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General Growth puts malls on the block

Three Strip properties for sale; analyst says 'end is near' for mall giant




Mall giant General Growth Properties will try to use three malls on the Strip to escape the looming shadow of billions of dollars in debt.

On Monday the company announced plans to offer Fashion Show, Grand Canal Shoppes and Shoppes at Palazzo malls for sale, as well as an overhaul of the senior management.


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  • The move looks like a last-ditch effort to save the second-biggest real estate investment trust, or REIT, in the country from an outright takeover or bankruptcy.

    But it may be too little, too late, analysts said.

    General Growth has $900 million in loans due by the end of November and about $4 billion by the end of 2009.

    "I think it is indicative that the end is near and they are going to get sold," said Rich Moore, an analyst with RBC Capital Markets.

    Moore says he is doubtful General Growth will find buyers for the Las Vegas properties as individual entities.

    It's likely they offered the big-name properties in an effort to slow a crippling slide in stock value that's forced upper management to dump shares by the bushel to meet margin calls and made it even more difficult to refinance loans to remain solvent.

    "It keeps (Wall Street) at bay a bit," Moore said.

    Deutsche Bank analyst Bill Lerner said the proposed Las Vegas sale could make it easier for General Growth to refinance its most pressing loans. Lerner also said it could be a signal a sale of the entire company is in the works.

    "Potential buyers of these three assets are likely to want other assets more strategic to their respective portfolios, as well. With so many assets potentially being marketed, it makes sense for the board to more seriously consider the sale of the entire company," Lerner wrote.

    In addition to the sale offerings, General Growth ousted Chief Executive Officer John Bucksbaum, a member of the family that founded the company, and President Robert Michaels from those duties. Bucksbaum remains chairman of the board and Michaels is still chief operating officer.

    Moore predicted the changes announced Monday are a harbinger of a sale of the entire company, possibly to Simon Property Group, the nation's biggest REIT. It already owns Forum Shops at Caesars.

    "Simon doesn't want them sold off individually," Moore said. "They'd like to jump in and buy the whole thing."

    General Growth borrowed to create a massive portfolio of more than 200 properties in 44 states, including a $14 billion deal in 2004 to purchase the Rouse Co., which owned Fashion Show mall, Summerlin Centre and several other Las Vegas properties.

    Company stock started slipping several months ago as prospects for consumer spending waned.

    Shares went into freefall more recently when investors realized the confluence of the credit crunch with an emerging recession would make it difficult, if not impossible, for General Growth to make good on its debts.

    Financial blogger Reggie Middleton, whose detailed criticisms of General Growth were posted online at www.boombustblog.com in January, months before management acknowledged serious problems, said the news Monday wasn't a surprise.

    "Of course it could have," been prevented, said Middleton. "They didn't take care of the problems."

    He criticized management not only for over-leveraging the company long ago but for compounding the problem through mismanagement.

    Middleton said General Growth officials heaped blame on short sellers for forecasting a demise, got the company added to the list of firms protected from short sellers that was created in September to protect banks, then dumped millions of their own shares to meet margin calls.

    "The latter part of the share price compression was the management's own making," Middleton said. "They owned a lot (of stock) on margin. They sold more shares than speculators like me ever would."

    Wally Brewster, General Growth Properties senior vice president of marketing and communications, said the malls are healthy on an operational level.

    But the company has loans coming due on Shoppes at Palazzo and Fashion Show, which made them candidates for sale, and Grand Canal Shoppes is one of the most successful malls in the country, meaning it would likely be attractive for a buyer.

    "They are some of the world's highest-quality malls," Brewster said.

    As for the notion that General Growth officials would seek a buyer for the entire company, "We always look at all the options."

    Brewster also responded to the idea that company officials could have averted the problem by taking action earlier.

    "I think we stand on our success of the past 50 years," Brewster said. "We are now dealing with an environment I don't think the U.S. has seen since the Great Depression."

    With Bucksbaum and Michaels demoted, General Growth turned to Adam Metz to be interim CEO.

    Metz was CFO of mall company Urban Retail Properties, which in 2000 was sold to the Dutch firm Rodamco. In 2002 Rodamco was sold to Rouse, Simon and Westfield, an Australia-based mall company. Metz came to General Growth when the company acquired Rouse in 2004.

