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GeneralGrowthProperties
SettingtheRecordStraight
December29,2009
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TableofContents
OurGoals (p.3 4) CalculationofNOI (p.5 14)
RentalRatesandLeasingSpreads (p.15 18)
Leverage,CashFlow,andDebtService (p.19 24) CapitalizationRates (p.25 33) ReviewofPershingSquareAssumptions (p.34 37) MasterPlannedCommunitySegment (p.38 43)
GeneralGrowth
Management
Inc.
(p.44
46)
NetAssetValueCalculation (p.47 50) StrategicAcquisitionPotential (p.51 55) RetailStoreClosures (p.56 61)
Analysisof
T2
Partners
Commentary
(p.62
63)
PortfolioRisks (p.64 69) Summary (p.70 72) Disclosures (p.73)
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OurGoals
HovdeCapitalAdvisorsLLC 3December29,2009
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OurGoals Weareaddressingahostoffeedbackandquestionswehavereceivedfollowing
ourDecember15th presentation(1) onGeneralGrowthProperties.
Webelievetherehavebeennumerousmisleadingcharacterizationsofour
presentationand
attribution
of
statements
that
are
erroneous
and/or
inaccurate.
Wepresentourforthrightviewsderivedfromfactbasedanalysisratherthanspeculativeconjecture.
Wethinkinvestorsbenefitfromhavingmoreanalysisandintelligent,informed
debateavailable
in
the
public
domain.
Wewouldencourageinvestorstoconducttheirownanalysisbasedontheextensivedataavailableinthepublicrealmandthirdpartyindependentdata,as
opposedtorelyingontheopinionofanyone,letaloneananalysisperformedby
PershingSquare
that
relies
upon
pro
forma
figures,
undisclosed
calculations,
andspeculationsastothefuturedirectionorperceivedlevelofcaprates.
4HovdeCapitalAdvisorsLLC
(1)GeneralGrowthProperties,FoolsGold,HovdeCapitalAdvisors,LLC,December15,2009.
NOTE:FUNDSADVISEDBYHOVDECAPITALADVISORS,LLCANDONEOFITSPRINCIPALSHAVESHORTPOSITIONSINGGWPQASWELL
ASANOTHERCOMPANYMENTIONEDINTHISPRESENTATION. SEEADDITIONALIMPORTANTDISCLOSURESATPAGE73.
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Calculationof
NOI
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
HovdeCapitalAdvisorsLLC 6
FromGeneralGrowthsQ309
supplemental:Reflectsonly
tenantallowancesoncurrently
operatingpropertiesorprojects;allowancesthatrelatetonewand
redevelopmentprojectsare
excluded(seeExpansions,
Redevelopmentsand
New
DevelopmentsSection).
TenantAllowances&LeasingCosts
thesearenonrevenuegenerating
recurringoperatingexpensesand
shouldbe
deducted.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page6.
PershingSquareAnalysis*
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
HovdeCapitalAdvisorsLLC 7
FromGeneralGrowthsQ309
supplemental:Reflectsonlynon
tenantoperatingcapital
expenditures;tenantallowances(per(a)above)andcapital
expendituresthatrelatetonew
and
redevelopment/renovation
projectsareexcluded.
RecurringCapitalExpenditures
thesearenonrevenuegenerating
recurringmaintenanceoperating
expensesand
should
be
deducted.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009.,page6
PershingSquareAnalysis*
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
HovdeCapitalAdvisorsLLC 8
Thisis
acircular
argument,
since,
ifthereweremorestore
closures,therewouldbehigher
vacancyandlessrentalincome
asaresult.
We
believe
these
feesareconsideredtobenon
recurringandshouldbe
deducted.
LeaseTerminationFees theseare
non
recurring
and
portend
higher
vacancyand,thus,lowerfutureNOI;
thus,wefeelthesearenot
representativeoftheongoingcore
business.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009.,page6
PershingSquareAnalysis*
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
HovdeCapitalAdvisorsLLC 9
This is a contradiction
if tenant allowances are notdeducted from NOI (per Pershing Squares view), then
there is no benefit to NOI of lower tenant allowances. You
cant have your cake and eat it too you either have to
include them along with the benefit of higher rents, or you
have to exclude them and assume that rental rates would
be lower without them.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page14.
PershingSquareCommentary*
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
HovdeCapitalAdvisorsLLC 10
While lower tenant allowances may be an offset in the short term,
these expenditures are incurred at the beginning of a lease and do not
offset the impact of lower lease rates, which persist through the
entirety of the multiyear lease term as illustrated below.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page14.
PershingSquareCommentary*
A $20/Sf. tenant allowance amortized over a 10year lease is only $2/Sf.
compared to a $20/Sf. reduction in face rent. Clearly the benefit of lower tenant
allowances is only a shortterm benefit compared to the reduction of face rents
which persists over the long term.
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ISIGroupsCalculationofNOI
HovdeCapitalAdvisorsLLC 11
DoesPershingSquarebelievethe#1
ranked
Institutional
Investor
sell
side
analystiscalculatingNOIincorrectly?
*Updateto
General
Growth
NAV,
ISI
Group,
11/17/09.
