Published 17 April 2009
The second-biggest US-owned mall owner, General Growth Properties Inc, filed for chapter 11 bankruptcy protection on Thursday after warning in February it might have to follow this course.
It also filed for bankruptcy protection for 166 subsidiaries – most of the individual mall-owning companies in the group, including The Rouse Co. and the Howard Hughes Corp. Although the group is based in Chicago, it filed for bankruptcy in the federal bankruptcy court in Manhattan.
General Growth’s year-end balance sheet showed it had total assets of $US29.6 billion at 31 December and total debts of $US27.3 billion. Its share price has fallen from $US40 a year ago to $US1.05 yesterday.
Funds from operations, up 22% to $US1.1 billion in 2007, fell 22% to $US859 million in 2008. Despite hard times, General Growth still paid out 55.1% of diluted funds from operations in dividends in 2008 (with no fourth-quarter payment), up from 49.9% in 2007.
Real estate net operating income was up for the year, from $US2.48 billion in 2007 to $US2.59 billion. Earnings from its masterplanned communities improved from a $US71.5 million loss to a $US11.4 million loss.
Chief financial officer Bernie Freibaum, who had devised the debt-funded expansion programme adopted in 2003, said in April 2008 (he was ousted in October) the reit was looking for buyers of its 200-mall portfolio so it could cut back its debt.
The group has been struggling since it used 100% debt financing to buy out competitor Rouse for $US12 billion in 2004. A high proportion of its debt was in short-term mortgages and major investors have been calling for payments for several months.
Given that position and the current state of the US economy, the statement General Growth chief executive Adam Metz issued overnight looks highly optimistic: “The company intends to work with its constituencies to emerge from bankruptcy as quickly as possible, while executing on a plan of reorganisation that preserves the company’s integrated, national business operations.”
It said all day-to-day operations & business of its shopping centres & other properties would continue as usual – but its masterplanned communities have been making heavy losses, fourth-quarter group earnings were zero and earnings for the year were US10c/share.
In February, the group said it had about $US1.18 billion of overdue debt, about $US4.1 billion of debt that could be accelerated, $US1.44 billion of consolidated mortgage debt & $US595 million of unsecured bonds scheduled to mature this year and needing to be refinanced repaid or extended.
Largest unsecured claims registered with the bankruptcy court were by:
Eurohypo AG, New York branch of Frankfurt-based Commerzbank AG, $US1.9875 billion on a 2006 senior term facility & $US601.5 million on a revolving facilityWilmington Trust FSB $US1.55 billion on 3.98% notes due April 2012, $US798.5 million on 6.75% Rouse bonds due May 2013, and also holder for the LaSalle Bank National Association of $US206.2 million of long-term securities due in 2036, followed byBank of New York Mellon Corp, as successor trustee to JP Morgan Trust Co, with 4 Rouse bondholdings – $US450 million of 5.375% bonds due November 2013, $US400 million of 7.2% bonds due September 2012, $US395 million of 3.625% bonds due last month (15 March) & $US200 million of 8% bonds due 30 April.
Large securityholders are the General Trust Co as trustee (22.9%), FMR LLC 13.4%, Pershing Square Capital Management LP 7.4%, The Vanguard Group Inc 7.01%.
Mr Metz said Pershing had committed to a $US375 million financing facility. He commented: “Our core business remains sound and is performing well with stable cashflows. We believe chapter 11 is the best process for restructuring maturing mortgage loans, reducing the company’s corporate debt and establishing a sustainable, long-term capital structure for the company. While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of chapter 11.”
General Growth owns or manages more than 200 regional malls in 44 states containing 20 million m² of retail space in 24,000 shops, and has interests in masterplanned community developments & office buildings.
Simon Property Group is the largest public US real estate company & leading mall owner & operator, owning 385 properties in North America, Europe & Asia.
Sydney-based Westfield Group has interests in 119 malls containing 23,000 shops in Australia, the US, the UK & New Zealand.
Attribution: Company release, bankruptcy filing, company results, Simon & Westfield websites, story written by Bob Dey for the Bob Dey Property Report.