General Growth Properties Inc. priced 135 million shares at $14.75 per share on Monday, as part of a plan to raise $1.99 billion to repay investors who helped finance the No. 2 U.S. mall owner’s exit from bankruptcy.
If a 20.25 million overallotment to underwriters is exercised, the company will have raised $2.29 billion and generated more than $600 million in additional cash.
The new funds will allow General Growth to substitute some of the financing from several of its initial investors, chiefly Fairholme Funds Inc and Pershing Square Capital LP, with cheaper capital.
The shares will be the first new shares the company issued to raise money since it emerged from bankruptcy on Nov. 9. General Growth shares on Monday closed at $15.40, or flat, on the New York Stock Exchange. Shares were halted prior to the pricing.
“At the deal price, there could be upside to investors,” Benjamin Yang, analyst with Keefe, Bruyette & Woods said. “But a lot of things have to fall into place for that upside to be realized.”
After more than 18 months operating under the protection of Chapter 11, General Growth emerged from bankruptcy as two companies. The mall company, which retained the name, houses about 183 of its coveted malls, such as Fashion Show in Las Vegas and Ala Moana in Hawaii. It retained its ticker and its status as a real estate investment trust (REIT).
The other company, the Howard Hughes Corp., houses the master-planned community business, land holdings and shopping center and malls in various stages of development.
“Out of necessity they’ve been playing defense, holding on to tenants,” said David Shulman, real estate professor at Baruch College, and former Lehman senior real estate investment trust analyst. “Now with the emergence from bankruptcy and capital raise and the hiring of the new CEO, they have the ability to go on the offense.”
To head the mall company, General Growth has named Sandeep Mathrani, the former head of retail real estate for Vornado Realty Trust, as its new chief executive officer. Mathrani is expected to take over early next year and replace outgoing CEO Adam Metz, who steered the company through the bankruptcy process shortly after long-time CEO John Bucksbaum stepped down.
“The new CEO has a unique skill set with redeveloping dense retail assets,” Shulman said. “If you look at the mall business, the bulk of the growth opportunities will come from increasing square footage of the retail space (in existing malls) and including such non retail use as office, hotel and residential.”
General Growth filed for bankruptcy in April 2009, after it was unable to refinance maturing mortgage and corporate debt because of the credit crisis. The investor group, lead by Brookfield Asset Management Inc, enabled to reject a takeover offer from Simon Property Group Inc. by committing about $6.8 billion in capital to finance General Growth’s emergence as an independent company.
However, the company structured the deal with the Brookfield-lead group that gave it the flexibility to find cheaper funding through the stock market, should those investors welcome it back.