*
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CalculationofNOI Seasonalityand
NonCash
Items
Weagreethatmallownersgenerallyrecognizemorerentinthefourthquarterinagivenyear,giventherecognitionofpercentage(orsometimescalledoverage)rents.
Percentagerentsarerentspaidasapercentageofaretailerssalesabovecertainpredetermined
breakpoints. Giventhisyearislikelytobeasecondyearofdecliningsalesformanymallbasedretailers,and
significantlysoforsome(seep.10ofourpresentation(1)),wedonotbelievemanywillachievesalesmuchabovetheirthresholdsaleslevelthatwouldtriggerpaymentofpercentagerentsthatarematerialinamount.
Theimpactofpercentagerentshasbeenoverstatedinrecentyearsduetothetimingofacquisitionsanddevelopmentprojectscomingonlineaswellasleaseterminationfeeincome.
Giventhecurrentdeclineinrentalratesandincreasingvacancy,itappearsverylikelytousthatfutureNOIwilldeclinesignificantly sowebelieveourestimatetobeconservative.
WedeductnoncashrevenueandcostitemsfromreportedNOItoderiveacashNOIfigureandadjustforrecurringmaintenancecapitalexpendituresandreleasingcosts. Webelievethis
conformswith
industry
convention
and
is
consistent
with
the
methodology
used
in
the
sell
side
analysisthatwehaveseenaswellasconventionintherealestateindustry.
WebelieveourNOIestimateisgeneroustothecompanysvaluationandasaccurateaswecanbewithoutmorespecificdatafromthecompany,andisconsistentwiththemethodologyusedinsellsideanalystreports.
12HovdeCapitalAdvisorsLLC
(1)GeneralGrowthProperties,FoolsGold,HovdeCapitalAdvisors,LLC,December15,2009.
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Q4ImpactofPercentageRentsHas
BeenOverstated
and
Is
Declining
HovdeCapitalAdvisorsLLC 13
GeneralGrowthPropertiesQ3&Q4NOIExcludingtheImpact
ofLeaseTerminationFeesandNonComparablePeriodIncome
528
573
544
619605
689
616
654
0
100
200
300
400
500
600
700
800
Q3:05 Q4:05 Q3:06 Q4:06 Q3:07 Q4:07 Q3:08 Q4:08
Chg.=+$75 Chg.=+$84 Chg.=+$38Chg.=+$45 Thistrend
suggeststous
thatQ409
percentagerents
arelikelytobe
immaterialand
percentagerents
arenotlikelyto
haveas
significantan
impactonQ4
resultsuntilretail
salesreturn
to
2007levels,
whichdoesnot
appeartobe
likelyinthe
foreseeable
future.
Source:GeneralGrowthPropertiesSupplementalreports.
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Q4ImpactofPercentageRentsHas
BeenOverstated
HovdeCapitalAdvisorsLLC 14
*Source:GeneralGrowthPropertiesSupplementalreports.
(1)Hovdecommentary:AcquisitionofJVinterestinHomartoccurredinJuly2007:therefore,thefullquarterrunratewasnotreflectedinQ307reportedresults.
(figuresinmillions)* Development/
Redevelopment/
ExpansionProjects Acquisitions
Q4:2005 $ 112 $ 85
Q4:2006 $ 232 $
Q4:2007 $ 372 $ 2,000 (1)
Q4:2008 $ 245 $
FourthQuarterDevelopment/Redevelopment/ExpansionProjects
andAcquisitionsHaveInflatedQ4IncomeinRecentYears
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RentalRates
and
Leasing
Spreads
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RentalRatesAreSeasonal ButStill
DecliningSignificantly
Year
Over
Year
HovdeCapitalAdvisorsLLC 16
Source:GeneralGrowthPropertiesQ309Supplementalreport.
PershingSquarecitessequentialimprovementsinnewleaserates,contendingthisisevidenceof
improvingfundamentals. Thisignoreswhatisaseasonalpatterntorentalratesthroughoutthe
course
of
the
year.
As
seen
in
the
chart
below,
rates
often
are
higher
in
the
second
half
of
the
year
versusthefirsthalf. Thisisnotindicativeofimprovingfundamentalsinourview. Ayearoveryear
comparisonismoreuseful,whichinQ3showedan18%declineversustheprioryear,effectively
unchangedfromthe19%declineinQ2.
$0
$10
$20
$30
$40
$50
Q1:05
Q2:05
Q3:05
Q4:05
Q1:06
Q2:06
Q3:06
Q4:06
Q1:07
Q2:07
Q3:07
Q4:07
Q1:08
Q2:08
Q3:08
Q4:08
Q1:09
Q2:09
Q3:09
YTDRentalRatesonNew/Renewal
Leases
40%
30%20%
10%
0%
10%
20%
Q1:05
Q2:05
Q3:05
Q4:05
Q1:06
Q2:06
Q3:06
Q4:06
Q1:07
Q2:07
Q3:07
Q4:07
Q1:08
Q2:08
Q3:08
Q4:08
Q1:09
Q2:09
Q3:09
Yr/YrChangeinYTDRentalRates
onNew/Renewal
Leases
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LeasingSpreadsAreIncreasinglyNegative PershingSquarecontendsGGPscurrentnegativeleasingspreadsareonlydown11%incomparison
toexpiringrents(whichweresigned510yearsago),whichisnotasbadasthe33%declineincomparisontotheportfolioaverage. Webelievethisviewislargelyirrelevantwhenviewedinthecontextoffutureleaseexpirations.
