Eric Boughton_

Understanding the Complexities of General Growth Properties

Todd, I appreciate your efforts in attempting to determine the value of GGP equity. However, the rationale behind your belief that assets exceed liabilities at GGP is highly flawed. Specifically, your argument rests on the extension of the price per square foot offered for a few higher-value properties to GGP's entire mall portfolio. It is unlikely that such an extension is in any sense reasonable.

The question of "ultimate value" of GGP's assets is an open one, of course. However, it would take a fairly low discount rate applied to expected rental cash flows on GGP's mall properties over the next, say, 5 years, to come up with a present value answer exceeding $30 billion. Such a low discount rate is not likely to be applied by any investor with actual cash to invest. You implicitly admit as much by saying

"The sudden supply of properties without bidders (loans still are very tough to get) would mean they would have to be placed on the market below "fire sale" prices"...

Think about what you are saying. You are saying that a LOAN would be required in order to get a bidder. But, in fact, there are many investors with "actual cash" to invest. Why aren't they offering $30 billion plus for GGP assets right now? Almost certainly because the present value of those future cash flows is, in their mind, lower than $30 billion.

Now, there may indeed be a rational investor who believes the present value of GGP property cash flows over the next TWENTY years exceeds $30 billion. Ackman may be one of them. But, consider that his ownership of GGP debt means that he can win (and win big) even in a Chapter 11 scenario which completely ELIMINATES the equity!

Ultimately, I agree with throbulator: The debtholders will own GGP in (essentially) its entirety within a year. The size of the bone they throw to current equity holders does not have to be large, and could be zero depending on the opinions of the bankruptcy judge. Debtholders who bought the bonds at $.25-.30 on the dollar will therefore experience a positive return IF the value of GGP mall properties turns out to be greater than $10 billion. I think that is a (relatively) safe bet, which is why I have made it.