General Growth Properties

General Growth Properties
Inconsistencies and Errors in Pershing

Square’s Analysis
January 21, 2010
January 21, 2010 Hovde Capital Advisors LLC
Table of Contents
• Our Goals (p.3)
• Inconsistent Calculation of NOI (p.4‐10)
• Flawed Cap Rate Analysis (p.11‐12)
• Inconsistent Calculation of Leverage (p.13‐17)
• Inconsistent Comparison of Debt Costs (p.18‐21)
• Irreconcilable Valuation of Development Assets (p.22‐25)
• Irreconcilable Valuation of Cash (p.26‐27)
• Irreconcilable Valuation of Other Assets (p.28‐29)
• Bankruptcy Risks (p.30‐32)
• Recent Retail and Consumer Data (p.33‐34)
• Summary (p.35‐39)
• Appendix (p.40‐41)
• Disclosures (p.42‐43)
January 21, 2010 Hovde Capital Advisors LLC
Our Goals
• We continue to receive numerous follow‐up inquiries into the General Growth
situation, which has caused us to examine the Pershing Square analysis published
on December 22, 2009, in even greater detail. We have also received inquiries as
to source data for fundamental operating and transactional data, which we have
provided in this presentation for reference.
• Upon further review, we believe Pershing Square’s analysis is not only deeply
fundamentally flawed, but it contains numerous factual errors and
methodological inconsistencies, which we detail in this presentation, that cause
it to be materially misleading in its conclusions.
• We believe the market is made up of differing views of the world and we
appreciate this diversity of opinion and analytical interpretation – it is the
lifeblood of markets. We can agree to disagree on matters of opinion, but when
the facts are misrepresented either through attempted sleight of hand or
negligence, we believe this needs to be brought to investors’ attention.
• We continue to encourage investors to do their own analysis and due diligence
and check the facts of any third party analysis.
NOTE: FUNDS ADVISED BY HOVDE CAPITAL ADVISORS, LLC AND ONE OF ITS PRINCIPALS HAVE SHORT POSITIONS IN GGWPQ AS WELL
AS ANOTHER COMPANY MENTIONED IN THIS PRESENTATION. SEE ADDITIONAL IMPORTANT DISCLOSURES AT PAGE 43.
January 21, 2010 Hovde Capital Advisors LLC 3
Inconsistent Calculation of NOI
Why Does Pershing Square Calculate NOI Differently
When Comparing GGP and SPG?
• When calculating and comparing NOI, Pershing Square uses as‐reported
NOI for both companies as the starting point for its calculation, which it
adjusts for several non‐cash items. However, each company reports NOI
using a different methodology; so this analysis is based on inconsistency
from the start.
• SPG includes corporate (termed home and regional office costs), general
and administrative expenses in calculating its reported NOI.
• GPP excludes these expenses in calculating its reported NOI. Since GGP is
a “national mall platform” according to Pershing Square, the expenses that
go along with managing this platform should be included as they are in
SPG’s calculation, or these expenses should be deducted in the calculation
of SPG’s NOI.
• Pershing Square states that their analysis is “apple‐to‐apples” ‐ although
we have shown why it is clearly not.
SPG’s Definition of NOI
“
Hovde Commentary
SPG’s definition of NOI starts with operating income which includes corporate
expenses, G&A expenses, and property management expenses, which General
Growth EXCLUDES as shown on the following pages.
*Source: SPG Q3‐09 supplemental financial filing.
SPG’s Reconciliation of NOI
GGP’s Definition of NOI
“
“
*Source: Excerpt from GGWPQ Q3‐09 supplemental financial filing; emphasis added.
GGP’s Reconciliation of NOI
*Source: GGWPQ Q3‐09 supplemental financial filing; emphasis added.
Based on Pershing Square’s Methodology and Comparable NOI,
SPG’s Calculated NOI Is $3.4 Billion, Not $3.2 Billion
Pershing Square Analysis* Hovde Analysis (1)
Start with:
SPG LTM NOI (Pershing calc.) $3,227
Plus: LTM Home and Regional Office Costs 149
Plus: LTM G & A Costs 20
Comparable LTM NOI $3,396
*Pershing Square Capital Management, L.P. LLC “A Detailed Response to
Hovde’s Short Thesis on General Growth Properties” December 22, 2009, page
23.
(1) Source: SPG Q3‐09 and Q4‐08 supplemental financial filings.
Flawed Cap Rate Analysis
Based on Pershing Square’s Methodology and Comparably
Calculated NOI, SPG’s Implied Cap Rate Was 7.1%, NOT 6.7%
Pershing Square Analysis* Hovde Analysis (1)
SPG LTM NOI (millions) $ 3,227
Plus: LTM Home and Regional Office Costs 149
Plus: LTM General and Administrative Costs 20
Comparable LTM NOI $ 3,396
Implied Cap Rate 7.1%
Hovde Commentary
Based on a consistent methodology with
the way GGP calculates its NOI, SPG’s
NOI would be $3.396 billion and would
imply a cap rate of 7.1%, not 6.7%.
*Pershing Square Capital Management, L.P. LLC “A Detailed Response to
Hovde’s Short Thesis on General Growth Properties” December 22, 2009, page
23.
(1) Source: SPG Q3‐09 and Q4‐08 supplemental financial filings.
Inconsistent Calculation of Leverage
Why Does Pershing Square Calculate Leverage
Differently When Comparing GGP and SPG?
• When comparing leverage, Pershing Square
deducts cash in calculating debt for GGP, but
does not for SPG, which has over $4 billion*
of cash on hand.
• Why does Pershing Square not provide any
detail on their calculations in this section of
their analysis?
