Dec. 22 (Bloomberg) -- General Growth Properties Inc., the shopping mall owner under bankruptcy protection, is undervalued and the shares may be worth as much as four and a half times yesterdays price, William Ackmans Pershing Square Capital Management LP said. General Growth rose 20 percent.
Using comparable public company valuations, Pershing Square believes GGP is worth between $24 and $43 per share, the hedge fund run by Ackman said in a presentation distributed today.
Pershing Square, based in New York, owns a 25 percent economic interest in Chicago-based General Growth, including 7.5 percent of its shares. The balance of those holdings are in derivatives known as swaps. General Growth filed the biggest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree.
The shares rose $1.80, or 20 percent, to $10.95 today in over-the-counter trading.
Pershing Square said its General Growth estimate doesnt include the mall owners master-planned communities segment, which has negative cash flow. When the housing market recovers, the unit should generate substantial additional cash flow, Pershing Square said in the presentation.
Aggressive Assumptions
Some of his assumptions are at an aggressive end of a reasonable range -- more aggressive than I would use, but still within a reasonable range, said James Sullivan, an analyst with Newport Beach, California-based real estate research company Green Street Advisors.
Pershings 54-page presentation, entitled A Detailed Response to Hovdes Short Thesis on General Growth Properties, was prepared in response to a Dec. 14 report by Hovde Capital Advisors LLC that said General Growth shares are overvalued.
Hovdes report said that General Growths assets no longer exceed the value of the debt, and that current equity investors are likely to be left with little in the restructured entity, Pershing Square said.
General Growth said last week that its board and management are evaluating options to reduce leverage and considering all indications of interest in the company.
Loans Restructured
The company plans to emerge from bankruptcy in stages. A U.S. bankruptcy judge last week approved General Growths plan to restructure about $10.25 billion in debt at some of its shopping centers and office buildings. U.S. Bankruptcy Judge Allan Gropper today said General Growth can restructure seven loans with a total value of $1.3 billion.
Ackman didnt respond to a call for comment. Representatives for Hovde also didnt respond to a request for comment.
General Growth did not participate in the preparation of the Pershing Square Capital Management LP presentation nor did it review its content prior to distribution, General Growth said in a statement. The company has no comment on the content of the presentation.
Ackman first said in March he intended to seek a seat on the General Growth board and in June he got it.
Pershing Square distributed a similar report on General Growth in May. Today, it listed subsequent improvements at company and in the overall economy, including General Growths plan to restructure $10.3 billion of secured debt on favorable terms.
Possible Buyers
At least two well-capitalized buyers have announced a sizeable position in the unsecured debt of GGP and are evaluating a potential acquisition of the company, Pershing Square said in its presentation.
Simon Property Group Inc., the largest U.S. shopping mall owner, and Brookfield Asset Management Inc., a Toronto-based real estate investor, have bought General Growth unsecured debt, Thomas Nolan, General Growths president and chief operating officer, said last week.
Simon Property executives have said they are interested in buying General Growth malls. Simons purchase of Prime Outlets Acquisition Co. for $2.33 billion wouldnt stop Simon from buying General Growth properties, Simon Chief Financial Officer Stephen Sterrett said when the acquisition was announced Dec. 8.
The value Pershing Square today put on General Growths shares makes sense if the end game is a spirited auction of this company, with multiple bidders trying to win this prize, said Sullivan, of Green Street Advisors. I dont see the numbers getting anywhere near that level in the near term for this company if its an intact, stand-alone entity.
To contact the reporter on this story: Daniel Taub in Los Angeles at [email protected].
Last Updated: December 22, 2009 18:11 EST
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