Unlessrentsbegintoincreasedramatically,andwebelievethattherearenoindicationsthiswill
happenanytime
soon,
the
company
will
be
facing
accelerating
declines
on
new
rents
versus
expiringleasesasseenintheexpirationschedulebelow,whichwillcontinuetodriveNOIlower.
HovdeCapitalAdvisorsLLC 17
*GeneralGrowthPropertiesQ309Supplementalreport.
-36%
-32%
-34%
-40%
-43%
-43%
-50%-54%
-54%
-58%
-54%
%ChangeVersusQ3
YTDRentson
New/RenewalLeases
*
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HowCanNOIGrow?
In light of the data on the previous twopages, how could a reasonable analyst
project flat, much less growing, NOI for thiscompany over the foreseeable future?
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Leverage,Cash
Flow,
and
Debt
Service
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DebtServiceIsNotJustInterestPershingSquareIgnoresAmortizationandUnsecured
DebtInterest
HovdeCapitalAdvisorsLLC 20
Source: PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember 22,2009,page10.
PershingSquarecontradicts
itself
Principal amortization in
accordance with the terms ofrestructuring for the secured
debt will add nearly $400
million of annual principal
amortization in addition to
annual interest on the
unsecured debt, which is
roughly $400 million (assumes30year amortization on $12
billion in secured debt included
in the plan of emergence(1)),
therefore debt service coverage
will be far less than most REITS.
Even using Pershing Squaresinflated cash flow number, debt
service coverage would be 1.2x
after factoring principal
amortization and interest on
the unsecured bonds.
Thisisnotevenremotely
accurateasseenonthe
followingpages
This
ignores
recurring
maintenance
capex
and
tenant
allowances
(1)Source:
General
Growth
Judge
Approves
Plan
for
Restructuring
Debt
Bloomberg,
12/16/09.
Calculation:
$1.9
billion
of
amortization
over
6years
=~$300
million/year,
divide
this
by
$10.25
billion
indebt=3%/year,addthistotheallininterestrateof5.5%=8.5%. Assumesincremental$1.7billionofsecuredloansincludedintheplanofemergence source:BusinessWire,GeneralGrowth
PropertiesAnnouncesBankruptcyCourtConfirmationofPlansofReorganizationforapproximately$10.25BillionofSecuredMortgage12/15/09.
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DebtServiceIsNotJustInterestPershingSquareIgnoresAmortizationandUnsecured
DebtInterest
HovdeCapitalAdvisorsLLC 21
LTMAdjustedProRataEBITDA* $2,390
RecurringMaintenanceCapex&TenantAllowances(LTM)(1) ($108)
InterestExpense(LTM)(1) $1,488
PrincipalAmortization
(2) $400
DebtServiceCoverage 1.21x
PershingSquareAnalysis*
FactoringinAmortization,RecurringCapex,and
TenantAllowances
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page10.
(1)Source:GeneralGrowthQ309andQ408Supplementalpackages.
(2)Source:GeneralGrowthJudgeApprovesPlanforRestructuringDebtBloomberg,12/16/09. Calculation:$1.9billionofamortizationover6years=~$300million/year,dividethisby
$10.25billion
in
debt
=3%/year,
add
this
to
the
all
in
interest
rate
of
5.5%
=8.5%.
Assumes
incremental
$1.7
billion
of
secured
loans
included
in
the
plan
of
emergence
source:
Business
Wire,GeneralGrowthPropertiesAnnouncesBankruptcyCourtConfirmationofPlansofReorganizationforapproximately$10.25BillionofSecuredMortgage12/15/09.
Even
assuming
the
unsecured
bonds
converted
to
equity,
debt
service
coverage
would
stillonlybe1.5xandtheworstofanypublicmallREIT.
HovdeAnalysis
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SimonPropertyGroupisinvestmentgraderatedandhalfas
leveragedasGGP TosuggestGGPshouldtradeataLOWER
caprate
than
SPG
is
LAUGHABLE
in
our
view
HovdeCapitalAdvisorsLLC 22
OuranalysisisnottheonlyonethatshowsGeneralGrowthsportingadoubledigitleverageratio
andlowestinclassfixedchargecoverage(priortorestructuringthatrequiresamortization).
Source:REIT2010Outlook,JPMorgan,12/07/09.
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SimonPropertyGroupisinvestmentgraderatedandhalfas
leveragedasGGP TosuggestGGPshouldtradeataLOWER
caprate
than
SPG
is
LAUGHABLE
in
our
view
HovdeCapitalAdvisorsLLC 23
Credit Debt/
Fixed
Charge
Rating(1)
EBITDA(2)
Coverage(2)
Simon Property Group A- 6.8x 2.4x
Taubman Centers NR 7.5x 2.3x
Macerich NR 11.2x 1.8x
CBL & Associates NR 8.6x 2.2x
Pennsylvania Real Estate Investment Trust NR 10.5x 1.7x
General Growth Properties (5) NR 12.2x 1.5x
(1) Source:Bloomberg.
