I was first introduced to General Growth Partners (GGP) several years ago at a small alumni gathering featuring Pershing Square’s Bill Ackman as the keynote speaker. Amongst other topics, he spoke about the then bankrupt (trading at <$1) company as his ‘top’ idea at the time. This ‘idea’ turned out to be quite profitable for [...]
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Another year has come and gone which means that we have all been inundated with a million ‘Look Back’ and ‘Best Of/Worst Of’ pieces for the past few weeks. I always found this to be an interesting and immensely boring phenomenon as we just lived through it. Should be pretty fresh in our memories. We [...]
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Rouse Properties(RSE) had announced it intended to do a rights offering after its spinoff from General Growth Properties(GGP) was complete. This afternoon, Rouse announced that the offering will be set for the close of business on February 13. Each Right will allow the holder to purchase 0.375094056 shares of stock at a price per share of $15, as previously announced. Brookfield Asset Management(BAM), the company’s largest shareholder, has agreed to purchase any unsubscribed shares, up to the $200 million total. As the company closed today at $13.80, it seems likely that Brookfield will purchase the majority of the shares.
Disclosure: The author owns shares in RSE
Rouse Announces Record Date For Rights Offering is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
With General Growth Properties (GGP) completing another spinoff,Rouse(RSE) last week, it is worth checking in on how its first spinoff, the Howard Hughes Corporation (HHC), has fared. Here is a recent chart detailing HHC’s stock price since inception (apologies for the charting software – on vacation):
It has been quite a wild ride for the company – a relatively quick double followed by a steady descent after some earnings ‘disappointments’. Has anything really changed though? Whitney Tilson, head of T2 Partners, sure doesn’t think so. In fact, the company is still listed as a Top 10 position in the firm’s recently published annual letter (the company is discussed on page 15, but the letter is worth reading). T2 estimates intrinsic value of HHC at $77-$141, a sizable premium to the current share price. To read more about T2′s analysis of HHC, check out this July presentation put out by the fund.
I find that investing in real estate (and their associated stocks) can be a tricky game. While a solid understanding of the properties and their potential is crucial, the economic environment surrounding them is just as important. It is worth noting that the insiders, including Brookfield Asset Management (BAM) and Bill Ackman at Pershing Square, are still hanging on here. It even looks like some directors have been buying a little bit over the past few months. The bottom line is HHC is still full of the same high risk-high reward assets as it was at the time of its spinoff and given their nature, a year is a bit too short of a time frame for those assets to be judged. I would recommend patience here and view the decline as a chance to get back in at a more attractive price as opposed to having had to chase it up immediately post-spin.
Disclosure: Author currently holds no position in any stock mentioned.
Checking In On Howard Hughes Corporation – Over A Year Later is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
General Growth Properties(GGP) released informations to help shareholders who received Rouse(RSE) shares in
the recent spinoff calculate their tax liabilities. The press release:
CHICAGO, Jan. 17, 2012 /PRNewswire/ — On January 12, 2012, General Growth Properties, Inc. distributed (the “Distribution”) its shares in RPI to the shareholders of record as of the close of business on December 30, 2011 (each a “GGP Shareholder”). GGP Shareholders were entitled to receive approximately 0.0375 shares of RPI common stock for each GGP common share (representing a distribution ratio of 1:26.66) held as of December 30, 2011.
Tax Treatment of the Distribution. GGP intends to report the Distribution of RPI common stock as a taxable dividend for U.S. federal income tax purposes. Shareholders will be treated as receiving a taxable dividend upon the Distribution equal to the fair market value of the RPI common stock (and cash in lieu of fractional shares of such common stock) received in the Distribution and will take an adjusted basis, for federal income tax purposes, in such shares equal to the fair market value of such shares based on the market price on the date of the Distribution. The fair market value for federal income taxes of RPI common stock based on the volume weighted average price during January 12, 2012, was approximately $11.3612 per share (equivalent to $0.426 per GGP common share based on the distribution ratio of 1:26.66; Source: Bloomberg). The basis in shares held by GGP shareholders will not be altered as a result of the Distribution.
The tax law requires shareholders to retain records with respect to the Distribution, including information regarding the amount, basis and fair market value relating to the RPI common shares distributed. Shareholders may have additional reporting obligations to the Internal Revenue Service and/or other tax authorities.
