“Most of the time, insolvent companies go bankrupt. It’s rare for a solvent company to go bankrupt. This is a solvent company with a liquidity problem. I don’t see a scenario in which the company can reorganize outside of bankruptcy. So I expect it to file imminently, you know, the next few days unless they get some kind of extension, but certainly sometime this year.”Ominously, Ackman warned that a GGP liquidation would be a "disaster for the entire REIT market." Ackman's thesis that there is implicit equity value in GGP may be flawed if the rate of defaults of retail tenants continues to grow exponentially, implying a liquidation may be in the works despite his wishes. Ackman, who had previously been on the dot in his evaluation of bloated financial companies (MBIA, ALD), has been surprisingly wrong when evaluating investments that have a real-estate component to them, Target being the most recent notable. For the sake of all GGP stakeholders, he better be right in his assessment of General Growth Properties. Sphere: Related Content
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5 comments:
Isn't Einhorn the scourge of Allied Capital, not Ackman?
aren't the two interchangeable?
GGP Receives Lender Consent to Extend Forbearance
http://www.earthtimes.org/articles/show/general-growth-announces-receipt-of,751527.shtml
Actually this PR indicates they only got the secured lenders' consent which was never the issue. Only 41.6% of the gating, 3.625% bondholders have tendered. The bondholder consent is merely extended through Friday 5pm. The Ad Hoc were on board from the beggining... the question is can they get another 50% in Rouse bonds in. As you can see the 2009 vs 2012/13 disparity is huge as I discussed previously and it will be an uphill battle
There are of course many other very fundamental grass root type GGP issues and those that have generally remained off the radar. A few stakes in the ground: Bad debt of rent receivables has gone through the roof in 2009 and beyond any expectations. These reserves and or budgets set in the fall of 2008 have already been exhausted and within the first 90 days into 2009. The leasing of retail stores in over 85% of their existing mall portfolio has gone extremely poorly as national chain tenants (GAP, Abercrombie, Limited, etc) who control over 85% of GGP’s mall space, have started negotiations to globally reduce, downsize, and merge their formats into a single store operation and having their current rents reduced. (especially in B & C malls and of which GGP has the brunt (80%) of their properties) All in order for their store portfolio to survive in a economic crises that no one really knows what lies ahead in the totally dense fog of time. Moreover expected and 2009 forecasted tenant store lease renewals, expansions, renovations and new deals are also in deep trouble and down by as much as 90%, as leasing agents have been besieged with wanted concessions, portfolio wide lease restructurings and the introduction of co-tenancy clauses in even existing leases giving the national chains an ‘easy-out’ with no GGP recourse should the economy further falter. Store bankruptcies have also exceeded everyone’s worst fears. Without doubt mall occupancy rates will fall significantly in 2009 and probably by as much as 15% or more. GGP will of course try to buffer this by reporting store occupancy which includes temporary tenants, (leases that are 1-year in length) but we all know that those leases are not financeable or AAA or of real value. Also a much lesser known GGP disease has been the quality of their senior management people (Asset Managers) and especially in the field. Many with no exemplary shopping center backgrounds, experience and pedigrees. The Rouse acquisition for example added even more flames to the fire as the remaining senior and critical executives in Columbia were left-over’s from the former Rouse regime and who were unable to find jobs prior to the GGP arrival. While the ‘cream of the crop’ found other positions long before the takeover as this was known about 6-8 months before the deal and the due-diligence was closed. Thus even more bloating the ranks of GGP mall management with very marginal executive talent. Even if some of the financing and loan extensions and all the rest can be worked worked-out, the other real problem is the quality of management and what ultimately will drive the dollars. GGP will need a major change and upgrading and getting new blood introduced into its current rank and file. With all the money in the world this is not an easy problem to fix. Enough said.
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