(2) Source:REITValuationChartbookMorganStanley,11/9/09.
(3) Source:REIT2010Outlook,JPMorgan,12/07/09.
WhoInTheirRightMindWouldCompareBaaYieldstoMallREIT
impliedcaprates?
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CashFlowBarelyServicestheDebt
HovdeCapitalAdvisorsLLC 24
PerGGPsbankruptcyfilings,projected2010debtservice
coverageon
the
$10.25
billion
of
secured
debt
included
in
theplanofemergenceisexpectedtobeonly1.0x.
*GeneralGrowthbankruptcyfiling12/7/09,exhibit3.
*
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CapitalizationRates
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CapitalizationRates Quitefrankly,weweresurprisedattheamountofdebatesurroundingcaprates. Wedonot
presumetoknowwherecaprateswillgointhefutureandthatisnotpartofouranalysis;norhaveweeverclaimedsuchprescientability.
Thecapitalizationratesweuseinouranalysisarebasedonobservedactualtransactionsasopposed
to
hypothetical
speculations.
The
comps
are
the
only
private
market
comps
we
believetobeavailableintheassetclass;thus,webelievetheyarevalidandnotoutofdate,sincethemostrecentofthecitedtransactionsclosedlessthanthreemonthsago.
ThereisachartthatisreferencedinaDecember7,2009PershingSquarepresentation(1)that
implies
cap
rates
will
move
lower.
This
chart
does
not
specify
the
source
of
its
data
or
specify
whatisincludedintheunderlyingdata. WesurmisethechartisattemptingtoillustrateimpliedcapratesforpubliclytradedequitiesofregionalmallREITs. Ifso,webelievethispicturewouldbeverymisleadingsinceitwouldbesignificantlyinfluencedbytheexceptionallylowimpliedcapitalizationratederivedbythestockpriceofSimonPropertiesGroup(NYSE:SPG),whichistheonlyinvestmentgraderatedregionalmallREIT.
WeshowinouranalysisthattheimpliedcapitalizationrateofpubliclytradedequitiesofregionalmallREITsisdirectlycorrelatedwiththeamountoffinancialleverage. Asouranalysisindicatesonthefollowingpage,thelevelofleveragelikelyatGeneralGrowth,evenassumingtheconversionofunsecureddebt,wouldbeindicativeofacapitalizationratehigherthan8%.
26HovdeCapitalAdvisorsLLC
(1) PershingSquareCapitalManagement,L.P.LLC,IfYouWaitForTheRobins,SpringWillBeOver*,December7,2009.
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LeverageIsaSignificantValuationFactor
SPGIs
Not
the
Right
Comp
In
Our
View
*Source:2010TheYearAhead:DealornodealBankofAmericaMerrillLynch,12/15/09.
December29,2009 27HovdeCapitalAdvisorsLLC
(1)REIT2010OutlookJPMorgan,12/07/09.
Leverage and Valuation Comparison*
Implied Leverage
Cap Rate (Debt/EBITDA)
Average Average
CBL & Associates 8.9% 9.0x
Macerich 7.9% 8.2xPennsylvania Real Estate Investment Trust 9.6% 10.8x
Simon Property Group 7.3% 7.3x
Taubman Centers 7.4% 7.3x
Average 8.2% 8.5x
General Growth Properties ? 12.2x(1)
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DespiteSpeculationtotheContrary,CapRatesforAll
Property
Types
Are
Moving
Higher,
Not
Lower
December29,2009 HovdeCapitalAdvisorsLLC 28
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
Jan01
Apr01
Jul01
Oct01
Jan02
Apr02
Jul02
Oct02
Jan03
Apr03
Jul03
Oct03
Jan04
Apr04
Jul04
Oct04
Jan05
Apr05
Jul05
Oct05
Jan06
Apr06
Jul06
Oct06
Jan07
Apr07
Jul07
Oct07
Jan08
Apr08
Jul08
Oct08
Jan09
Apr09
Jul09
Oct09
Capitalization
Rates
Apartment Industrial Office
CBD Office
Sub Strip All
Core
Source:RealCapitalAnalytics.
DoesPershingSquareBelieveTheseTransactionsDidNotHappen?
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BarclaysViewonGGP
InGeneralGrowthsinstance,currentequity
levelsimply
acap
rate
of
7.9%,
potentially
arichvaluationinourviewgiventhe
uncertaintyofanequitycramdownbythe
unsecuredholders.
Barclays,GGPandSPG:AnUpdate12/22/09
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ISIGroupsViewonGGP
BasedonGGPsmostrecentquarterlydata,
theaverage
sales
productivity
of
its
malls
is
$410/sfvs.$438/sfforSPG,$497/sfforTCO
and$317/sfforCBL. Basedonthesemost
recentcomps,
we
assumed
arange
of
cap
ratesforGGPsassetsfrom7.5%to8.0%.