Pershing Square Analysis* Hovde Commentary
The calculation of these ratios is
not consistent. For GGP, net
debt is being used, while for
SPG, gross debt is being used.
As noted previously, Pershing
Square assumes the conversion
of unsecured debt for comparing
leverage but does not assume
the conversion for valuation
purposes.
*Pershing Square Capital Management, L.P. LLC “A Detailed Response to Hovde’s Short Thesis on General Growth Properties” December 22, 2009, page 25.
Hovde Analysis
(figures in millions) (Pershing Square Using
assumption of Pershing Pershing Using
unsecured Square Square Comparable
Current conversion) Presentation NOI Method NOI Method
GGP GGP (1) SPG (1) SPG SPG
Total Debt (w/JV @ Share) 27,868 27,868 25,041 25,041 25,041
Less: Unsecured Debt - (6,382) - - -
Less: Preferred Stock - (121) - (46) (46)
Less: Cash - (692) - (4,066) (4,066)
NOI (1) 2,478 2,478 3,227 3,227 3,396
Leverage 11.2x 8.3x 7.8x 6.5x 6.2x
Clearly these present quite different
pictures, and the inconsistency in the
methodology of calculation is obvious.
(1) Pershing Square Capital Management, L.P. LLC “A Detailed Response to Hovde’s Short Thesis on General Growth Properties” December 22, 2009, page 25.
Summary of NOI, Leverage, and Cap Rate Calculation
• Pershing Square calculates NOI and leverage differently for GGP and SPG
and then compares them as apples‐to‐apples ‐ which they are not.
• As a result of this inconsistency, we believe most of Pershing Square’s
assertions as it relates to valuation and leverage are inaccurate and
misleading.
• You can’t have it both ways:
– Either GGP’s NOI is lower than Pershing Square presents because it excludes
corporate and G&A expenses or SPG’s NOI is higher because it includes these
expense items.
– Either GGP’s leverage is higher if it is grossed up for its cash balance and lower
NOI or SPG’s leverage is lower if its cash is netted out of its debt and its NOI is
higher.
– Either GGP trades at a much lower implied cap rate than Pershing Square
presents or SPG trades at a much higher implied cap rate than presented.
Inconsistent Comparison of Debt Costs
Why Does Pershing Square Compare Rates on
Mortgage Debt to Rates on Unsecured Debt?
This comparison is not
apples‐to‐apples. When
comparing mortgage debt to
mortgage debt, SPG has
more attractively priced
mortgage debt, with a
weighted average rate of
5.17% per page 46 of SPG’s
Q3‐09 supplemental financial
report. See next page.
SPG’s Secured Debt Is Lower Cost
Than GGP’s
SPG Actual Balance Sheet Data Pershing Square Analysis*
Source: SPG Q3‐09 supplemental financial filing, p.46.
SPG’s Unsecured Debt Trades at More Attractive Yields
Than Even GGP’s Secured Debt
Hovde Commentary
SPG’s unsecured debt of
comparable maturity to
GGP’s secured debt trades
at a LOWER yield to
maturity (4.59%),
suggesting SPG could
refinance this debt at a
more favorable cost than
GGP’s financing. In
addition, GGP’s secured
debt requires amortization.
*Source: Bloomberg, as of 1/14/2010.
Irreconcilable Valuation of Development
Assets
We Cannot Reconcile Pershing Square’s Calculation of
Development Pipeline Assets
Pershing Square states that it applies a
35% discount to these assets; however,
per pages 33‐35 the company’s Q3‐09
supplemental report, these assets total
$1.05 billion, which would imply a
value of $653 million using a 35%
discount as opposed to the $779
million Pershing Square uses in its
analysis. Was this a calculator
malfunction?
Pershing Square Applies a 35% Discount to GGP’s
Development Pipeline – The Company Itself Thinks
53% of These Assets May Need To Be Written Off
Pershing Square Analysis Hovde Commentary
Of the $1.05 billion of development projects, $536.6 million (53%)
are significant deferred development projects, which the company
discusses in footnote (d) on page 35 of its Q3‐09 supplemental. The
footnote reads: “In late 2008, we suspended our Elk Grove
Promenade, The Shops at Summerlin Centre (SM) and other
developments. As of September 30, 2009, we had incurred
$459.7M of development costs associated with these
developments, with the majority of the costs being incurred
prior to suspension. We are currently obligated under existing
contractual obligations to local jurisdictions and prospective
tenants to spend an additional $23.8M. A decision about
whether to proceed and complete these developments will
depend on the Company's liquidity position, market conditions
and such contractual obligations. A decision to abandon
completion of these developments would likely result in the
marketing for sale of such project, potentially resulting in a
write off of a substantial portion of the costs incurred to date.”
(emphasis added)
Pershing Square Applies a 35% Discount to GGP’s
Development Pipeline – The Company Itself Thinks
53% of These Assets May Need To Be Written Off
Pershing Square Analysis Hovde Commentary
Of the $1.05 billion of development
projects, $536.6 million (53%) are
significant deferred development
projects, which the company discusses in
footnote (d) on page 35 of its Q3‐09
supplemental. If the company itself
believes 53% of these assets may need to
be written off completely, does 35%
seem like an appropriate way to discount
this possibility? Assuming these
