Ken Heebner, our Investment Guru of Year 2007 has been busy lately. GuruFocus data indicates that he bought 5.5 million shares of Developers Diversified Realty (DDR, Financial), or 4.8% of the Real Estate Investment Trust (REIT) company, through February 6, 2009.
Last month, we reported another Investment Guru, Bill Ackman built a 24.1% stake in another mall owner and operator, General Growth Properties (GGP, Financial) through January 9, 2009. The stake included 22.9 million common shares and approximately 52 million Common Shares under certain cash-settled total return swaps (âSwapsâ).
The malls owned by GGP and DDR are symbols of American way of living. Among other real estates, GGP operates and owns 200 malls in 45 states and DDR owns and operates 724 retail centers. Riding the national real estate boom earlier in this decade, both company enjoyed phenomenal growth during the between 2000 and 2007: GGP stock grew from $10 in January, 2000 to $65 in February 2007, and DDR from $13 to $67.
Their fortunes have turned sour since then. Stocks of both companies have fallen far below their highs. On February 10, 2009, GGP closed at $0.73, lost 99% from its high; and DDR closed at 4.03, 94% off its high. Investors are concerned with the possibility for them to file for bankruptcy.
The current economic crisis is squeezing the mall owners from two directions:
On one hand, the mall ownersâ tenants, the retailers are having a tough time of their own, some of them have already filed bankruptcy protection. Some of the high profiles include: Circuit City, Linens âN Things, Mervynâs. Even the ones are not doing so poorly are closing some of their no-performing stores, such as Home Depot, leaving space-for âlease to the mall owners to carry.
On the other hand, the lenders to the mall owners are not renewing their loans, as they did routinely in the past. GGP found itself in an acute fire-fighting situation, according to AP on February 2, 2009:
DDR, on the other hand, appear to be in somewhat better position. On February 9, it provided an update on asset sales and capital markets activities:
Despite of the dire outlook of GGP, Bill Ackman is taking a different view. In a presentation that he presented to his investors on January 21, 2009, he stated that despite liquidity issues, GGP is solvent because asset values substantially greater than liabilities and the company is generating ample cash flow coverage of interest. Even if bankruptcy happens, it could be a viable tool to restore equity value, according to the investment Guru. At current price, he thinks there are enormous upside potential.
As a side move, Bill Ackman also bought into GGPâs subsidiary bonds. These bonds are âboth a hedge and an independently attractive investmentâ
How will the latest investments of these two Gurus play out? GuruFocus will follow the stories for you in the future. In the mean time, check out the other Real Time Buys with gurufocus.com by signing up for a free trial of premium membership.
Last month, we reported another Investment Guru, Bill Ackman built a 24.1% stake in another mall owner and operator, General Growth Properties (GGP, Financial) through January 9, 2009. The stake included 22.9 million common shares and approximately 52 million Common Shares under certain cash-settled total return swaps (âSwapsâ).
The malls owned by GGP and DDR are symbols of American way of living. Among other real estates, GGP operates and owns 200 malls in 45 states and DDR owns and operates 724 retail centers. Riding the national real estate boom earlier in this decade, both company enjoyed phenomenal growth during the between 2000 and 2007: GGP stock grew from $10 in January, 2000 to $65 in February 2007, and DDR from $13 to $67.
Their fortunes have turned sour since then. Stocks of both companies have fallen far below their highs. On February 10, 2009, GGP closed at $0.73, lost 99% from its high; and DDR closed at 4.03, 94% off its high. Investors are concerned with the possibility for them to file for bankruptcy.
The current economic crisis is squeezing the mall owners from two directions:
On one hand, the mall ownersâ tenants, the retailers are having a tough time of their own, some of them have already filed bankruptcy protection. Some of the high profiles include: Circuit City, Linens âN Things, Mervynâs. Even the ones are not doing so poorly are closing some of their no-performing stores, such as Home Depot, leaving space-for âlease to the mall owners to carry.
On the other hand, the lenders to the mall owners are not renewing their loans, as they did routinely in the past. GGP found itself in an acute fire-fighting situation, according to AP on February 2, 2009:
The company announced the agreement Friday night as a deadline on the loans was expiring. The new deadline is March 15.The loan totals were not disclosed in an announcement sent late Friday. The Wall Street Journal, citing people familiar with the talks, said they were for more than $4 billion.
Deutsche Bank analyst Lou Taylor wrote in a research note Monday that lenders "are simply giving themselves time to assess the situation," and noted that negotiations are likely to continue until mid-March, when $395 million in General Growth's debt comes due.
"We think there are an infinite number of outcomes ranging from a repayment of bonds at a discount, to a default, to a bankruptcy filing," Taylor wrote. "Any outcome is possible at this point."
General Growth also has another $900 million in loans that have been extended until Feb. 12. Those loans may be extended further, Taylor wrote.
DDR, on the other hand, appear to be in somewhat better position. On February 9, it provided an update on asset sales and capital markets activities:
Asset Sales: The Company is also pleased to announce the closing of the sale of Ormond Town Square in Ormond Beach, FL on January 15, 2009. The sale generated $22 million of net proceeds before closing costs to the Company. Today, the Company has over $100 million of assets under contract or subject to letter of intent for sale.
Capital Markets Activities: The Company repaid in full the outstanding balance of its senior unsecured notes which matured on January 30, 2009. The Company's next senior unsecured debt maturity does not occur until May of 2010.
Despite of the dire outlook of GGP, Bill Ackman is taking a different view. In a presentation that he presented to his investors on January 21, 2009, he stated that despite liquidity issues, GGP is solvent because asset values substantially greater than liabilities and the company is generating ample cash flow coverage of interest. Even if bankruptcy happens, it could be a viable tool to restore equity value, according to the investment Guru. At current price, he thinks there are enormous upside potential.
As a side move, Bill Ackman also bought into GGPâs subsidiary bonds. These bonds are âboth a hedge and an independently attractive investmentâ
How will the latest investments of these two Gurus play out? GuruFocus will follow the stories for you in the future. In the mean time, check out the other Real Time Buys with gurufocus.com by signing up for a free trial of premium membership.