ISIGroup,UpdatetoGeneralGrowthNAV,11/17/09
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GGPisinBankruptcy
HovdeCapitalAdvisorsLLC 31
PershingSquareCommentary*
Wewould
remind
investors
that
GGP
is
in
bankruptcy;
weareawareofnogreaterindicationofdistress.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,
2009,page17.
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BasedonObservedTransactionalDataWe
Believe
Current
Cap
Rates
Are
Higher
Than
PershingSquareArgues
Theacquisition
of
Prime
Outlets
by
Simon
PropertyGroup(NYSE:SPG),announcedon
December8th,wasestimatedtobepricedat
an8.0%8.4%caprateoninplaceNOIbasedonsomeWallStreetestimates.(1)
HovdeCapitalAdvisorsLLC 32
(1)DeutscheBankestimate8.4%(reportdated12/8/09,titledSPGAcquiringPrimeOutlets). SandlerONeilestimates~8%caprate(reportdated12/8/09,titledSPG:StockingUpBeforetheHolidays;SPGtoAcquirePrimeOutlets.
Thisisthemostrecentcomparableforalarge,highqualityportfoliotransaction
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CommercialRealEstateValuesHaveDropped
43%SincethePeak,andHaveNotStopped
Declining
December29,2009 HovdeCapitalAdvisorsLLC 33
Source:Moodys/REALCommercialPropertyIndex,RealCapitalAnalytics.
DoesPershing
Squarebelieve
regionalmallcap
ratesandasset
valueshave
divergedfromall
othercommercial
realestate
property
types?
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ReviewofPershingSquare
Assumptions
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PershingSquareDoesNotUse
ConsistentAssumptions
Forpurposesofcalculatingthecompanys
leverage,Pershing
Square
assumes
unsecured
debtconvertstoequity.(1)
Forpurposesofcalculatingthevaluationoftheequity,PershingSquaredoesnotassumetheconversionofunsecureddebttoequity.(2)
HovdeCapitalAdvisorsLLC 35
(1)Source:PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page.25
(2)Source:PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page.26
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CalculationofNOI WeBelieve
PershingSquare
Is
Out
of
Touch
GeneralGrowthProperties EstimatedNOI
ISIGroup(1) $2.0billion
Hovde $2.2billion
Barclays(2) $2.3billion
PershingSquare
(3)
$2.5billion
36HovdeCapitalAdvisorsLLC
(1) Source:UpdatetoGeneralGrowthNAVISIGroup,11/17/09.
(2) Source:GGP
and
SPG:
An
Update
Barclays
Capital,
12/22/09.
(3) Source:ADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesPershingSquareCapitalManagement,L.P.LLC,December22,2009,p.26.
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AssumedCapRate WeBelieve
PershingSquare
Is
Out
of
Touch
GeneralGrowthProperties EstimatedCapRates
ISIGroup(1) 7.5%8.0%
Hovde 7.5%8.5%
Barclays(2) 7.5%
PershingSquare
(3)
6.21%7.21%
37HovdeCapitalAdvisorsLLC
(1) Source:UpdatetoGeneralGrowthNAVISIGroup,11/17/09.
(2) Source:GGPandSPG:AnUpdateBarclaysCapital,12/22/09.
(3) Source:ADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesPershingSquareCapitalManagement,L.P.LLC,December22,2009,p.26.
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Master
Planned
Community
Segment
HovdeCapitalAdvisorsLLC 38December29,2009
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MasterPlannedCommunitySegment
Westate(p.14ofourpresentation(1))thatwebelievethereislittle,ifanyvalue,inthemasterplannedcommunity
businessgiven
the
purchase
of
these
assets
was
near
what
weviewaspeakpricesandthesubsequentdeclineinlandprices.
Thisisourviewandwewelcomeempiricaldatawhich
challengesus
to
reconsider
our
view.
TheheirsoftheHughesestateholdacontingentclaimrelatedtothevaluationoftheseassets. Ifthereissignificantvalueintheseassets,theresolutionofthisclaimcould
result
in
asubstantial
unfunded
liability,
which
PershingSquarehasfailedtoincludeinitsanalysis(2).
39HovdeCapitalAdvisorsLLC
(1) GeneralGrowth
Properties,
Fools
Gold,
Hovde
Capital
Advisors,
LLC,
December
15,
2009.
(2) Source:companySECfilings. 200810K,p.53:PursuanttotheCSAandbasedonthecurrentmarketpriceofourcommonstock,thefinaldistribution
wouldresult intheBeneficiariesholdingsubstantiallyallofourcommonstock.
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MasterPlannedCommunitySegment
HovdeCapitalAdvisorsLLC 40
Wedont
believe
arational
person
would
find
it
reasonable
to
make
comparisons
tocashflowlevelsgeneratedduringtheheightofoneofthegreatesthousing
bubblesinthehistoryoftheUnitedStates,particularlygiventhatLasVegasis
oneofweakestmarketsinthecountry.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,
2009,page
11.
PershingSquarecommentary*
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MasterPlannedCommunitySegment
LasVegas
Single
Family
Median
Home
Prices
Have
Collapsed
HovdeCapitalAdvisorsLLC 41
Source:S&PCaseShillerHomePriceIndex,dataisasofSeptemberpertheNovember24th release.