deferred assets are written off, another
$266 million would need to be
subtracted.
Irreconcilable Valuation of Cash
We Just Don’t Know What Else To Say About This
Pershing Square Analysis*
Hovde Commentary
Everyone makes mistakes sometimes?
Source: GGWPQ Q3‐09 supplemental financial filing.
Irreconcilable Valuation of Other Assets
We Cannot Reconcile Pershing Square’s Calculation of
Other Assets
Pershing Square Analysis* GGP’s Actual Balance Sheet(1)
(1) Source: GGWPQ form 10‐Q 9‐30‐09, p.3.
Bankruptcy Risks
Bankruptcy Risks
– A stock price is not necessarily an indication of solvency.
– Publicly traded comparables are not the only factors considered in a bankruptcy valuation
analysis; therefore, private market transactions where cap rates are much higher are likely to
be considered in the analysis.
– We believe the relative ease of consensus on the plan of emergence related to secured
creditors thus far has been driven by the fact that much of the debt included in this plan was
CMBS loans, where the servicer is typically contractually obligated to liquidate assets within a
specified period of time upon foreclosure, which would likely lead to value destruction. In
addition, servicers have economic incentives not to foreclose on assets and risk losing fee
income. This is in contrast to other secured lenders and unsecured lenders, which can (and
often want to) own and operate assets to maximize recovery values and, therefore, have more
negotiating leverage.
– According to CRT Capital Group LLC, post petition interest on the bonds and the unsecured
term loan could amount to nearly $500 million assuming emergence by May 1, 2010, which
would further jeopardize any equity recovery (1).
– We believe unsecured creditors would be out of their minds to allow themselves to be
equitized at an inflated value and have their claim diluted. We believe the creditors are likely
to reject any proposed plan value that allows current equity holders to retain a significant
stake in the company.
(1) Source: “Dotting the I's and Crossing the T's” Kevin Starke, CFA, CRT Capital Group LLC, 12/28/09.
Bankruptcy Risks
• In our opinion time is not on equity holders’ side:
– The longer the company remains in bankruptcy, the more
difficult it becomes for the company to renew leases,
attract new tenants, and demand better pricing in lease
negotiations.
– The longer this dynamic continues, the more extended the
decline in the cash flow stream that will become
embedded in the company over time.
– GGP is highly leveraged; therefore, small changes in NOI
can lead to substantial changes in value and weakens
chances for an equity recovery.
– Legal fees, other bankruptcy costs, and unpaid interest
continue to accrue, eroding any potential equity recovery.
Recent Retail and Consumer Data
Recent Retail and Consumer Data Confirm
Ongoing Weakness in Mall Fundamentals
• Overage rents in GGP’s November operating statement showed an
insignificant increase from October, confirming our view that many
retailers are likely generating sales below threshold levels necessary
to generate significant levels of overage rents. (1)
• Consumer credit showed its largest contraction on record, declining
$17.5 billion in the month of November. (2)
• December retail sales declined 0.3%, missing expectations for an
increase. Traditionally mall‐based categories such as consumer
electronics and appliances and miscellaneous retailers showed
exceptional weakness, falling 2.6% and 1.0%, respectively. (3)
• Footlocker (NYSE: FL) announced plans to close 117 stores in
January 2010. (4)
• Williams Sonoma (NYSE: WSM) announced it plans to reduce its
square footage by 1‐2% in 2010 and is actively renegotiating more
favorable lease terms from landlords. (5)
(1) GGWPQ November monthly operating statement. (2) Federal Reserve Board of Governors, Consumer Credit, 1/8/2010. (3) US CENSUS BUREAU ADVANCE MONTHLY SALES FOR RETAIL AND FOOD
SERVICES, 1/14/2010. (4) Company press release, 1/8/2010. (5) Company press release, 1/14/2010.
Summary
Summary
• Based on the foregoing points in this presentation and other material
flaws we have highlighted previously, we believe Pershing Square’s
analysis is factually inaccurate and misleading, regardless of one’s
opinion of the company or potential outcome of the bankruptcy process.
• Given that Pershing Square has a representative on GGP’s Board of
Directors, how can GGP’s Board of Directors allow Pershing Square to
disseminate such inaccurate and misleading data?
• How can investors blindly follow the recommendations of Pershing
Square without scrutinizing the factual accuracy of the supporting
analysis, which we have shown to be faulty?
• We continue to encourage institutional and retail investors in these
types of investments to be wary of self‐interested third parties
promoting stocks based on inaccurate and misleading analysis. We
encourage investors to do their own analysis and due diligence and
check the facts of any potential investment.
We Believe Our Analysis Is Generous Towards the Company
and That It Is Questionable Whether There Will Be Value for
Current Shareholders Using Cap Rates We Think Are Too Low
Assumes 10% Decline in NOI (1)
Pershing Square Analysis Framework (2)
($ in millions, except per share data) Low High

