IBJNews

General Growth's refinancing plan could thwart Simon

Back to TopCommentsE-mailPrintBookmark and Share

General Growth Properties Inc., the nation's second-largest shopping mall operator, said Wednesday that lenders have agreed to restructure about $9.7 billion in debt under a plan that will allow 92 of its properties to emerge from bankruptcy protection by the end of the year.

The agreements could put a damper on the acquisition aspirations of rival Simon Property Group Inc. Indianapolis-based Simon, the largest U.S. mall operator, hired a financial adviser and a law firm in mid-November to help it explore making a bid for some or all of the assets of General Growth.

Chicago-based General Growth, however, said Wednesday it will pay off loans that cover regional shopping centers, offices, community centers and related subsidiaries. The plan will allow the real estate investment trust to retain ownership of key properties, including the Ala Moana Center in Honolulu and the Harborplace & The Gallery in Baltimore.

“I would not be surprised to see the odd sale of an asset, but it won’t be to raise substantial capital,” General Growth President and Chief Operating Officer Thomas Nolan told Bloomberg News. “We have no current plans to sell any of those assets we consider to be strategically important.”

Simon hired merger adviser Lazard Ltd. and Wachtell Lipton Rosen & Katz, a law firm focusing on acquisitions, to help it form a strategy regarding General Growth. It also has been building cash reserves to help pay for any acquisitions.

“We’re flattered by the interest in General Growth expressed by a whole host of investors, including Simon,” Nolan told Bloomberg. “We’re very focused on the immediate task at hand, which is to get the company recapitalized, restructured, and emerge from bankruptcy as one of the premier owners of regional shopping centers in the U.S.”

General Growth expanded aggressively during the real estate boom, amassing $27 billion in debt. As the real estate market imploded and financing dried up, General Growth was unable to refinance its short-term loans and, in April, became the largest U.S. real estate company to file for bankruptcy.

Greg Cross, an attorney representing the largest block of secured General Growth creditors, said lenders extended the length of their loans in exchange for full repayment, plus interest and bankruptcy costs. The lenders also will get increased oversight of the loans and General Growth's financial reserves.

The plan will go before the Bankruptcy Court of the Southern District of New York on Dec. 15.

General Growth's reorganization plan comes at one of the most challenging times in commercial real estate history. The national vacancy rate for retail space, for example, is more than 10 percent, up from about 8 percent last year, according to Reis Inc., a real estate data tracker.

At the same time, landlords have had to cut deals to keep struggling tenants, driving rents down almost 2 percent, to $19.22 per square foot, and Reis economist Ryan Severino doesn't expect conditions to improve for the next two years.

And while General Growth has been mired in bankruptcy, its rivals took advantage of thawing equity and debt markets to raise cash. REITs raised about $20 billion this year, after the capital markets virtually shut down in 2008.

"REITs have demonstrated the ability to access capital," said Richard Anderson, an analyst at BMO Capital Markets, "and put to rest any conversation of their survivability."

Simon this year conserved cash by paying most of its dividend in stock. At the same time, it’s used its clout to launch a capital-raising spree, rolling out stock and debt offerings at a time many real estate companies are begging for money.

The result: Simon now has $6 billion in “dry powder” it can use for acquisitions, according to a report by J.P. Morgan.

Simon executives have said malls owned by General Growth, which filed for bankruptcy protection in April, would be a good fit, according to Bloomberg.

“We’re a logical buyer,” Chairman and CEO David Simon said in a Sept. 15 interview on Bloomberg Television. “There’s a lot we could do with those properties.”

General Growth’s new financing agreements don’t rule out an acquisition of the company, said James Sullivan, an analyst with Newport Beach, Calif.-based Green Street.

It “doesn’t ensure anything, but it is an important step,” Sullivan told Bloomberg.

The plan pressures other secured-debt holders to reach an agreement with General Growth, he said, but doesn’t take care of unsecured debt holders.

“They don’t have the cash to pay off the unsecured debt in full,” Sullivan said. “Someone else might — Simon or Westfield Group. That’s what makes a bid for the whole company so intriguing.”

General Growth listed $29.5 billion in assets and about $27.3 billion of debts in its Chapter 11 filing. Its debts are tied to securities, which were purchased by investors. On Wednesday, Fitch Ratings said it doesn't expect the securities' ratings to be affected by the plan.

General Growth owns or has stakes in more than 200 regional malls in 44 states. Simon owns or has stakes in more 387 properties worldwide.
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Those of you yelling to deport them all should at least understand that the law allows minors (if not from a bordering country) to argue for asylum. If you don't like the law, you can petition Congress to change it. But you can't blindly scream that they all need to be deported now, unless you want your government to just decide which laws to follow and which to ignore.

  2. 52,000 children in a country with a population of nearly 300 million is decimal dust or a nano-amount of people that can be easily absorbed. In addition, the flow of children from central American countries is decreasing. BL - the country can easily absorb these children while at the same time trying to discourage more children from coming. There is tension between economic concerns and the values of Judeo-Christian believers. But, I cannot see how the economic argument can stand up against the values of the believers, which most people in this country espouse (but perhaps don't practice). The Governor, who is an alleged religious man and a family man, seems to favor the economic argument; I do not see how his position is tenable under the circumstances. Yes, this is a complicated situation made worse by politics but....these are helpless children without parents and many want to simply "ship" them back to who knows where. Where are our Hoosier hearts? I thought the term Hoosier was synonymous with hospitable.

  3. Illegal aliens. Not undocumented workers (too young anyway). I note that this article never uses the word illegal and calls them immigrants. Being married to a naturalized citizen, these people are criminals and need to be deported as soon as humanly possible. The border needs to be closed NOW.

  4. Send them back NOW.

  5. deport now

ADVERTISEMENT