10 November 2010

General Growth Exits Biggest Real Estate Bankruptcy


General Growth Properties Inc., the second-largest U.S. mall owner, exited from the biggest real estate bankruptcy in the country’s history and split itself into two companies.

The landlord has spun off Howard Hughes Corp., an owner of master-planned communities and other properties, Chicago-based General Growth said today in a statement. The shares of the newly separate General Growth will begin trading tomorrow on the New York Stock Exchange.

General Growth filed for Chapter 11 protection in April 2009 after weighing itself down with $27 billion in debt that it was unable to refinance because of the financial crisis and collapse of the commercial mortgage-backed securities market. The company’s restructuring plan provided a full recovery for creditors and a recovery for shareholders, which is rare in a bankruptcy reorganization.

General Growth last month hired Sandeep Mathrani of Vornado Realty Trust as its new chief executive officer. Mathrani will assume the position at the beginning of 2011 after serving for more than eight years as executive vice president of retail real estate at New York-based Vornado.

Adam Metz has been General Growth’s CEO since October 2008, when he replaced John Bucksbaum, a member of the company’s founding family. Metz and Thomas Nolan, president and chief operating officer, agreed to stay in their positions for as long as a year after the restructuring while the company searched for a new management team.

Takeover Fight

After filing for bankruptcy, General Growth first focused on restructuring about $15 billion in mortgage debt tied to about 140 properties, an effort it completed earlier this year. It then turned to its corporate-level debt and became the subject of a takeover battle between rival Simon Property Group Inc. and an investor group. Indianapolis-based Simon is the largest U.S. mall company.

The investor group -- Brookfield Asset Management Inc., Bill Ackman’s Pershing Square Capital Management LP and Bruce Berkowitz’s Fairholme Capital Management LLC -- prevailed, committing more than $8 billion to bring General Growth out of Chapter 11.

General Growth began a public offering of 135 million shares of the new company to replace some of the financing commitments from the Brookfield, Fairholme and Pershing group, as well as the Teacher Retirement System of Texas, the company said in a separate statement.

The stock closed today at $17.39. Its closing price was 59 cents on April 16, 2009, the day the company filed for bankruptcy.

General Growth owns and operates more than 183 retail centers in 43 states. The company reported a loss in core funds from operations on Oct. 29 of $29.3 million in the third quarter, compared with a profit of $88.9 million, or 28 cents, a year earlier because of restructuring costs.

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