Simon Properties Offers to Buy GGP for $10B, or Just Over $9 Per Share

By: Reggie Middleton | Tue, Feb 16, 2010
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From PR Newswire:

Simon Property Group Makes $10 Billion Offer to Acquire General Growth Properties

Offer Provides 100% Cash Recovery Plus Accrued Interest To All Unsecured Creditors; Would Accelerate General Growth's Emergence From Bankruptcy

General Growth Shareholders Would Receive Value Exceeding $9.00 Per Share, Including $6.00 Per Share In Cash Plus Assets Valued At More Than $3.00 Per Share, While Avoiding Likely Dilution From Stand-Alone Recapitalization

Offer Supported By General Growth's Official Unsecured Creditor Committee

Acquisition of General Growth Portfolio By Best In Class Operator Offers Significant Value-Creation Opportunity For Simon Shareholders

For those that don't follow me regularly, I released bearish research and shorted GGP at around $57 in 2007. It was a very profitable trade since GGP filed for bankruptcy a year later. Ackman from Pershing Square bought GGP shares/calls/swaps between 50 cents and 2 dollars per share, resulting in what looks like a home run deal.

He was confronted by Hovde Advisors, a DC asset management firm who was short the stock, over valuation and the closest thing to a hedge fund soap opera episode ensued.

While the SPG offer is nowhere near where Ackman was forecasting, it has been a profitable deal nonetheless.

I have made the subscription version of the full analysis available to anyone who registers now that this story has pretty much played its course. The full comparative analysis with updated valuation is now freely available upon free registration here: Middleton vs Ackman vs Hovde on GGP - subscription edition w. updated valuation 2009-12-26 20:43:17 1.51 Mb. You may click here to subscribe to premium research or to register for free. Readers should be cognizant of the marketing component of investors publicly stated valuations. To illustrate this, Let me post three paragraphs from the aforementioned analysis that pretty much says it all (keep in mind that SPG just offered $9 or so per share). I'll leave it up to the readers to determine who was the most accurate regarding GGP both on the short side going down (I think I was the only one declaring a position publicly) and on the long side going up (I did not have a position):

GGP valuation analysis

Hovde Capital Advisors

Hovde applies Q3 2009 annualized NOI (adjusted for lease termination fees, tenant allowances, maintenance capital expenditure and other non cash items) to Ackman's May 2009 GGP valuation analysis, and estimates the implied equity value of $5.73 per share at a 7.5% cap rate and negative $5.03 per share at an 8.5% cap rate. After incorporating the conversion of the unsecured debt into equity at price of $6 per share, the implied equity value is $5.94 per share at a 7.5% cap rate and $3.62 per share at an 8.5% cap rate

Ackman's response

Based on cash NOI (not adjusted for lease termination fees, tenant allowances, maintenance capital expenditure) for LTM ending Sep 2009, Ackman values GGP at $23.7, $32.0 and $41.6 per share at cap rate of 7.21%, 6.71% and 6.21%, respectively

Boombustblog's view

Based on our observations about assumed NOI and cap rate for valuation, we have revised Ackman's valuation analysis.

We computed cash NOI (adjusted for lease termination fees, tenant allowances, maintenance capital expenditure and other non cash items) for LTM ending Sep 2009. However, to factor in the impending rental decline to be realized in the short term largely owing to lease roll-overs, we estimated 2010 NOI assuming y-o-y decline of 7.5% against 5.4% y-o-y decline in 3Q09. We applied estimated 2010 NOI and more realistic cap rate range of 7.0% to 8.0% to the Ackman's valuation analysis. GGP's valuation is $6.8 per share under the base case and $13.6 per share and $0.8 per share under the optimistic case and adverse case, respectively.

It appears as if SPG offered a reasonable acquisition premium (in equity) over what we feel is reasonable for GGP. The cash offer was accurate to within eighty cents! It looks like someone over at Simon Properties reads the BoomBust! Ackman's (publicy disseminated) valuations were apparently in the stratosphere (and our analysis clearly demonstrated this point) while Hovde was a little pessimistic. Of course, the deal is not closed yet, so this is all just speculation for right now. I recommend all interested parties register and choose a free (or premium paid) subscription and download the full 11 page analysis referenced above.

Below is a quick chronology of events:

General Growth Properties & the Commercial Real Estate Crash, pt III - The Story Gets Worse
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
This is part III of a IV part series on GGP. Reference parts one and two for context. The majority of work on GGP is now done, and I will (as my time permits) start disseminating the non-pro...
Wednesday, 09 January 2008

Was I right on my call on Commercial Real Estate Crashing?
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...Cometh, and I know who is leading the way! Generally Negative Growth in General Growth Properties - GGP Part II General Growth Properties & the Commercial Real Estate Crash, pt III - The ...
Tuesday, 12 February 2008

If only more rich heiresses read my blog
(Reggie Middleton's Boom Bust Blog/MyBlog)
The GGP story seems to go on forever. Hat tip to CK for pointing this one out to me. For those that do not know, I shorted GGP in late 2007, after exhaustive research and it took a ...
Friday, 21 August 2009

Reggie Middleton's 2010 CRE Outlook and Response to the Ackman/Pershing Square Presentation
(Reggie Middleton's Boom Bust Blog/MyBlog) CRE malls (Ackman's CRE presentation). Several of my subscribers have commented on his success with GGP as well as the upward climb of REITs in general. I decided to go out of my way to create ...
Tuesday, 15 December 2009

It was bound to happen. Reggie Middleton vs Ackman vs Hovde on GGP!
(Reggie Middleton's Boom Bust Blog/MyBlog)
I am here to weigh in on the increasingly popular marketing battle over GGP's (General Growth Properties) value in, and out of bankruptcy. The players in question are large buyside institutions ...
Saturday, 26 December 2009

The next step in the GGP saga
(Reggie Middleton's Boom Bust Blog/MyBlog)
Hovde has issued a reply to Ackman's second GGP presentation. These hedge funds put out more analysis than the bank analysts that follow GGP, SERIOUSLY! For those that need a recap: My responses ...
Tuesday, 29 December 2009



Reggie Middleton

Author: Reggie Middleton

Reggie Middleton

Reggie Middleton

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