Cash NOI $ 2,000 $ 2,000
Cap Rate 8.5% 7.5%
Implied Value of GGP's REIT 23,529 26,667
Pro Rata for JVs:

Less: Total Debt (28,174) (28,174)
Less: Preferred Debt (121) (121)
Less: Other Liabilities (1,766) (1,766)
Plus: Cash (3) - -
Plus: Other Assets 1,448 1,448
Plus: Development Pipeline 653 653
Implied Equity Value $ (4,431) $ (1,294)
Per Share $ (13.86) $ (4.05)
(1) See calculation of NOI on page 30 of General Growth Properties, “Fool’s Gold,” Hovde Capital Advisors, LLC, December 15, 2009.
(2) Analysis taken from “The Buck’s Rebound Begins Here” dated May 27, 2009 – Pershing Square Capital Management, L.P. (p. 56), updated for Q3‐09 financial statements.
(3) Hovde Capital Advisors analysis assumes cash NOI of $2.0 billion and, unlike Pershing Square, assumes cash is paid out in fees to secured and unsecured creditors.
We Believe Our Analysis Is Generous Towards the Company
and That It Is Questionable Whether There Will Be Value for
Current Shareholders Using Cap Rates We Think Are Too Low
Best Case – Assumes Conversion and No Realistic Case - Assumes Conversion and No
Decline in NOI (1) Decline in NOI (1)
($ in millions, except per share data) Conversion Price Range $5-$8 Conversion Price Range $3-$6
LTM Cash NOI $ 2,200 $ 2,200 $ 2,200 $ 2,200 $ 2,200 $ 2,200 $ 2,200 $ 2,200
Cap Rate 7.5% 7.5% 7.5% 7.5% 8.5% 8.5% 8.5% 8.5%
Implied Value of GGP's REIT 29,333 29,333 29,333 29,333 25,882 25,882 25,882 25,882
Pro Rata for JVs:

Less: Total Debt (21,174) (21,174) (21,174) (21,174) (21,174) (21,174) (21,174) (21,174)
Less: Preferred Debt (121) (121) (121) (121) (121) (121) (121) (121)
Less: Other Liabilities (1,766) (1,766) (1,766) (1,766) (1,766) (1,766) (1,766) (1,766)
Plus: Cash (2) - - - - - - - -
Plus: Other Assets 1,448 1,448 1,448 1,448 1,448 1,448 1,448 1,448
Plus: Development Pipeline 653 653 653 653 653 653 653 653
Implied Equity Value $ 8,373 $ 8,373 $ 8,373 $ 8,373 $ 4,922 $ 4,922 $ 4,922 $ 4,922
Per Share $ 4.87 $ 5.63 $ 6.34 $ 7.01 $ 1.86 $ 2.38 $ 2.86 $ 3.31
Assumed conversion price: $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 3.00 $ 4.00 $ 5.00 $ 6.00
(1) See calculation on page 24 of General Growth Properties, “Fool’s Gold,” Hovde Capital Advisors, LLC, December 15, 2009. Assumes unsecured debt would require a moderate discount to convert, although it