CONSULT YOUR TAX ADVISOR
This notice contains a general explanation of certain U.S. federal income tax consequences of the Distribution for GGP Shareholders. The information contained in this notice represents GGP’s general understanding of the application of certain existing U.S. federal income tax laws and regulations relating to the Distribution. It does not constitute tax advice and does not purport to be complete or describe the consequences that may apply to particular categories of GGP Shareholders (including, but not limited to, individuals who received GGP common shares upon the exercise of employee options or otherwise as compensation). Shareholders are urged to consult their tax advisor regarding the particular consequences of the Distribution, including the applicability and effect of all U.S. federal, state and local and foreign tax laws.
GGP urges shareholders to read the Information Statement dated as of December 30, 2011, as filed by RPI as Exhibit 99.1 to its Current Report on Form 8-K on December 30, 2011, noting especially the discussion under the heading “Material United States Federal Income Tax Consequences—Taxation of the Distribution.”
IRS CIRCULAR 230 NOTICE: TO ENSURE COMPLIANCE WITH IRS CIRCULAR 230, SHAREHOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY SHAREHOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING BY GGP OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) SHAREHOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
Given the high distribution ratio, it is likely that as is the case with Orchard Supply(OSH), many shareholders received tiny stakes, making it cumbersome for them to complete their taxes. Shareholders should be sure to be careful and consult with a professional to properly handle this distribution.
Disclosure: The author owns shares in OSH
Rouse Distribution Tax Information For GGP Shareholders is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
General Growth Properties (GGP) is an unusual story, delivering profits to pre-bankruptcy shareholders and featuring several investing luminaries among its shareholders. It has now completed its second spinoff in a little more than a year, as Rouse Properties (RSE) begins trading regular way tomorrow. Rouse completes trading on a when-issued basis at $11.30.
Rouse, which we previously wrote about here and here, owns 30 malls comprising 21 million square feet in 19 states. In its press release today, the company stated
Today, Rouse Properties, Inc. (Rouse) becomes an independent regional mall company that will formally commence “regular way” trading under the symbol RSE when the New York Stock Exchange opens January 13, 2012.
Rouse is a publicly traded real estate investment trust (REIT) focused on the management, redevelopment, repositioning and acquisition of Class B regional malls. Initially, the Rouse portfolio consists of 30 geographically diverse enclosed malls, encompassing more than 21 million square feet in 19 states.
“The formation of a new REIT solely focused on Class B regional malls is a unique opportunity and Rouse is well positioned to not only achieve success, but continue building on its platform over time to further strengthen its market position,” said Andrew Silberfein, president and CEO of Rouse. “Rouse has the scale, capital and talent, as well as the flexibility and creativity to innovate and deliver the quality that Rouse is committed to achieving. This is an exciting day for Rouse and for our entire team of outstanding professionals.”
Executives with Rouse Properties, Inc. rang The Closing Bell® of the New York Stock Exchange today to commemorate the company’s entry on the NYSE.
General Growth Properties, Inc. completed the spin-off of Rouse through the distribution of shares of Rouse common stock to holders of GGP common stock. Under the terms of the spin-off, GGP stockholders received approximately 0.0375 shares of Rouse common stock for every share of GGP common stock owned as of the record date of December 30, 2011. Rouse is being advised on the spin-off by Wells Fargo Securities/Eastdil Secured, RBC Capital Markets, Deutsche Bank Securities Inc. and Goldman, Sachs & Co.
All information previously made public about Rouse can be found at rouseproperties.com.
According to Bloomberg:
General Growth, based in Chicago, divested itself of the malls to concentrate on properties with higher rents and tenant sales and to reduce debt. Rouse’s malls are either the main shopping center in smaller U.S. cities or are second-tier properties in major markets.
“It’s not a troubled portfolio,” Craig Guttenplan, an analyst at CreditSights Inc. in London, said in a telephone interview before the spinoff was completed. “It’s just properties with less growth potential.”
Rouse’s 30 malls are 88 percent occupied and generate sales of about $280 per square foot, Nathan Isbee, an analyst at Stifel Nicolaus & Co., wrote in a Nov. 11 report. General Growth had tenant sales of $471 a square foot on a trailing 12-month basis as of Sept. 30, and a 92.7 percent occupancy rate for its regional malls, the company said on Nov. 9.
Rouse plans to spend $200 million on property redevelopment by the end of 2015 to boost net operating income, the company said in a regulatory filing last month.
Rouse was expected to have about $1.16 billion of debt with a weighted average interest rate of about 5.6 percent at the time of the spinoff, General Growth said on Dec. 20.
