Professional Documents
Culture Documents
The analysis and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square")
regarding General Growth Properties, Inc. and its affiliates (collectively, “GGP” or the “Company”)
are based on publicly available information. Pershing Square recognizes that there may be
confidential or otherwise non-public information in the possession of the Company that could lead
the Company to disagree with Pershing Square’s conclusions.
The analyses provided include certain estimates and projections prepared with respect to, among
other things, the historical and anticipated operating performance of the Company. Such
statements, estimates, and projections reflect various assumptions by Pershing Square concerning
anticipated results that are inherently subject to significant economic, competitive, and other
uncertainties and contingencies and have been included solely for illustrative purposes. No
representations, express or implied, are made as to the accuracy or completeness of such
statements, estimates or projections or with respect to any other materials herein. Actual results
may vary materially from the estimates and projected results contained herein.
Pershing Square advises funds that are in the business of trading - buying and selling - public
securities. Pershing Square owns GGP equity, total return swaps, and GGP unsecured debt. It is
possible that there will be developments in the future that cause such funds to change their
positions regarding the Company and possibly increase, reduce, dispose of, or change the form of
their investment in the Company.
1
Agenda
f A Brief History
2
Why Do We Like
GGP?
Ala Moana
What is GGP?
■ Over 200 regional malls ■ Provides management, ■ Develops and sells land
(>160mm sq ft) (1) / leasing and marketing for residential and
outdoor shopping centers services commercial use
■ Over 30 grocery-anchored ■ Over 60% of revenue ■ Land located near
shopping centers derived from third party Maryland / Washington
■ Office properties in Arizona, (non-GGP) malls D.C., Summerlin, NV and
Nevada and near Maryland / ■ Manages many of GGP’s Houston, TX
Washington D.C. JV malls ■ ~18,000 saleable acres
■ 1.3bn mall visits per year
■ >24,000 tenants
■ >3,700 employees (2)
________________________________________________
(1)
Includes anchor GLA and the Company’s pro rata share of JV malls.
(2) >400,000 employees including retail tenants. 4
Diverse Footprint
5
Diverse Tenant Base
GGP has over 24,000 tenants, with its largest tenant accounting for
only 2.7% of revenue as of March 31, 2009
Memo:
Market Cap
$11.8bn
4.0bn
2.4bn
1.8bn
5.0bn
3.0bn
Private
Private
Private
6.0bn
________________________________________________
6
High Quality Assets
Not Included
Other Examples:
f Faneuil Hall Marketplace
f South Street Seaport
f Ward Centers (Honolulu, HI)
________________________________________________
8
Why We Like Malls
6.0%
Apartment
4.0%
Office
Industrial
2.0%
Mall
0.0%
(2.0%)
(4.0%)
(6.0%)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E
________________________________________________ 9
Source: Green Street. Sector data represents weighted average of companies in coverage universe during the period in question.
Long Term Leases
GGP’s business is far less cyclical than that of the retail industry because its
revenues are insulated by long-term leases which are structurally senior claims
11.7%
12.0%
9.9% 10.1% 10.2%
9.7%
10.0% 9.0%
8.8%
8.1% 8.2% 8.4%
8.0%
5.9%
6.0%
4.0%
2.0%
0.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After
________________________________________________
Source: GGP Q1’09 operating supplement. Expiration includes Company’s pro rata share of its unconsolidated segment.
(1) Excludes leases on anchors of 30,000 square feet or more and tenants paying percentage rent in lieu of base minimum rent. Excludes all international operations which combined represent ~1% of segment basis real
estate property NOI. Also excludes community centers. Percentage is weighted based on rent per square foot.
. 10
Embedded Growth
$70
$70.00
$67
$65
$65.00
$62
$60.00
Average:
$56 $56 $56
$55.00 $53
$50.00
$48
Embedded
$45.00
Growth
$41
Opportunity
$40.00
$37
$35.00
$30.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After
________________________________________________
Source: GGP Q1’09 operating supplement. Expirations include company’s pro rata share of its unconsolidated segment.
