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Simon Offer For GGP Values Bankrupt REIT At 8% Cap Rate
A quick preliminary read of the Simon proposal to acquire GGP for $10 billion, via Bank of America, indicates a cap rate of 8% "assuming growth of 3.5% on top of the annualized NOI stream." The offer values GGP at $9/share, including $3 for the land business. As readers will recall there has been a difference in opinions between Hovde and Ackman on GGP's value, the first of which gets an "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 which 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," while Ackman is a tad more ambitious: "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." Seems like Hovde was just a little more realistic closer in his valuation (assuming no overbid). The OCC supports the Simon offer as they get taken out at par.
From Bank of America:
$10B offer; possibly to include co-investor
Today, Simon announced that it has made written offer to acquire General Growth Properties in a transaction valued at more than $10 billion, including ~$9 billion in cash. The transaction would be financed through SPG’s cash on hand ($4.3 billion) and through equity co-investments in the acquisition by strategic institutional investors, with the balance coming from SPG’s existing credit facilities. The Official Committee of GGP’s Unsecured Creditors has advised Simon that it supports the SPG offer.
GGP valued at $9.00, including $3.00 for land business
Simon’s offer would provide 100% cash recovery of par value plus accrued interest and dividends to all GGP’s creditors (unsecured, preferred securities, lenders under credit facility and holders of exchangeable senior notes and Rouse bonds), totaling $7 billion. GGP shareholders would receive more than $9.00 per GGP share, consisting of $6.00 per share in cash (~$2 billion) and a distribution of GGP’s interest in the Master Planned Community assets, valued at more than $3.00 per share (which implies a 40% cut to book value).
Current offer would approximate an 8.0% cap rate
We believe there is low hanging fruit that SPG could take advantage of after the acquisition. Therefore, assuming growth of +3.5% on top of an annualized NOI stream, we place this offer ~8.0% cap rate. Under SPG’s offer, the existing secured debt on GGP’s portfolio of assets would remain in place ($28 billion).
Immediate benefits from Simon take-over
Immediate benefits from Simon’s acquisition of GGP include: a quick end to GGP’s bankruptcy expenses, immediate accretion to SPG’s earnings, and better stability for GGP’s assets as they emerge from bankruptcy.
GGP presents unique way to create strategic value for SPG
SPG currently has a 15% share of all US malls, which, combined with GGP’s 14% share, would result in ~30% total market share. The increased scale would provide SPG with more negotiating power with tenants, as well as greater control, and the ability to optimize mall positioning in key markets, where the portfolios overlap (demographics of the 2 companies’ mall portfolios are roughly even). That said, we wouldn’t be surprised if another bid was forthcoming. Given SPG’s existing infrastructure advantages and their likely desire to prevent another player from entering the US mall space, we believe SPG may be less price-sensitive than other bidding peers.
Full BofA report here.
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There is a Canadian group making an offer, too:
http://online.wsj.com/article/SB1000142405274870480420457506908164484589...
Both Brookfield and Riocan will be good shorting opportunities when Canadian RE finally blows up.
Possibly by spring, definitely when interest rates spike...
Please... obviously Simon is buying GGP because they are thinking more in-line with Ackman on valuation.
They are buying it for $9/shr (will be raised to $12/shr) because they think it is WORTH $15-25/shr. Right?
And wasnt Hovde short back in the summer at $3-4-5/shr? Wasnt he loudly saying, "this is a zero"?
Nice revisionist history.
-BBH
Amzingly this was once trading at 40 cents!
The fed revealed:
http://www.marketwatch.com/story/time-for-fed-to-....
Yeah, after it was $.31
Dont start suggesting there is a recovery!
That 25x profit since $0.40... thats fake. Buy gold.
-BBH
Actually, it was trading at $50 two years ago. There goes your recovery:-)
FYI, I believe I was closer than Ackman or Hovde.
http://boombustblog.com/Reggie-Middleton/1315-Simon-Properties-Offers-to-Buy-GGP-for-10B-or-Just-Over-9-Per-Share.html
Reggie -- Didnt you just say, "this was safer as a short"?
That is close to something... but its not close to "making money".
Will this set several 'visible' marks pour les autres?
"Seems like Hovde was just a little more realistic closer in his valuation (assuming no overbid)."