Andrew Silberfein took over as chief executive officer of Rouse on Jan. 2, according to a regulatory filing. Silberfein previously was executive vice president of retail and finance at Forest City Ratner Cos., where he worked since 1995.
Rouse has filed an S-11 to conduct a Rights Offering of 13,333,333 shares at $15, well above the current price. Brookfield Asset Management (BAM), which through its shares of GGP will already own 37.2% of the company, is contractually obligated to purchase any shares not acquired by other shareholders. As a result, Rouse will receive the $200 million regardless of the interest in the offering. The company has not yet announced a date for the offering. The filing details how the $15 price was set:
The subscription price per share for the rights offering was determined by the disinterested members of GGP’s board of directors who are not affiliated with, and do not have a financial interest in, Brookfield. This price was determined in connection with the negotiation of the backstop agreement we entered into with Brookfield, which occured prior to the spin-off and, therefore, prior to the appointment of our post spin-off board of directors. In evaluating the subscription price, the disinterested members of GGP’s board of directors considered a number of factors, including, the estimated value of our mall portfolio, including an analysis of the same by an independent valuation firm, our anticipated net asset and gross enterprise value, which take into account our anticipated net working capital, our capital structure and the amount of debt we expect to have upon completion of the spin-off, and the price at which Brookfield was willing to backstop the rights offering. In considering the terms of the Brookfield backstop agreement, the disinterested directors of GGP’s board of directors also took into account advice of financial advisors and counsel in concluding that the subscription price is in our and GGP’s best interests. Based on these considerations, GGP’s board of directors determined that the $15.00 subscription price per share represented an appropriate subscription price.
The subscription price does not necessarily bear any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth or any other established criteria used to value securities. You should not consider the subscription price to necessarily be an indication of the fair value of the common stock to be offered in this offering. After the date of this prospectus, our common stock may trade at prices above or below the subscription price.
Brookfield will receive $6 million for acting as a backstop, so its real cost will be between $13.80 and $14.55 per share, depending on how many shares it must buy. After the offering, the company will have approximately 49 million shares outstanding. We project the company to have had Funds From Operations (FFO) in 2011 of $45 million, and with the infusion of $200 million in capital and improved efficiency in 2012, we project $53 million in FFO. Assuming 49 million shares, this comes out to $.92 per share in 2011 and $1.08 in 2012. Applying a 15-17 multiple, which is well below GGP’s 24 multiple, , we see a fair value of $13.80-$18.36. Combined with Brookfield’s willingness to buy shares at $14.55 (as we presume they will be the only subscriber with the common stock trading well below $15), we believe the stock is undervalued at yesterday’s close of $11.30. Further, we expect the stock to drop in the short term as shareholders who have received small stakes (the distribution ratio was only 0.0375), or who are not interested in the company’s Class B assets, sell their shares in the coming days. We believe this will create an exciting opportunity for investors to profit.
Disclosure: The author holds no position in any stock mentioned.
With Spinoff From General Growth Properties Complete, Rouse Is Ready To Awaken is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
Rouse(RSE) began trading on a when issued basis today in anticipation of its spin off next month from General Growth Properties(GGP). The stock, which opened at 14, moved steadily downward and closed the day at 12 on 55,819 shares traded. This represents a significant discount to book value and is below the $15/share, $200 million post-spin rights offering which Brookfield Asset Management has agreed to backstop.
Disclosure: The author holds no position in any stock mentioned
Rouse Moves Down In First Day Of When Issued Trading is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
On the heels of last year’s spinoff of Howard Hughes Corp(HHC) which we wrote about here and here, General Growth Properties(GGP) approved plans today to spin off Rouse Properties on January 12, 2012 to shareholders as of December 30, 2011. The spinoff, which will be treated as a taxable dividend, is expected to trade as [...]
The GGP drama is finally nearing its end and time is running out to jump aboard the Howard Hughes Corporation prior to its spinoff from General Growth Properties (GGP). With GGP’s emergence from bankruptcy around the corner, the company announced November 1st as the date for distribution of shares of the two separate publicly traded [...]
Image via Wikipedia Amidst the turmoil of 2009, my alma mater hosted a small gathering for its alumni working on Wall Street. Typically, these events involve a fair amount of drinking, active networking, soliciting of donations and the inevitable token ‘brief’ remarks from someone in the industry. That evening’s guest of honor was none other [...]