(1) Data includes significant proportion of short-term leases on inline spaces that are leased for one year. Rents and recoverable common area costs related to these short-term leases are typically much lower than those
related to long-term leases. Any inferences the reader may draw regarding future rent spreads should be made in light of this difference between shrort- and long-term leases.
. 11
Inflation-Protected
________________________________________________
Source: Q1’09 operating supplement.
12
Why Do We Like GGP?
High Quality
Assets
Diversified
Geographical Footprint
Inflation-Protected High Quality
Stable Cash Flows
Business
Diverse
Tenant Mix
Embedded
Growth Opportunity
13
A Brief History
$10
$0
1954 1960 1993 1995 1997 1999 2001 2003 2005 2007
15
The Fall of GGP: 2008 – Current
March 28, 2008:
GGP raises $822mm in a stock
offering priced at $36 per share,
implying a market cap of ~$12bn.
$50 ~$100mm is purchased by an
affiliate of the Bucksbaum family
$30
16
The Problem
Over the past decade, GGP was a significant issuer of CMBS with
~$15bn of CMBS debt. In mid-2008, the CMBS market shut down
$150
$100 $93
$74 $78
$67
$57
$51
$47
$50
$16
$0
$0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
________________________________________________
________________________________________________
18
Despite the turmoil in the credit
markets, GGP’s operating
performance remains strong
Occupancy as of Q1’09
92.0%
91.2%
90.9% 90.8%
91.0% 90.5%
90.2% 90.1%
90.0%
88.9%
89.0%
88.0%
87.0%
86.0%
85.0%
83.8%
84.0%
83.0%
Glimcher General Growth Simon Property Taubman Macerich Westfield CBL Pennsylvania REIT
Group
________________________________________________
Note: Occupancy is defined as percent of mall shop and freestanding GLA leased.
(1) SPG figures are for regional malls only.
(2) CBL figures are for stabilized regional malls only (excludes new developments and redevelopments). 20
Trailing Twelve Month Cash NOI
As of Q1’09, GGP’s trailing twelve month cash NOI grew 1.4% on a year over
year basis. Adjusting for lease termination income, cash NOI grew 2.4%
TTM Cash NOI ($ in millions)
$2,750
$2,542 $2,554 $2,542 $2,524
$2,489
$2,500 $2,413
$2,328
$2,211 $2,211 $2,255
$2,250
$2,000
$1,750
$1,500
$1,250
$1,000
$750
$500
$250
$0
Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09
Cash NOI
6.6% 4.0% 5.0% 7.2% 9.2% 12.6% 12.7% 9.7% 5.3% 1.4%
Growth (YoY)
$80
September 21, 1993:
Alexanders’ Plan of
$70 Reorganization is
confirmed
$60
$50
$20
May 12, 1992:
Alexanders files a voluntary
$10 petition for bankruptcy
$0
May-92 Jan-93 Oct-93 Jul-94 Apr-95 Dec-95
24
Amerco Bankruptcy
$80
February 2, 2004:
$70 Amerco’s Plan of March 15, 2004:
Reorganization is Amerco emerges
confirmed from bankruptcy
$60
June 20, 2003:
$50 Amerco files a
voluntary petition
for bankruptcy
$40
$30
$20
$10
$0
Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05
25
Why Did Amerco File for Bankruptcy?
Analyst Question: “How can there be any value left for shareholders
under your plan when in almost every bankruptcy stockholders receive
no recovery? Have creditors signed on to your plan for a full
recovery?”
Answer: “Well, quite simply, Amerco has more assets than liabilities.
Real estate appraisals showed the market value of Amerco’s
unencumbered owned real estate is $550 million higher than stated
book value. Two of four major creditor groups have agreed to our plan
and we’re working with the remaining persons to get agreement to our
plan.”
