General Growth Properties: Too bad to fail and possible happy ending?

Posted Feb 23rd 2009 9:00AM by Alex Salkever
Filed under: Earnings Reports, Bad News, Housing

It's a rough time to be a shopping center company and, arguably, General Growth Properties (NYSE: GGP) is in the worst shape of the lot. The company faces a whopping $27 billion in maturing debt coming due over the next four years. On Friday, Feb 20, it announced it had defaulted on loans. The Piqqem Sentiment on the company is negative. Shares that traded over $60 per share two years ago are now below 50 cents and are a favorite football of speculators betting that the syndicate of lenders will throw GGP a lifeline rather than eat the bankruptcy costs.

There might be a happy ending to this story, however. The company reports earnings on February 23 and it will certainly be an interesting report -- most likely grim numbers as staggering retailers pass on their shopping plague to the biggest shopping center landlord.

Sure, a passel of angry lenders have been negotiating with the company to restructure $900 million in loans that are coming due shortly and could tip the company into bankruptcy. However, likely writedowns the lending syndicates would have to face if they markdown their GGP loans could possibly ripple into bigger hits on these big players' commercial real estate lending portfolios, adding even more pain.

And GGP's assets, while clearly impaired, are generally top-notch and are very hard to value for any long-term proposition at what is clearly a near bottom in the commercial real estate cycle. GGP management apparently knows this and is expertly playing the different lending factions off against each other. Should GGP secure a restructuring rather than Chapter 11, shares could rocket. You'll find out on Monday or Tuesday, most likely, as this Clearance Sale Saga has to end soon.

Alex Salkever is Director of Research at Piqqem, a "Wisdom of Crowds" online stock research tool and stock community.

Tags: Chapter 11, Chapter11, CMBS, commerical real estate, earnings, General Growth Properties, ggp, retailers, shopping centers