0.00
50.00
100.00
150.00
200.00
250.00
Jan87
Oct87
Jul88
Apr89
Jan90
Oct90
Jul91
Apr92
Jan93
Oct93
Jul94
Apr95
Jan96
Oct96
Jul97
Apr98
Jan99
Oct99
Jul00
Apr01
Jan02
Oct02
Jul03
Apr04
Jan05
Oct05
Jul06
Apr07
Jan08
Oct08
Jul09
Rouseacquisition(November2004)
CaseShiller
Home
Price
Index
(Las
Vegas)
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MasterPlannedCommunitySegment
LasVegashadthehighestU.S.foreclosureratein
thethirdquarter,followedbycitiesinCaliforniaandFlorida,asunemploymentleftmoreborrowers
unable
to
make
their
mortgage
payments,
RealtyTrac
Inc.said.
LasVegasLeadsU.S.WithHighestForeclosureRate Bloomberg,10/28/09.
HovdeCapitalAdvisorsLLC 42December29,2009
http://www.realtytrac.com/http://www.realtytrac.com/http://www.realtytrac.com/http://www.realtytrac.com/http://www.realtytrac.com/ -
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MasterPlannedCommunitySegment
HovdeCapitalAdvisorsLLC 43
LasVegas %ofHomesinForeclosure
Source:Zillow.com,dataasof12/1/09.
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General
Growth
Management
Inc.
HovdeCapitalAdvisorsLLC 44December29,2009
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GeneralGrowthManagementInc.
PershingSquarebasestheirvaluationofthemanagementbusinessonaninternalprofitabilityestimatethatisnot
explainedor
justified
and
assumes
what
we
consider
to
be
a
veryhighvaluationmultiple.
BasedonfinancialdataprovidedbyGeneralGrowth
Propertiesshown
on
the
following
slide,
it
is
not
clear
to
us
thatthecompanyspropertymanagementoperationsare
evenprofitableandappeartobelossgenerating(see
highlightedline
items
on
following
page). As
such,
we
believe
thevalueofthisbusinessislikelynotmaterialinestimating
avaluefortheoverallenterprise.
45HovdeCapitalAdvisorsLLC
Source:TheBucksReboundBeginsHeredatedMay27,2009 PershingSquareCapitalManagement,L.P.(p.59).
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GeneralGrowthManagementInc.
Source:GeneralGrowthPropertiesQ309Supplementalreport.46HovdeCapitalAdvisorsLLCDecember29,2009
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Net
Asset
Value
HovdeCapitalAdvisorsLLC 47December29,2009
W B li O A l i I G T d h C
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WeBelieveOurAnalysisIsGenerousTowardstheCompany
andThatItIsQuestionableWhetherThereIsEquityfor
CurrentShareholders
Thisisfrom
2008
ThisisQ3annualizedNOI,andrents
arerollingdownsharply(33%),
whichwilldrivelowerNOI.Pershing Square Analysis Framework*
More Realistic Hovde Scenario
($ in millions, except per share data) Low High
LTM Cash NOI $ 2,524 $ 2,524 $ 2,200 (1) $ 2,200 (1)
Cap Rate 8.5% 7.5% 8.5% 7.5%
Implied Value of GGP's REIT 29,694 33,653 25,882 29,333
Pro Rata for JVs:
Less: Total Debt (28,174) (28,174) (28,174) (28,174)
Less: Preferred Debt (121) (121) (121) (121)
Less: Other Liabilities (1,585) (1,585) (1,585) (1,585)
Plus: Cash 722 722 0 0
Plus: Other Assets 1,777 1,777 1,777 1,777
Plus: Development Pipeline 603 603 603 603
Implied Equity Value $ 2,916 $ 6,875 $ (1,618) $ 1,833
Per Share $ 9.11 $ 21.50 $ (5.06) $ 5.73
Cashwillbe
paidto
creditorsin
feesand
recovery
of
legalexpenses.
(1)See
calculation
of
NOI
on
page
30
of
General
Growth
Properties,
Fools
Gold,
Hovde
Capital
Advisors,
LLC,
December
15,
2009.
December29,2009 48HovdeCapitalAdvisorsLLC
*TheBucksReboundBeginsHeredatedMay27,2009 PershingSquareCapitalManagement,L.P.(p.56)andHovdeCapitalAdvisorsanalysis.
W B li O A l i I G T d th C
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WeBelieveOurAnalysisIsGenerousTowardstheCompany
andThatItIsQuestionableWhetherThereIsEquityfor
CurrentShareholders
HovdeCapitalAdvisorsLLC 49
Worst Case Scenario - Assumes 10% Decline From Hovde Base Case NOI (1)
Pershing Square Analysis Framework (2)
($ in millions, except per share data) Low High
Cash NOI(3) $ 2,000 $ 2,000
Cap Rate 8.5% 7.5%
Implied Value of GGP's REIT 23,529 26,667
Pro Rata for JVs:
Less: Total Debt (28,174) (28,174)
Less: Preferred Debt (121) (121)
Less: Other Liabilities (1,585) (1,585)
Plus: Cash (3) - -
Plus: Other Assets 1,777 1,777
Plus: Development Pipeline 603 603Implied Equity Value $ (3,971) $ (833)
Per Share $ (12.42) $ (2.61)
(1)SeecalculationofNOIonpage30ofGeneralGrowthProperties,FoolsGold,HovdeCapitalAdvisors,LLC,December15,2009.