    Moore agreed with Middleton that the moves on Monday aren't likely to preserve General Growth as a complete entity. He added that current problems could have been averted had management girded the balance sheet before the credit markets went south.

    The moral of the story?

    "Leverage is very, very dangerous," Moore said.

    Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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    Riverchase Galleria GGP property wrote on November 11, 2008 08:52 PM: I have a store in the Riverchase Galleria. We too have a terrible smell that management just pretends they dont smell. Maybe it's just the smell of their management. Who knows? I have seen the lack of competent management at the operations level and can only imagine that with the exception of the family members, that these are the same people in upper management as well. It is somewhat common knowledge that the quality/competence of operations employees is virtually nil. This could have only contributed to their ultimate demise. The management that I have contact with are difficult to deal with, unprofessional, in CONSTANT churn. We get a new General Manager, marketing director, security director every 6-12 months. Fundamental methods of operation I have observed are flawed terribly. They are not being as selective in what stores they are willing to lease to. We have systematically seen the loss of almost all of our fine stores and replaced with 5x more Kiosk and specialty retail vendors. Security is another serious issue. The mall is being taken over by roving gangs of thugs and at times homeless people. Once a controlling share of this property was purchased from the original owners Jim Wilson Properties, There was a steady decline in the upkeep and overall management of the facility. The management has a bad attitude at every level that I have had the displeasure of dealing with over the past 14 years I have been in the property. The best thing that can happen for me is for ANYBODY to buy out this company. ANYTHING would be better than what we have now. I should tell them that I'm not paying my lease this month because im filing bankruptcy with them.... yeah.. thats what i'll do. ;)


    Jean wrote on October 29, 2008 07:06 AM: Hopefully whoever buys the Fashion Show will take care of the constant terrible smell in the garage. It smells like sewage. I no longer shop there because of how bad it smells. I almost threw-up one day.
    I contacted management several times and even wrote a letter to GGP and never got a return phone call about it. Apparently they just don't have enough money to fix the problem. It is NASTY!


    Pat McGroin wrote on October 29, 2008 05:39 AM: This is the only town in the world with 3 high-end malls all in a small intersection. Did they really think they were going to make money?

    It's basic economic principles and that is why Vegas failed. Too many high-end malls, too many steakhouses, too many rooms and a bad attitude are a recipe for disaster.


    Tio wrote on October 29, 2008 02:29 AM: Oh yeah, have a nice day!


    Tio wrote on October 29, 2008 02:27 AM: Just the beginning. We're not talking about cutting back on a few extras. The highly leveraged positions that U.S. Corps and individuals have been in for years is slowly building into a much bigger downturn. Ripple effect does not accurately describe what's going on now throughout our highly interwoven economy, nationally and globally. Only the strong will survive. Look for these market corrections to lead to greater consolidation in every industry.


    casinocon wrote on October 28, 2008 12:54 PM: My theory is the high end shops are just icing on the cake to elevate the value of the brands and properties, another loss leader that nonetheless boosts image. In this economy show won't go though. Who shops there? I couldn't tell you, other than Michael Jackson who is known to frequent the Canal Shoppes. I was at Wynn yesterday and the shopping area was empty. I walked over to Palazzo but was so bored by the casino (it is so visually unappealing and stocked with a bad selection of slots) I left without checking out the shops. The sizzle is gone from Vegas, and the tourists will not return in the numbers seen before. If I've said it once, I've said it a million times -- the party's over.


    Joe wrote on October 28, 2008 10:11 AM: Does anyone buy anything at the Palazzo Shoppes which includes Barney's NY? There are luxury shops at Caesar's, Bellagio and Wynn. Don't know how they can support so many high-end stores all so close to each other.


    GLAD TO SEE GGP GONE! wrote on October 28, 2008 08:23 AM: Glad to see GGP is going down. This is not surprising. The people they have running the company and properties, most of them don't have an education. They started at the company and moved up and up. Sort of like a govt. job, once you are in, you are in and no matter how bad you are, you will constantly get promoted. The company really needed to look at who was the most qualified for jobs. It's funny, they finally ousted a family member.
    ut then when you are in that much trouble you have to finally do something to get the job done and not worry about hurting feelings.