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Shopping Centers Today -> February 2002
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GGP HAS MONEY TO SPEND BUT …
By Dave Bodamer
General Growth Properties surprised the industry when it completed a $300 million after-hours stock placement in mid-December, saying it was pursuing a “multibillion dollar portfolio,” widely believed to be that of Rodamco North America. The company ultimately ended up on the receiving end of a shock, however, when its offer was rejected — leaving it with cash for which it had no immediate need.
To make matters worse, Lehman Brothers, which underwrote the placement, exercised an option to purchase additional shares, bringing the issue total to $344.5 million.
When Chicago-based General Growth learned that its offer had been rejected, it completed another Securities and Exchange Commission filing, saying it would use the funds to pay off some debt and eventually to pursue other acquisitions later in the year. But it did not specify how much debt it intended to pay down or what prospective targets it had in mind. The company had declined to comment further on the matter as of press time.
In the wake of the events, analysts at Salomon Smith Barney and Morgan Stanley Dean Witter & Co. lowered their General Growth ratings and their predictions on its funds from operations and price targets.
“We believe General Growth will ultimately deploy its new equity capital, but likely after a six-month delay and at initial returns that are likely to be lower than the company’s historic acquisition cap rates,” Morgan Stanley REIT analyst Matthew Ostrower said.
Ostrower added that General Growth was in a difficult situation, being forced into issuing equity before a deal was finalized; the move was understandable, however, especially given the chilly reception the company received for an earlier issue that followed finalization of a more than $800 million deal to buy Hawaii’s Ala Moana center in 1998.
In this more recent placement, General Growth sold 8 million shares of common stock. Senior management bought approximately 1.2 million of those, and New York City-based Lehman underwrote the rest. The company then made an SEC filing, explaining it was “pursuing a potential acquisition involving a multibillion dollar portfolio of regional centers and other assets located throughout the United States.”
Many REIT analysts had originally expressed cautious optimism about the risky move, based on General Growth’s strong acquisition track record.
And things could still turn out in the company’s favor vis-à-vis Rodamco. Analyst David Fick, of Baltimore-based Legg Mason, observed that General Growth was not totally out of the running for some Rodamco properties in the event that the Dutch firm decides to break the company up rather than sell it wholesale to just one buyer.
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