(2)Analysis
taken
from
The
Bucks
Rebound
Begins
Here
dated
May
27,
2009
Pershing
Square
Capital
Management,
L.P.
(p.
56).
(3)HovdeCapitalAdvisorsanalysisassumes cashNOIof$2.0billion,andunlikePershingSquare,assumescashispaidoutinfeestosecuredandunsecuredcreditors.
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WeBelieveOurAnalysisIsGenerousTowardstheCompany
andThatItIsQuestionableWhetherThereIsEquityfor
CurrentShareholders
BestCase RealisticCase
December29,2009 50HovdeCapitalAdvisorsLLC
Best Case - Assuming Conversion
($ in millions, except per share data) Conversion Price Range $5-$8
Annualized Cash NOI (1) $ 2,200 $ 2,200 $ 2,200 $ 2,200
Cap Rate 7.5% 7.5% 7.5% 7.5%
Implied Value of GGP's REIT 29,333 29,333 29,333 29,333
Pro Rata for JVs:
Less: Total Debt (21,174) (21,174) (21,174) (21,174)
Less: Preferred Debt (121) (121) (121) (121)
Less: Other Liabilities (1,585) (1,585) (1,585) (1,585)
Plus: Cash (2) - - - -
Plus: Other Assets 1,777 1,777 1,777 1,777
Plus: Development Pipeline 603 603 603 603
Implied Equity Value $ 8,833 $ 8,833 $ 8,833 $ 8,833
Per Share $ 5.14 $ 5.94 $ 6.69 $ 7.39
Assumedconversionprice: $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 3.00 $ 4.00 $ 5.00 $ 6.00
Realistic Scenario - Assuming Conversion
Conversion Price Range $3-$6
$ 2,200 $ 2,200 $ 2,200 $ 2,200
8.5% 8.5% 8.5% 8.5%
25,882 25,882 25,882 25,882
(21,174) (21,174) (21,174) (21,174)
(121) (121) (121) (121)
(1,585) (1,585) (1,585) (1,585)
- - - -
1,777 1,777 1,777 1,777
603 603 603 603
$ 5,382 $ 5,382 $ 5,382 $ 5,382
$ 2.03 $ 2.60 $ 3.13 $ 3.62
(1) Seecalculation
on
page
24
of
General
Growth
Properties,
Fools
Gold,
Hovde
Capital
Advisors,
LLC,
December
15,
2009. Assumes
unsecured
debt
would
require
amoderate
discount
to
convert,
although
it
isquestionableinourviewwhethertherewillbeanyvalueforexistingshareholdersgiventhatwebelievethevalueofthedebtexceedsthatoftheassets.
(2) Assumes cash is paid out to creditors in forbearance fees and reimbursement of legal expenses.
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Strategic
Acquisition
Potential
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StrategicAcquisitionPotential?
Giventhespreadbetweenprivatemarketvalues,webelieveitisunlikelyreal
estateinvestors
would
choose
to
pay
apremium
for
apublic
company
while
assets
canbepurchasedintheprivatemarketatsubstantiallymorefavorableprices.
PublicREITsaretradingnearhistoricalextremehighvaluationswhileprivatemarketassetvaluesaredecliningprecipitously(seesectiononcaprates).
HovdeCapitalAdvisorsLLC 53December29,2009
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StrategicAcquisitionPotential?WhyWouldaBuyerPayaPremiumforanOverLeveragedCapitalStructure
WhenThere
Is
So
Much
Inventory
of
Distressed
Assets
to
Choose
From?
HovdeCapitalAdvisorsLLC 54
Source:RealCapitalAnalytics,bothchartsrepresentdatafrom1/0811/09.
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BarclaysViewonGGP&SPG
WhileweagreethatSimonwillbeanindustryconsolidatorgoingforward,wecontinuetobelievethattransactionswillbechallengingandthatanoutrightacquisitionofGeneralGrowthisunlikely.Totheextent
Simoncan
work
out
ameans
to
acquire
some
of
General
Growths
better
assetsoutofbankruptcy,webelievethatitwouldprovidelongtermvalueforthecompany.Overall,webelievethatgivenmanagementstrackrecordthatwhenSimondoesexecuteonadeal,itwillbeeconomicforthecompanyandshareholders.
Barclays,GGPandSPG:AnUpdate12/22/09.
HovdeCapitalAdvisorsLLC 55
Weagree,andbelievethatSimonisasophisticatedinvestorandallocatorof
capital,andwouldnotlikelyhaveinterestinacquiringGGPanywherenear
currentlevels.
HovdeCommentary
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Retail
Store
Closures
HovdeCapitalAdvisorsLLC 56December29,2009
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HolidaySalesContinuetoStruggle
Followingarelativelysubduedlastminuteshoppingrushbefore
Christmas,retailers
were
hoping
to
entice
consumers
to
keep
on
buying
aftertheholiday. MoreretailersplannedInternetsalesthisyearinan
attempttocashinonthegrowthofecommerce,oneofthefewbright
spotsinanotherwiselacklusterholidayshoppingseason.