Ok, so let's recap:
- Ackman bought GGP at an average price of about $1 per share
- Hovde advocated shorting (and probably shorted) the stock when it was about $5
- Zerohedge at least seemed to lean towards Hovde
- Simon makes the first offer that causes the stock to run to $11.50 from $9.40
- Zerohedge writes stuff that at least to me reads as concluding that Hovde was right
What's up?
look at the date of the first hovde presentation...december..that's not anywhere near $5
The presentation came out on December 15 when the stock was at around $10. I suspect that they didn't start shorting the stock after they published their bear case... My guess was that they started shorting during the Nov 17-20 up move whent he stock blew by $5, based on no hard data of any kind.
I am not criticizing Hovde here, you win some and you lose some. I also don't think there's anything wrong with the ZH leaning to Hovde's side. You have to call it as you see it. What slightly irritates me is the above post's tone that suggests today's news confirms that Hovde (and by extension ZH) was right. Surely you must understand my point.
"A quick preliminary read of the Simon proposal to acquire GGP for $10 billion, via Bank of America, indicates a cap rate of 8% "assuming growth of 3.5% on top of the annualized NOI stream."
Assuming growth of 3.5%!!!!!! What are they smoking? The mall business is on defence, just trying to keep tenants in business.
I cannot help but wonder if there is some kind of bailout plan brewing that Simon is very aware of.
We saw the housing thing where banks take other banks off the FDICs hands, sell the foreclosed properties, then register the original price of the house as the market value and collect the difference from the FDIC, as if it was a loss, when really, that becomes a profit that goes into the banks pocket.
We've seen companies become "banks" to qualify for bailouts.
Simon has been acquiring loser properties for a while now. We ain't at the bottom of this thing, values will go lower. I just wonder what he has been told backstage. Random thoughts:
1. They gather all the comercial real estate into a few big companies and then bail them out with loans, taking their assets as collateral and using mark to fantasy valuations. They take the money and go into the market and try to earn, kinda like GS and others.
2. They gather all the commercial real estate into a few big companies and let them fail. Treat them as "bad banks" and try to quarantine them from the rest of the economy. Could be Simon's company is already fucked so going along with this deal is not loss to him at all. I admit this sounds unlikely.
3. Some kind of deal is made that looks and smells sort of like the sweetheart deals the FDIC is giving to the banks that buy the failing banks. Let them sell the assets they got at a loss, then reimburse them at mark to fantasy levels. This would not be the FDIC doing this of course, but something else, some new mechanism, yet to be birthed.
One reason to do some of this would be to prevent CDSs from triggering, and the Fed could hold the assets until such a time as the "value" recovers (inflates). I know, it won't, but hope seems to spring eternal.
But if the dollar is taken through the mud, these shady deals will be irrelevant. That could be the other thing Simon thinks he knows, that he dollar is going to be shit, and he will own all this stuff and he can throw clown bucks at it to pay it off.
You're missing something much simpler:
- economic recovery looks strong.
- GDP was +5.7%
- Q4 earnigns are beating expectations for 3rd straight Q
Buy depressed real-estate at the beginning of recovery. Classic business approach.
Ackman wasnt thinking about some "bailout" when he bought at $1. Now he is going to get $10+. Simon thinks they will get $30 of value over the next 5-10 years.
Risk taking. It works.
You're missing something too. It's called a PONZI SCHEME. And it won't work.
This market is a joke
How is paying par for the debt, Plus all accrued interest, PLUS all accrued and unpaid divy's considered "buying distressed assets."
SPG overpaid for this, it was a business decision to do so, but that doesn't change the fact that they overpaid. Defending market share is what this deal was all about. Paying par plus in this environment for some of the crap that GGP had is the biggest coup ever for the lenders.
They haven't paid anything yet, only made an offer.
(...and the offer will probably go higher before it's accepted.)
So you say SPG overpaid. Why the hell is SPG's stock up today then? +3.5% now at http://www.google.com/finance?q=spg.
Usually when a market thinks an acquirer is overpaying, they punish the acquirer's stock brutally. Not bid it up.
The odds of SPG overpaying are lessened if it's capping in-place NOI, and not stabilized NOI, which I believe is the case.
Expect A LOT of malls to be closed due to this.
Half are empty anyway.
I think they are doing the government a favor...trying to PROVE that CRE is not a ZERO. CRE will blow up up.....either way.
Fuck em' all!
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