The fortunes of beleaguered shopping center owner General Growth Properties (NYSE: GGP) have improved once again with the announcement of an impending major investment in the company by a top pension fund manager.
GGP and The Teacher Retirement System of Texas (TRS), manager of one of the largest U.S. pension funds, have entered an agreement in which TRS will invest $500 million in exchange for equity in the reorganized GGP at $10.25 per share, according to GGP.
GGP ranks No. 2 on NREI’s 2010 list of the nation’s top shopping center owners, based on total retail gross leasable area (GLA) owned as of Dec. 31, 2009. GGP had 182.6 million sq. ft. of GLA owned. Only Simon Property Group owned more shopping center space, 245 million sq. ft.
The new agreement is subject to Bankruptcy Court approval. It would significantly improve GGP’s expected capital structure on emergence from Chapter 11.
GGP’s initial investment agreements with Brookfield Asset Management, Fairholme Funds and Pershing Square Capital Management, which provide sufficient capital for the company to emerge from Chapter 11, include a backstop provision for $1.5 billion of debt and $500 million of equity required for emergence, according to GGP.
Since completing the agreements, GGP has continued to explore alternative financing options to maximize the equity value of the company upon emergence, and the agreement with TRS is the result of that process, the company said.
“The equity investment by TRS is yet another vote of confidence in the future of GGP,” said Adam Metz, chief executive officer of GGP, in a statement. He called TRS an experienced and highly regarded real estate investor with a track record of long-term investments.
“Although we previously obtained sufficient capital commitments to enable us to emerge from Chapter 11, this transaction expands and diversifies our ownership base on attractive terms and preserves our ability to continue to seek more favorable equity investments. We continue to make excellent progress with our restructuring plan and are well on our way to exiting Chapter 11 by October of this year,” said Metz.
“We believe our investment in GGP offers us a unique opportunity to obtain a significant position in a large and diversified portfolio of high-quality assets with a solid capital structure, an excellent management team and clear operating strategy,” said Steve LeBlanc, senior managing director, private markets, at TRS. “We believe GGP is very well positioned to create substantial long-term value. Investing in GGP is consistent with TRS’s strategy of making well-diversified investments designed to produce solid long-term results while managing risks appropriately.”
The TRS investment will be in the equity of reorganized GGP only and will not include any interest in the newly formed company to be spun-off to GGP shareholders upon emergence, according to GGP.
GGP has ownership interest and management responsibility for more than 200 regional shopping malls in 43 states, as well as ownership in planned community developments and commercial office buildings. The company’s portfolio totals approximately 200 million sq. ft. of retail space and includes more than 24,000 retail stores nationwide.
On Monday, GGP filed its proposed plan of reorganization and disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York. GGP anticipates that it will emerge from Chapter 11 protection in October.
GGP says it expects to emerge from its financial restructuring with a significantly improved balance sheet and substantially less debt, providing it with a strong financial foundation to execute on its growth strategy going forward.
Since December 2009, GGP has restructured approximately $15 billion in project-level debt. Under the reorganization plan, GGP will satisfy its debt and other claims in full, provide a substantial recovery for shareholders and implement a recapitalization with $7.0 billion to $8.5 billion of new capital, the company reports.
Under that plan, when it emerges from bankruptcy, GGP will split itself into two separate publicly traded companies (“New GGP” and “Spinco”). Current shareholders will receive common stock in both companies.