General Growth inks definitive deals for $6.55 billion of investments

By Caroline Salls

Pittsburgh, April 1 - General Growth Properties, Inc. has filed definitive documentation related to proposals from Brookfield Asset Management, Pershing Square Capital Management and Fairholme Capital Management under which Brookfield, Pershing Square and Fairholme will commit $6.55 billion of new equity capital at a value of $15 per share to facilitate General Growth's emergence from bankruptcy, according to a company news release.

In addition, General Growth will issue warrants for 120 million shares exercisable at $15 per share, subject to bankruptcy court approval.

As previously reported, Brookfield has agreed to invest $2.625 billion in a proposed recapitalization at a value of $15 per share.

In addition, Fairholme has agreed to invest $2.8 billion, and Pershing Square has agreed to invest $1.1 billion of new equity capital at a value of $15 per share.

According to the release, these proposed transactions provide General Growth with long-standing commitments for a significant amount of equity financing, while preserving the option to replace up to $1.9 billion of the new equity capital to the extent it is able to raise equity capital on more attractive terms.

The company said this combined equity capital, along with an expected new $1.5 billion debt issuance or the reinstatement of a comparable amount of existing debt, would deliver substantially all of the cash required to fulfill General Growth's capital needs in connection with its emergence from bankruptcy.

As part of the proposed transaction, new company General Growth Opportunities will be formed and will own a diverse portfolio of real estate assets, including the company's master-planned communities and landmark properties, including Ward Centers in Honolulu, Hawaii and South Street Seaport in New York.

Rights offering

According to a Brookfield news release, General Growth Opportunities will raise $250 million through a rights offering at a price of $5 per share, with Brookfield backstopping $125 million of the rights offering.

If the backstop is fully drawn, Brookfield will hold a 7% interest in General Growth Opportunities.

Fairholme and Pershing Square will backstop the other 50% of the rights offer, and all of the backstop parties will receive warrants in return for their investment commitments.

Plan terms

Under General Growth's proposed plan of reorganization unsecured creditors will receive par plus accrued interest before taking into account the warrants.

Existing shareholders will receive 34% of the equity of reorganized General Growth and 86% of the equity of General Growth Opportunities.

"This proposed transaction represents an important step toward our goal of creating the greatest value for all our stakeholders," General Growth chief executive officer Adam Metz said in the release.

"It provides for a $6.55 billion investment at a value of $15 per share and par plus accrued recovery for unsecured creditors, while providing GGP with the flexibility to explore even better alternatives for an emergence transaction.

"Importantly, it allows GGP's existing equity holders to participate in the potential upside value of GGP and GGO, both of which will be better-capitalized companies operating in an improving economy.

"We have structured the proposed transaction to protect the rights of minority shareholders, including existing GGP equity holders, by establishing certain ownership limits and voting restrictions."

According to the Brookfield release, General Growth's standalone plan share price should benefit from both multiple expansion in the short term and increased net operating income and cash flows over the longer term as the business is refocused on operational improvements.

Brookfield said the 34% shareholder ownership could possibly be adjusted upward if $1.9 billion of additional capital is raised at higher share prices with corresponding reduction of the capital provided by Fairholme and Pershing Square.

Alternatively, in a sale of the company shareholders would receive either cash or securities of a competitor.

"We believe this is one of the great real estate value opportunities currently available in the capital market," Brookfield CEO Bruce Flatt said in the release.

"GGP's high quality assets and substantial scale as the second-largest regional mall owner presents all shareholders with a compelling long-term investment opportunity."

Brookfield role

Following the recapitalization, Brookfield said it expects to own roughly 26% of General Growth's equity and will hold three of nine board seats in the recapitalized company.

Following General Growth's emergence, Brookfield said it has also agreed to provide office asset management services at no cost to the company; provide master-planned community asset management assistance, including installing a Brookfield executive as CEO of General Growth Opportunities if requested; assist in completing the $1.5 billion corporate credit facility; substantially lock up its share investment for a minimum period of 18 months; and assist General Growth generally in corporate finance matters, including providing access to its global banking and capital relationships.

General Growth, a Chicago-based real estate investment trust that owns regional shopping malls, master-planned community developments and commercial office buildings, filed for bankruptcy on April 16, 2009 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 09-11977.

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