27
Bankruptcy 101
(b) (2) For the purpose of this subsection, the condition that a plan be
fair and equitable with respect to a class includes the following
requirements:
Source: U.S. Bankruptcy Code, Title 11, Chapter 11, Subchapter II. 28
Bankruptcy 101 (Cont’d)
29
GGP Reminds Us of Amerco
Typical
Bankruptcy
Year Founded 1945 1954 N/A
Reason for Filing? Extrinsic Factors Extrinsic Factors
Insolvency
Created Liquidity Crisis Created Liquidity Crisis
Shareholder
What Happened To Equity Holders?
Advocate?
f Shareholders retained 100% of post-reorg equity
f Stock appreciated 456% during bankruptcy;
increased from $4 to $105 trough-to-peak 3 Joe Shoen
f Creditors repaid in full
f Shareholders received warrants in ~30% of the
post-reorg equity 3 Mgmt
f Personal recourse management loans largely forgiven
f Shareholders retained 100% of post-reorg equity
f Stock appreciated 358% in bankruptcy;
increased from $13 to $467 trough-to-peak 3 Steve Roth
f Creditors repaid in full
f To be determined 3 Pershing
Square
________________________________________________
Note: Bankruptcies since 1999 in excess of $1bn as provided by Web BRD (Bankruptcy Research Database).
Post-filing tangible book value used as a proxy for asset value in excess of liabilities. 31
Asbestos liability bankruptcies excluded from the analysis.
Incentives of Various Constituencies in a Typical Bankruptcy
3 Preserves jobs
34
Deleveraging Analysis Assumptions
f All Debt maturities extended seven years at current interest rates
f Cash NOI projections per Green Street Same Store Mall NOI Projections (1)
“Plans that invoke the cram down power often provide for installment payments over
a period of years rather than a single payment. In such circumstances, the amount of
each installment must be calibrated to ensure that, over time, the creditor receives
disbursements whose total present value equals or exceeds that of the allowed
claim.”
– Opinion of Justice Stevens, Till v. SCS Credit Corp
What interest rate must the debtor
pay over time on its obligations to
its creditors in a cram down?
The Till Precedent
In the case of Till v. SCS Credit Corp. (2004), the U.S. Supreme
Court established a precedent upon which to adjust interest rates in
the bankruptcy context:
41
The Logic of Till
“Thus, unlike the coerced loan, presumptive contract rate, and cost of
funds approaches, the formula approach entails a straightforward,
familiar, and objective inquiry, and minimizes the need for potentially
costly additional evidentiary proceedings. Moreover, the resulting
‘prime-plus’ rate of interest depends only on the state of financial
markets, the circumstances of the bankruptcy estate, and the
characteristics of the loan, not on the creditor’s circumstances or its
prior interactions with the debtor. For these reasons, the prime-plus
rate best comports with the purposes of the Bankruptcy Code.”
Since the Supreme Court ruling in 2004, Till has been applied in
numerous bankruptcy proceedings
________________________________________________
43
In re Prussia Associates
The Court ruled that the appropriate mortgage rate should be set at
Prime + 1.5% (7.25%), despite the Creditor’s contention that the
“market rate” was 9.72%
“The prime rate as of today is 5.75%. This rate, therefore, will be the applicable base We note that
rate. The risk premium, per Till, will normally fluctuate between 1% and 3%. The GGP is a
appropriate size of the adjustment, per Till, will depend on factors such as the higher quality,
circumstances of the estate, the nature of the security and the duration and lower risk
feasibility of the reorganization plan. The creditor bears the burden of proof on business than
this issue. In this instance, [the Creditor] has raised certain legitimate questions as to Prussia
the feasibility of the Debtor’s plan; however it has done little to overcome the evidence Associates,
which owns
which indicates both that the Debtor’s operations are improving apace, and that the
one hotel, the
value of Fremont’s collateral is appreciating steadily. The Court thus views the risks Valley Forge
attendant to the proposed loan as neither negligible nor extreme. Based upon this, the Hilton
Court will require the addition of a 1.5% risk premium to the aforesaid prime rate for
the recast [Creditor] loan.”
