RCA in the commercial property press:

General Growth Properties to split into two companies

Financial Times reports: General Growth, the second largest mall operator in the United States, said Wednesday that in a move that would allow it to emerge from bankruptcy, it had agreed to take $2.6 billion of capital from Brookfield Asset Management and split itself into two companies.

If approved, the deal would give Brookfield, a Canadian property manager, a 30% stake in General Growth and offers its stockholders $15 a share. It could also thwart the $10 billion bid made last week by Simon Property, General Growth's bigger rival.

Thomas Nolan, General Growth's president and COO said "By creating two separate companies, we enable both companies to manage their core strengths, take advantage of different market opportunities and appeal to distinct groups of investors with their own investment criteria."

As part of the arrangement, General Growth would spin off a new company called General Growth Opportunities, which would hold "non-core" assets which produce little or no income such as the South Street Seaport development in lower Manhattan. These developments are considered to have long-term value or need restructuring.

Dr. Sam Chandan, chief economist at Real Capital Analytics, was optimistic about the value of the Brookfield deal, explaining that the split would allow General Growth to be more effectively valued for the strength of its underlying property fundamentals by splitting high-quality performing assets away from the riskier pool. "The opportunity assets are freed to target investors with a greater risk tolerance."

Articles related to this topic:

 Simon Property Shopping for GGP
 Blackstone Considers Joining Simon Property's Bid for GGP
 Commercial Mortgage Default Rate More Than Doubles in Q4'09
 General Growth Gets an Extension

Posted by: Matthew Stone

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