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It was bound to happen. Reggie Middleton vs Ackman vs Hovde on GGP! [Edit]
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 who own opposing
positions on the stock. Ackman/Pershing square, who are long the
company's stock, and Hovde Capital Advisors, who are short the stock,
and Reggie Middleton, the original player!
For those who follow me regularly and are familiar with my dealings
with GGP, skip down to the bottom of this post to download my latest
GGP analysis. For those who are not familiar with me and the BoomBustBlog,
I am (to the extent of my knowledge) the first investor/media concern
to go public with a short thesis on General Growth Properties (GGP)
with a warning on commercial property in general, and a specific short
on GGP in the 4th quarter of 2007 (see "GGP and the type of investigative analysis you will not get from your brokerage house", BoomBustBlog professional subscribers can download the entire GGP composite history
in .pdf format). I am a private investor that generates his own
proprietary research. It is solid, independent, unbiased, and of
extreme quality when compared to the highly conflicted sell side
marketing fluff proffered as research, and apparently now stands out
among the buy side as well. With all due respect to the successful
investors referred to herein, there is a hint of "talking one's book"
within the presentations. I have absolutely no problem with self
promotion, but when it appears the promotion comes to odds with the
validity of the analysis, it does tend to raise my brow, and apparently
the brow of several institutions that have come to me for my opinion.
So, let's take an unbiased, empirical look at GGP from the guy who
first pointed out the insolvency of this company in the first place. As
for the self promotion aspect, I am now offering consulting services to
those who desire independent, objective analysis. I will soon be
releasing a very interesting study on real estate funds and residential
mortgage related products from Morgan Stanley and Goldman Sachs, which
will assuredly cause their clients to fall in love with them. More on
that later, though.
GGP from the beginning
As stated earlier, I articulated a roadmap to the largest commercial
real estate failure in history a full year in advance of its filing.
General Growth Properties was picked to be the big BoomBustBlog.com
shorting opportunity in November 2007, when it was the 2nd largest
commercial mall owner in the country, trading above $50, with an
investment grade rating and buy recommendations from Wall Street. It
filed for bankruptcy a year and a half later.
The following links lead to an extraordinary body of GGP and CRE research which I released through BoomBustBlog.
The Commercial Real Estate Crash Cometh, and I know who is leading the way! 06 January 2008
Generally Negative Growth in General Growth Properties - GGP Part II 08 January 2008
General Growth Properties & the Commercial Real Estate Crash, pt III - The Story Gets Worse
09 January 2008
More on GGP: A Granular View of Insider Selling and Lease Rate Growth 11 January 2008
GGP part 5 - The Comprehensive Analysis is finally here 19 January 2008
My Response to the GGP Press Release, which seems to respond to blogs... 21 January 2008
For those who were wondering what sparked that silly press release from GGP. 22 January 2008
GGP: Foreclosure vs Asset Sale 25 January 2008
GGP Refinancing Sensitivity Analysis 25 January 2008
GGP part 7 - Share value under the foreclosure analysis 31 January 2008
GGP part 8 - The Final Analysis: fire sale of prime properties 02 February 2008
GGP Conference Call 14 February 2008
Reader's legal observation on GGP 16 March 2008
Analysis of GGP's recent Q1 results 29 April 2008
GGP Can't Afford its Dividend 06 May 2008
Press release announcing new equity financing - 21 March 2008 something that I didn't explicitly model in my own analysis, but after reviewing information without the benefit of official documentation, there were no surprise nonetheless... 26 March 2008
We did find some surprises, and my blog readers chimed in with their expertise and opinions...
12 April 2008
Our approach is to evaluate the total credit risk attached to the CRE portfolio by
1. Following a bottom up approach wherein each individual property
is valued based on current cap rates and prevailing rentals;
2. Comparing the fair value of each property with outstanding
mortgage to identify the pockets with high LTV, which can lead to
losses on liquidation,
3. Factoring in the refinancing risk arising from short-to-medium term scheduled maturities.
The comparative analysis (Reggie vs Ackman vs Hovde) is available to the public here:
Middleton vs Ackman vs Hovde on GGP - public edition 2009-12-26 20:41:50 1.50 Mb.The full comparative analysis with updated valuation is available to subscribers 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.
