davidbdc

General Growth Properties: Two Sides to the Story

I wish you well on your investment, but I'd strongly consider taking some of your profits.

To assume that GGP will get the same cap rates as a company not in BK is overly optimistic. Additionally, I think the Prime acquisition by Simon means that they won't try to take all of GGP.....but rather perhaps bid on a package of the crown jewels........and even there I would expect to see something close to 8. There is still a long way to go to emerge from BK and the "easy" creditors have already reached agreeements...the next round will be the "proof in the pudding".

However the beauty of this is that time will tell and for your sake hope you are correct......because if you are it means that retail has really bounced back and the economy is humming along.

General Growth Properties: Rebutting the Bears

NOI $2.4 billion

Minus senior debt service* $1.1 billion

Minus cap ex $0.3 billion

Equals cash flow of $1.0 billion
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This is very very optimistic IMO.....I think you have to expect a further drop in NOI in the short term, and don't expect the second round of negotiations to be as advantageous as the first - which means the senior debt service might further erode NOI through the forced sale of assets. At the very least I'd expect the second round to be 20% worse to GGP than the first (you do the easy stuff first in BK to try to set precendent). That would mean another $200 million or so....and cap ex needs to increase to attract new retailers into empty space. I think that optimistically over the next few years GGP has cash flow of $200-$500 million. Then you can apply whatever multiple you'd like on that. And I believe thats the optimistic scenario - I believe that the remaining creditors will dig in and force either the whole thing to be sold or for a large chunk of GGP to be sold.

And I've never seen David Simon overpay for assets out of the kindness of his heart..........I think the money has been made in GGP. For those that bought it was a good ride and congrats, but remember a bird in the hand.........

REITs: Could It Be Time?

Get real, those certainly aren't the most attractive REIT's to be putting money into.

Hotels, strip malls, and suburban office space will continue to get hammered. Some other retail space will get hammered. Need to do real analysis and find those with low debt, strong tenants, experienced management and decent balance sheet.

Buying those four? Might as well open a CD.