is questionable in our view whether there will be any value for existing shareholders given that we believe the value of the debt exceeds that of the assets.
(2) Assumes cash is paid out to creditors in forbearance fees and reimbursement of legal expenses.
Commercial Real Estate Values Have
Dropped 43% Since the Peak in 2007
Hovde Analysis
General Growth Implied Market Value Analysis
($millions)
As of 12/31/2007 Calculation
Total Assets 28,814,319 (A)
Accumulated Depreciation 3,605,199 (B)
Total Liabilities 26,884,779 (C)
Stockholders Equity 1,456,696 (D)
Adjusted Total Assets 32,419,518 ( E ) = ( A ) + (B )
Adjusted Stockholders Equity 5,061,895 (F)= (B)+(D)
Mark-to-Market Adjusted Total Assets 18,479,125 ( G ) = ( E ) * (1 - 43%)

Total Liabilities 26,884,779 (C)
Implied Market Value of Equity (8,405,654) = ( G ) - ( C )
Hovde Commentary
Applying the Moody’s/Real Commercial Property Index Data to General
Growth’s balance sheet implies a substantial equity value shortfall based
on today’s asset values. While we appreciate there are certain assets that
Source: Moody’s/REAL Commercial Property Index, Real Capital have been held for a long period of time, we would note that roughly half
Analytics.
the company’s total assets were acquired in the Rouse acquisition near
peak cycle prices.
Balance sheet data as of 12/31/07 per GGP SEC filings form 10‐K.
Appendix
Reference Materials and Resources
Commercial Real Estate Fundamental Research and Data – (actual private market data
depicting the deteriorating trends in retail rental rates and occupancy as well as
declining commercial real estate asset prices)
• www.cbre.com CB Richard Ellis (national and regional occupancy, leasing, and demographic trends)
• www.colliers.com Colliers International (national and regional occupancy, leasing, and demographic
trends)
• www.reis.com Reis (market data on occupancy, supply, absorption, etc.)
• www.costar.com CoStar Group (property‐level data on occupancy, rental rates, etc.)
• www.rcanalytics.com Real Capital Analytics (comprehensive CRE transactional database)
• http://www.pwc.com/us/en/asset‐management/real‐estate/index.jhtml ‐ Pricewaterhouse
Coopers (comprehensive CRE market data, surveys, and forecasts)
Public REIT Company Data– (financial statements and operational data)
• http://www.sec.gov/edgar/searchedgar/companysearch.html ‐ public company filings
• www.ggp.com – General Growth’s website with links to supplemental financial reports
• www.simon.com – Simon Property Group’s website with links to supplemental financial reports
Disclosures
Disclosures
• Funds advised by Hovde Capital Advisors, LLC and/or one of its principals have established
short positions in the common stock of General Growth Properties (OTC: GGWPQ) and
Williams Sonoma (NYSE: WSM). Their positions in these stocks and others may change
without further notice.
• Neither the funds advised by or any affiliates of Hovde Capital Advisors, LLC hold positions in
any companies mentioned in this document other General Growth Properties and Williams
Sonoma.
• The opinions and views expressed in this document and the analysis set forth herein may
change and Hovde Capital Advisors, LLC is not undertaking to update its opinions, views or
analysis.
• Although the factual information contained in this document is believed to be accurate,
Hovde Capital Advisors, LLC does not warrant its accuracy or completeness.
• This document is not intended to be, and should not be construed as, investment advice or a
recommendation to buy or to sell any security.

General Growth Properties - 3

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

General Growth Properties - 3

Hochgeladen von

Copyright:

Verfügbare Formate

Inconsistencies and Errors in Pershing

Pershing Square Analysis Framework (2)

($ in millions, except per share data) Low High

Pro Rata for JVs:

Per Share $ (13.86) $ (4.05)

Pro Rata for JVs:

Assumed conversion price: $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 3.00 $ 4.00 $ 5.00 $ 6.00

(1) See calculation on page 24 of General Growth Properties, “Fool’s Gold,” Hovde Capital Advisors, LLC, December 15, 2009. Assumes unsecured debt would require a moderate discount to convert, although it

Mark-to-Market Adjusted Total Assets 18,479,125 ( G ) = ( E ) * (1 - 43%)

Das könnte Ihnen auch gefallen