Bid for General Growth's Assets Sheds More Light on Valuation

This situation is getting really fun to watch...It also gives us more clarity into the value of General Growth Properties' (GGP) assets. This is risky that bet that if it pays off, will do so spectacularly.

Bloomberg Reported Yesterday:

General Growth Properties Inc.,(NYSE:GGP) the mall owner at risk of bankruptcy, received offers of almost $400 million for properties including Boston’s Faneuil Hall and New York’s South Street Seaport, according to a person familiar with the matter.

General Growth, the No. 2 U.S. shopping-mall owner, put the two properties and Harborplace & the Gallery in Baltimore up for sale in December. More than 10 offers were received, including offers for the entire portfolio and for individual properties, said the person, who asked not to be identified because the sales process isn’t public.

So, in 2004 GGP acquired the Rouse Company, who owned the above properties. It included a total of 40 million sq. feet of retail space plus another 9 million of land for $11.3 billion.
press release:

The Rouse Company acquisition adds 37 regional shopping malls, four community centers, and six mixed-use projects totaling 40 million square feet to General Growth’s portfolio of owned shopping centers. There is also a portfolio of office, industrial and other commercial properties totaling approximately 9 million square feet and considerable undeveloped land in some of the most successful master planned communities in the country, such as Summerlin, Nevada, Columbia, Maryland and The Woodlands outside Houston.

If we look at it, GGP paid $11.3 billion for 49 million square feet or $230 per square foot. Yet, if the numbers in the Bloomberg article are accurate (no reason to assume otherwise) they are selling just over 1 million square feet of it for $400 million or $389 a square foot.

Remember GGP carries all real estate on it books at cost. This potential transaction gives us more confidence that the $28 billion asset value on the books of GGP is far below the actual value. With $27 billion of debt, there is plenty of value left for shareholders.