Simon Property Group improves General Growth investment proposal

By Caroline Salls

Pittsburgh, April 22 - General Growth Properties, Inc. has received a letter from Simon Property Group, Inc. outlining improvements and modifications to the terms of Simon's April 14th proposal to recapitalize General Growth, according to a Simon news release.

As previously reported, Simon would invest $2.5 billion at the same $10 per share price as the General Growth plan of reorganization sponsored by Brookfield Asset Management.

In addition, Simon will fully backstop an additional 380 million shares of common stock to be issued in the General Growth reorganization at a price of $10 per share.

To date, Simon said Paulson & Co., ING Clarion Real Estate Securities, Oak Hill Advisors, RREEF and Taconic Capital Advisors have committed to invest a combined $2.1 billion in General Growth without receiving any of the highly dilutive and expensive warrants that General Growth proposes to issue to Brookfield, Pershing Square and Fairholme Capital.

In its letter, Simon said eliminating the warrants could mean an $895 million benefit for General Growth, or $2.75 per share based on Thursday's share count.

According to the release, the amended proposal offers significantly higher value and substantially greater certainty to General Growth and all of its stakeholders than the transaction proposed by Brookfield.

Under the amended proposal:

• Simon has agreed to backstop a $1.5 billion credit facility necessary for General Growth to close and emerge from bankruptcy, thus eliminating a great risk and uncertainty inherent in the Brookfield-led proposal;

• Simon would agree to limits on its governance rights, including a cap on its voting rights at 20%, the right to designate only two of nine General Growth board members, as opposed to the three of nine that Brookfield has nominated.

Simon said its proposed nominees are Dale Anne Reiss and Peter Linneman.

According to the letter, Simon would agree to dispose of any interest in General Growth in excess of 45%;

• Simon has agreed to waive a $12.5 million fee that would be levied by Brookfield, Pershing Square and Fairholme Capital for their commitment to backstop the contemplated General Growth Opportunities rights offering; and

• Simon will agree to pay the holders of General Growth's unsecured claims cash equal to the amount of pre-bankruptcy and post-bankruptcy interest at the stated non-default contract rate through the effective date of the plan plus any default or compound interest.

As a condition to its obligation to complete its investment, Simon said it would require General Growth to have minimum liquidity of only $350 million and maximum total debt of $22.25 billion, which would provide the company with $300 million more liquidity flexibility and greater certainty of closing than the more stringent standards insisted upon by Brookfield, including minimum liquidity of $500 million and maximum total debt of $22.1 billion.

"SPG strongly believes that its proposal to take a passive minority stake, with numerous procedural and governance safeguards, and together with a group of highly sophisticated, experienced and independent investors, does not pose any concern for the stakeholders of GGP," Simon Property Group said in the release.

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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