Opinion of Judge Raslavich
United States Bankruptcy Court, E.D. Pennsylvania
In re Prussia Associates
45 April 5, 2005
What Factors Will the Court Consider in Determining the
Appropriate Risk Adjustment Spread for GGP?
Based on these precedents, we believe the court could confirm a plan at a rate
that is lower than GGP’s current weighted average interest rate
Nature of the
3 Oversecured Prime-plus
3 Equivalent in value to the present value
Security of the creditors’ claim 0.5% Æ 1.0%
Footnote 18:
47
What If GGP’s Debt Were Re-Priced
to Till-Mandated Rates?
Illustrative Deleveraging Analysis: Prime [3.25%] +
0.75% for Secured; Prime + 1.50% for Unsecured
A plan that sets GGP’s secured debt and unsecured debt to Prime + 0.75% and
Prime + 1.50%, respectively, would allow for substantial deleveraging and
further increase the probability of a highly successful reorganization
(US$ in millions, except per unit data) Seven Year Period
2008a 2009e 2010e 2011e 2012e 2013e 2014e 2015e Total
3 GGP is not the exception – many REITs have the same problem
________________________________________________
3 Nearly all REITs and other leveraged real estate owners will
likely suffer the same fate if GGP is forced to liquidate
50
Valuation
Note that ~20% of Simon’s GLA relates to the Mills portfolio. These
properties have lower occupancy and rent per square foot than traditional
regional malls and deserve a lower valuation than typical GGP assets
________________________________________________
________________________________________________
55
Value of GGP REIT
Simon’s cap rate suggests the value of GGP REIT, not including
GGMI and MPC, is somewhere between $9 and $22 per share.
Assuming that (i) GGP’s ‘A’ caliber assets deserve a 7.0% cap rate and
(ii) 75% of GGP’s NOI is derived from ‘A’ assets, GGP’s ‘A’ assets alone
are worth more than its liabilities
________________________________________________
(1) See page 56 for details.
57
Historical Mall Cap Rates
Since 1986, Malls have traded at an average cap rate of 7.6%, and this
average was achieved in much higher long-term interest rate markets
Historical Cap Rate Across Various Property Types
10.0%
9.0%
8.0% Mall
Average:
7.0%
7.6%
6.0% Apartment
Office
Industrial
Mall
5.0%
4.0%
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
________________________________________________ 58
Source: Green Street. Cap rates are weighted by (% NOI from primary property type times market cap). Data from January, 1986 through February, 2009.
Value of GGMI
Plus: Estimated Proceeds from Sale of Bridgeland, net (3) 87 87 This segment generated
Less: Present Value of Deferred Tax Liability (4) - (250) ~$150mm of net cash
Net Value of MPC $87 $2,148 flow in 2005 and
Per Share $0.27 $6.72 ~$190mm in 2006
________________________________________________
Note: Does not reflect impact of Contingent Stock Agreement, which could, in certain circumstances, create meaningful dilution.
(1) Represents management’s valuation of the gross assets as of 12/31/07. Source: page 22 of Q3’08 operating supplement.
(2) Low case trues up 3/31/09 net book value of Bridgeland as a % of management’s 12/31/07 gross value estimate. High case represents Bridgeland net book value as of 3/31/09.
(3) Assumes Bridgeland is divested for $90mm, net of 3% transaction fees.
(4) Pershing Square estimate. The present value of the tax liability will depend on the operating performance of the segment.
60
Hidden Asset Value: Las Vegas
62
Hidden Asset Value: Park West
In 2007, GGP spent $105mm developing its Park West property in Peoria, AZ.
Based on the recent photograph below, we estimate that this property has the
potential to generate substantially more NOI. There are likely other properties
like Park West that are currently under-earning in GGP’s portfolio
63
Hidden Asset Value: Non-Recourse Financing
64
GGP’s Assets are Greater than its Liabilities
65
What’s the Downside?
f No value assigned to hidden 100.0% 22.79 16.21 10.40 5.24 1.19 (3.53) No
________________________________________________
Note: Current implied market cap based on $1.19 stock price as of 5/26/09.
66
Conclusion