Will General Growth Partner with Simon Property Group or Brookfield Asset Management?

Includes: BAM, GGP, SPG
by: Todd Sullivan

From the Simon (NYSE:SPG) earnings call:

NEW YORK (Dow Jones)–The nation’s largest real-estate investment trust, Simon Property Group (SPG), said Friday it isn’t in active negotiations with General Growth Properties Inc. (GGWPQ.PK), which is trying to remerge from bankruptcy this year.

When asked by RBC Capital Markets Analyst Rich Moore during an earnings call if the company was in active talks with General Growth, which is in the midst of Chapter 11 proceedings, Chief Executive David Simon replied “no.”

However, the company is trying to position itself to take over General Growth, which owns 200 U.S. malls, according to people familiar with the matter. And Brookfield Asset Management Inc. (NYSE:BAM), a Canadian real-estate investor, is studying providing capital for General Growth in exchange for an ownership stake.

General Growth is attempting to exit bankruptcy this year and currently remains in control of its destiny as long as its exclusivity period lasts. During that time, only the debtor can propose a plan to the judge for bringing the company
out of bankruptcy. Thus, acquirers can express their interest only to General Growth’s board in the interim.

Good news? Or bad?

I think it goes to what we have been saying since December. SPG is not going to be able to make a play for GGP (GGWPQ.PK) as a whole, and given a choice, one has to think GGP management would rather partner with Brookfield Asset Management (BAM) than SPG, as I am sure SPG would have no inclination to relinquish control of any deal to GGP.

BAM has not publicly expressed interest in having a controlling interest in GGP and seems more interested in a way to break into the US Mall market, having tried to a few years ago on Mills Corp. Having a significant piece of a Class A operator like GGP upon emergence from Chapter 11 seems like their preferred outcome rather than bickering over who controls what.

Another wrinkle is that BAM lost out on Mills Corp. to a late bid by? Simon Property Group (along w/Farallon Capital). Don’t think winning the bid for a prize like GGP would both satisfy the desire to get into the US market and even a score. While BAM would never admit to such a thing, it would be foolish to think human nature does not extend into the board room.

Disclosure: Long GGP

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