General Growth Properties Inc. (GGP)

[Chance To See]

Ackman Bloomberg Interview Transcript

March 20, 2009

Thanks for the link. I’ve bolded the parts that were highlighted by you and loniee.



Q. Talk about being under stress, General Growth Properties is a Real Estate Investment Trust that owns shopping centers. Ackman started buying its stock back in November when it was struggling to stave off bankruptcy.

A. General Growth. What’s interesting is this is a company that had a $9.4 billion equity market cap on September 14th, the day before Lehman Brothers failed. Sixty days later it had a $100 million equity cap, which is kind of a stunning decline. And that’s down from – the equity cap was in the 20s of billions maybe two years ago.

What changed between September 14th and November 15th when the stock had a $100 million value? What changed is the CMBS market completely shut. The market for real estate debt capital is completely closed. So General Growth unfortunately has a debt expiration schedule where beginning in November and over the next several years $20-odd billion of debt comes due. If you can’t refinance your debts, you’re going to file for bankruptcy.

The conventional wisdom is that if a company files for bankruptcy, the equity is wiped out. And that is conventional wisdom because 90% of the time that’s what happens. But most of the time insolvent companies go bankrupt. It’s rare for a solvent company to go bankrupt. This is a solvent company with a liquidity problem.

Q. And how are you – okay – what do you mean by solvency?

A. Solvency. My definition of solvency is that the assets are greater than the liabilities. These malls – now in a fire sale there is no value left to the equity, but in a reorganization where the debt maturities are extended, this is a company that can cover its debts one and a half times, it’s got 1.5+ debt service coverage.

Q. So this is specifically a bankruptcy play.

A. Yes.

Q. With the assumption.

A. Yes, we bought it with the expectation – and we want them to file sooner rather than later. The sooner they go in the sooner they can come out.

Q. Are you putting pressure on manage to do this?

A. Not putting pressure

Q. Have you talked to management?

A. We’ve absolutely talked to management. We’ve been talking to them in detail. You may see me join the Board in the relative short term. And we intend to be a very strong advocate for the shareholders of the company. The stock is 40 cents and …

Q. And what’s management view on bankruptcy?

A. I probably shouldn’t speak to management’s point of view at this point. But I think they understand how we’ve thought about it. They’ve got very good advisors. I don’t see a scenario in which the company can reorganize outside of bankruptcy. So I expect it to file imminently, you know next few days, unless they get some kind of extension. But certainly some time this year. And that’s actually a good thing, interestingly enough.

Now it doesn’t mean you’re not – it depends on the court, depends on the judge, depends on what happens. But there is a bankruptcy plan that we will be an advocate of in which the equity survives intact, all the bondholders, all the mortgage lenders of the company ultimately get paid what they’re owed. So everyone wins.

Whereas if this company is forced to liquidate, it’s a disaster for the equity, it’s a disaster for the unsecured creditors, and it’s a disaster for the entire REIT market. The REIT market is going to be watching very closely General Growth’s bankruptcy. The reason why REIT stocks have been crushed, is not so much because of the operating performance of REITs. Because every REIT in the country has a debt maturity schedule that if you cannot refinance your debts as they come due they will be forced to file for bankruptcy. And if this General Growth bankruptcy does not go well, it will take down the entire REIT industry. If it goes well, it’s going to be very bullish for the REIT industry.

That doesn’t mean there aren’t going to be tenant bankruptcies, and the economy’s going to be a factor, and it’s going to help General – how much money we make is going to be somewhat affected by what happens in the economy. If people just completely stop shopping, if everyone goes bankrupt, we’re all dead. But if – these are some of the best malls in America. They have 200 great assets. And if you look at the performance of regional malls over difficult – early 1990s – other difficult – 70s, early 80s – other difficult recessions, they’ve been the most – the top, the Class A assets are the most resilient, they keep their occupancies at the highest levels and even when they lose tenants they’re the first to lease up. So it’s a great portfolio.

We like management. We think highly of the new CEO and President. Adam Metz and Tom Nolan have been brought it. We think they’re going to do a great job. And I’ve joined zero Boards in five years. I’m an activist shareholder.

Q. And you’re about to join two.

A. I’ll join the Board of Target hopefully. And in the case of General Growth, why would I be interested? Most people want to get off the board of a company when it files for bankruptcy. I want to get on the Board of this company.

+++++++++++

Q. Ackman says the government should use a bankruptcy model as the blueprint for bailouts. Of course that didn’t happen in the case of AIG.

A. We thought AIG was sort of an interesting option based on what we could tell from the public information. We changed our mind pretty quickly. I don’t remember precisely - we put about 1.5% of our capital in AIG and we lost probably 20% of that or a number like that.

If you think about the Pershing portfolio we have some investments we make at very significant scale, Target being one of them, EMC being one of them. You know, businesses where we think they are very robust, they have a capital structure that can withstand a very difficult time, they’re well-managed, they’ve got very strong market position and will do very well. But we’re not going to make 10 – 20 – 30 times our money. General Growth is something we can literally make 20 – 30 – 40 – 50 times our investment in the event that things play out the way that we expect them to. Or lose our entire investment.

[The rest, about AIG and bailouts in general, is very interesting and very disturbing. (Disturbing because he seems to be making sense, and what he suggests is not what the government has done.)]