I am buying shares ahead of it
Disclosure ("none" means no position):Long GGP