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And this is the makings of a ridiculously risky bubble burst. When you start buying assets purely on the basis of hoping someone else will buy it for more while full well knowing it is worth less, you are gambling on momentum powered by the greater fool theory. We have had quite a few bubbles over the last 10 years or so, look at how each and every one has ended. It is amazing that CRE is in a bubble before the CRE bubble even has a chance to fully burst.
It's funny how people analyze and re-analyze GGP all the time. Either go long aggressively or go short aggressively and let the chips fall where they may. I went long aggressively at an average price of $1.37 per share with 41,800 shares. Up $460,000 so far and holding long-term. People, stop whining about why your viewpoint is right or wrong and just place your bet where you see fit.
Thanks,
Mark
Do yourself a favor and cash out your original $57,266 investment; let the rest ride. Then you'll just be playing with the house's money.
Thanks, Anon. Why don't you pick a userid and keep us posted on how your long term RET holdings work out 5 years from now.
That's an awesome trade, sir.
As long as SPG trades where it is at, GGP can also trade higher since SPG can use their overinflated stock to purchase GGP at a high price as well.
The underlying mis-priced asset is SPG and most other IYR components as well, but SPG gets the biggest manipulation since its the biggest component of SRS and IYR. If you look through Ackman's "analysis" on a potential GGP share price, it is fundamentally based on the price SPG trades at and nothing else.
Until SPG falls, GGP can stay elevated and possibly all the way through the point of purchase (see the AOL/Time Warner deal for proof)
As long as SPG trades where it is at, GGP can also trade higher since SPG can use their overinflated stock to purchase GGP at a high price as well.
The underlying mis-priced asset is SPG and most other IYR components as well, but SPG gets the big manipulation since its the biggest component of SRS and IYR.
Until SPG falls, GGP can stay elevated and possibly all the way through the point of purchase (see the AOL/Time Warner deal for proof)
My analysis is similar to Reggie's.
While there are nits to pick w/ Hovde's analysis, Ackman's is close to nonsensical. He cherry picks any remotely positive data point, and extrapolates it multipl
When you factor in the weak GDP, persistently high unemployment, weak consumer, weak retail sales, lack of real estate financing and refinancing, lack of market transactions, and increasing, not decreasing cap rates, Ackman's assertions do not hold water.
The fact is that REIT sector has gotten incredibly overheated despite poor fundamentals that are likely to remain poor for an extended period. Why the REIT sector has been propped up is anyone's guess, but to extrapolate massive values for GGP based on SPG's increasingly bizarre valuation makes no sense whatsoever.
My view is this sector, mall REITs in particular, will perform quite poorly in 2010.
I have no idea what GGP's true value is or will turn out to be, but it could well turn out to be materially below where it closed on Friday, and the dilution that Reggie speaks about is almost a 100% probability, unless the company gets sold, which I view as less than 25% chance.
You know I was interested in this article until the "self-promotion" overload hit my gag reflex. You lost me at the 3rd paragraph.
SPG and MAC appear hysterical here.
Looking forward to your thoughts in 2010 Reggie. Thank you for sharing your information.
+1.
Great stuff Reggie.
Hello Cramer,
Just wondering how much you have to pay ZH for the ads? Maybe I could provide a cheaper alternative through a targeted email campaign. ( I have the email address for everyone in the world, I also have everyones cell number so we can do SMS text spam campaigns. Call me. ).
--Scooby Doo
Scooby,
you are addressing the wrong guy here.
If criticizing, please state why the research is wrong or questionable.
Your comparison is worth a junk flag.
Tyler, Tyler is this you?
http://www.people.com/people/article/0,,20333244,00.html
If so, I hope the `Foster Care Organization` was named BoomBust so we can end the spam for awhile.
TIA.