AMERICAS NEWS: Retail wars

An unsolicited bid to buy bankrupt REIT General Growth Properties for $10bn by rival mall operator Simon Properties could prompt a bidding war, possibly including Brookfield and Blackstone. PERE March 2010 issue

The US’ largest real estate investment trust didn’t mince its words when it made an unsolicited $10 billion bid for bankrupt rival General Growth Properties in February.

In a strongly-worded letter to GGP executives, Simon Property Group warned the troubled retail REIT to stop “speculating with creditors’ money” or watch Simon’s offer turn either hostile or simply disappear. The offer – which includes $9 billion cash and would repay unsecured creditors at par – challenges GGP’s own bankruptcy reorganisation plan which could include a sale of the company as well as a capital raise in the public markets.

Indeed, Simon accused GGP of paying “lip service” to its offer saying: “Time and again, serious engagement with us has been pushed off into some indefinite future when you might start to begin to commence a ‘process’.”

GGP, of course, immediately hit back at Simon describing the firm’s public, 16 February “indication of interest”, as “not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 [bankruptcy protection] and maximise value for all [GGP] stakeholders”.

The war of words between the US’ two largest retail REITs is being watched closely by all real estate professionals. Not only did GGP’s bankruptcy last April challenge accepted US bankruptcy laws when hundreds of its supposedly bankrupt-remote assets also filed for Chapter 11 protection, but Simon’s unsolicited offer is expected to prompt a bidding war for the REIT and its assets.

Brookfield Asset Management is talks with GGP to finance its exit from bankruptcy as a standalone entity, offering to invest $2.63 billion in equity from its $5.5 billion Real Estate Turnaround Consortium. Meanwhile The Blackstone Group is reportedly in early talks with Simon about co-investing with its offer.
If Simon succeeds in taking over GGP it would control a third of the entire US mall market. Australian-based Westfield Group is also reportedly considering entering the fray. All deals need to be approved by bankruptcy court.