No Reason to Panic over General Growth Properties' Decline

The drop in General Growth Properties (GGWPQ.PK) over the past few days, while scary, does not even register as the most since this saga began in March. Can’t believe I am going to break out a chart, but we need some perspective.

Click to enlarge:

If we look at the other periods, from June 5 to July 10 the stock saw a steady decline in value of 52%

The Aug. 12th to Sept 2 decline measured 23%. Sept 15th to 25th gave us a 18% drop.

This recent fall at its lowest point? 26%. As I write that is down to 20%.

People are worried about the severity and suddenness of the drop over no news. But, that is what is important, no news. We have a 4.5% drop in the S&P over the same time span and a stock that has risen over 900% since we bought in March drops 26% over a few days. There are a ton of cliches’ we can use to explain it “profit taking” , “lightening up”, “taking some money off the table” etc. Basically, people are selling. Let ‘em, if it gets low enough, I’ll pick up more.

This is when time frame comes into play. Since I am not selling anytime soon (barring a significant court setback) the short term price action is meaningless save for it providing me opportunities to take advantage of large drops by picking up more shares.

If anything the news lately has been good:

From the WSJ:

General Growth Properties Inc. faces a complicated and arduous task in mollifying its many creditors and emerging from Chapter 11 bankruptcy protection as soon as next year. The mall owner wants to ensure it keeps its key employees on the journey.

The company, which owns more than 200 U.S. malls, recently received U.S. Bankruptcy Court Judge Allan Gropper’s approval for a “key employee incentive plan” that establishes a $10 million bonus pool to be shared by any of 46 designated employees if the mall owner emerges from bankruptcy by June 30, 2010. The bonus pool shrinks to $5 million if General Growth emerges between July 1 and Sept. 30 of next year. No bonus is awarded thereafter.

Those bonus pools are in addition to another $15.2 million of bonuses that General Growth executives can receive based on how much creditors recoup in the bankruptcy case. Those 46 employees can earn bonuses of 30% to 225% of their salary depending on what percentage of creditors’ claims ultimately is repaid in the bankruptcy case. For example, Chief Executive Officer Adam Metz could receive a bonus of up to 225% of his $1.5 million salary, and President and Chief Operating Officer Thomas Nolan could receive a bonus of as much as twice his $1.25 million salary.

A prolonged Chapter 11 eats away at shareholder equity as legal/court fees take their toll. This plan is a bit ironic though and the Board and management are large shareholders in the company. This means in effect, they are rewarding management for doing precisely what they intend on doing anyway. No matter though, at the end of the day, an early emergence assures shareholders win big.

So, to answer some questions I got today in bulk…

No, I am not considering selling nor have I
No, there was not a negative court ruling today
Yes, I am holding on to the end
Yes, I had a buy order in today at $3.99, it did not get filled
What if it drops more tomorrow? I’ll be buying..
No, I am not worried. If anything I am pissed I missed the first dip below $4 today

Why am I not worried? I am not sure what there is to be worried about. I seldom worry about things that do not exist.

Disclosure: The author owns shares in General Growth Properties

Comments

[Michael Jahr:]

Todd,

Thanks for the update. I agree with your approach, after the latest dip I set a couple of buy orders myself that were filled. Looking for the double digits on this next spring!

Oct 29 09:47 AM

[User 35537:]

Nothing to worry about?

"Those bonus pools are in addition to another $15.2 million of bonuses that General Growth executives can receive based on how much creditors recoup in the bankruptcy case."

I'm not sure why shareholders should be comforted by a reward offered by Creditors with shareholder money for Creditor recovery?

Oct 29 09:51 PM

[Dialectical...:]

"A prolonged Chapter 11 eats away at shareholder equity as legal/court fees take their toll."

True that. Usually a Chapter 11 eats away 100% of shareholder equity. Are we guaranteed there will be something in this for the shareholder when all is said and done?

Oct 30 10:12 AM

[6 Moves Ahead:]

I see SPG and CBL are each up today on the the manufacturing and pending home sales data, yet GGP is still sinking. This is not a good sign.

Nov 02 10:50 AM

[6 Moves Ahead:]

When are 3rd Quarter results expected? I thought maybe we would see this info by week's end.

Nov 02 04:13 PM

[Brian McMorris:]

Well 6 MOves, if you waited, you were rewarded. Big pop in GGP today with a very positive earnings announcement. Hope you were on board for the ride.


On Nov 02 04:13 PM 6 Moves Ahead wrote:

> When are 3rd Quarter results expected? I thought maybe we would see
> this info by week's end.

Nov 18 11:15 AM

[Brian McMorris:]

I don't normally like these deals, either. But considering that Bill Ackman owns / controls over 20% of the shares and is on the Board, he must have signed off on this. If the deal is good enough for him, it is good enough for me. After all, we are talking very small numbers for what is at stake. Every $1 of increase in the stock price is worth $330M to shareholders.


On Oct 29 09:51 PM User 35537 wrote:

> Nothing to worry about?
>
> "Those bonus pools are in addition to another $15.2 million of bonuses
> that General Growth executives can receive based on how much creditors
> recoup in the bankruptcy case."
>
> I'm not sure why shareholders should be comforted by a reward offered
> by Creditors with shareholder money for Creditor recovery?

Nov 18 11:18 AM