RetailersTurn
to
Internet
to
Spur
Postholiday
Business
Wall
Street
Journal
12/28/09
HovdeCapitalAdvisorsLLC 57December29,2009
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RetailStoreClosuresContinuetoSurge
HovdeCapitalAdvisorsLLC 58
Source:ISIGroup
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ConsumersContinuetoSave
Therecessionhascausedaseismicshiftintheconsumerculture,
convertingdie
hard
spenders
into
savers.
A
growing
number
of
people,
eithersmartingfromajoblossorspookedbythefinancialcrisesofothers,
arescramblingtogetoutofdebt,establishemergencyfunds,andaddto
theirretirementandsavingsaccounts.
Afterhaving
taken
the
first
plunge
by
cutting
holiday
spending,
many
are
seekingmoresubstantialideasonhowtosustaintheirfrugality.
WeakeconomymotivatesAmericanstosavemore WashingtonPost 12/27/09
HovdeCapitalAdvisorsLLC 59December29,2009
We Believe Pershing Square Is
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WeBelievePershingSquareIs
Outof
Touch
HovdeCapitalAdvisorsLLC 60
Thiscompanyhad61locations,sothis
means48godark.
Thiscompanyhad30locations,sothis
means24godark.
Thiscompanyhad175locations,so
thismeans129godark.
Howis201storesgoingdarkinthis
examplegoingtodriveincreased
traffic?
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page39.
Hovdewondershow?*
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TheStateofRetail
DoesPershingSquarenotthinkthegreatesteconomicdownturnsincethegreatdepression,theimplosionofperhapsthegreatestconsumercreditbubbleinhistory,andoneofthegreatestperiodsof
wealth
destruction
in
United
States
history
has
not
impaired
consumerspendinghabitsfortheforeseeablefuture?
DoesPershingSquarenotbelievetheinternetisamorecosteffectiveretaildistributionchannelthatcontinuestogainshare
awayfrom
traditional
physical
retail?
DoesPershingSquarereallybelievediscountbigbox,nonmallretailersarenotmorepricecompetitivethanspecialty,mallbasedretailersandaregainingmarketshare?
Wewould
encourage
investors
to
perform
their
own
diligence
and
walktheirlocalmalls. Wewouldencourageinvestorstohavediscussionswithmallbasedretailerstofindoutwhatishappeningwithsalestrendsaswellasleasenegotiationswithlandlords.
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Analysis
of
T2
Partners
Commentary
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T2PartnersCashFlowAnalysisFlaws
WewanttohighlightwhatwebelieveisanerrorinananalysispublishedbyT2Partnersthatderiveda$22persharevaluefortheequityofGeneralGrowth.
Thisanalysisusedthefollowingcalculation: NOI:$2.4billion(aswehavestated,webelievethisistoohighand$2.2billionisamoreaccurate
projection) DebtService:$1.1billion webelievethisisanerrorbecause: Thecompanysannualdebtserviceis$1.5billion(preplanofemergence)andnowanadditional$1.9billion
ofprincipalamortizationwillbeaddedover6years,orapproximately$300millionperyear,whichbringsthedebtservicefigureto$1.8billionandtheresultingcashflowestimateto$300millionasopposedtothe$1.0billioncitedbyT2Partners.
Notonlyisthedebtservicefigureinaccurateinthecashflowcalculation,butthecomparablemultipleisbased
on
an
FFO
multiple,
which
is
after
general
and
administrative
and
other
expenses,
which
we
believe
wouldconservativelyrepresent$100millionannuallybasedonprebankruptcylevelsofG&A(percompanysupplementalfinancialreportsfor2007and2008).
Usesa14xmultiple,referencingSimonPropertiesasthecomparablebenchmark,butwewouldarguethat,basedonleveragelevels,Macerich(NYSE:MAC),whichtradesat11x, isamoreappropriatecomparison.
Usingthecorrectdebtservicefigure,thisanalysiswouldleadyoutoanegativevalueforthecompanysequity:$300mmx14=$4.2billion,less$7billioninunsecureddebt=NEGATIVE$2.8billion.
Basedonthepointsabove,webelievetheT2Partnersanalysisisflawed.
63HovdeCapitalAdvisorsLLC
(1)T2PartnersGeneralGrowthProperties:RebuttingtheBearsSeekingAlpha,12/16/09.
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Portfolio
Risks
HovdeCapitalAdvisorsLLC 64December29,2009
A Few Diamonds But Theres An Awful
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AFewDiamonds,ButThere sAnAwful
Lotof
Hair
Too
Over58millionsquarefeetofvacantanchortenantspace.
29%ofportfolioisinmarketswithsignificantlyaboveaverageunemployment(CA,FL,GA,MI,
NV). $273millionofunfundeddevelopmentand
redevelopmentprojects.
HughesEstate
heirs
contingent
payment
this
couldrepresentansubstantialunfundedliability(seep.4).
HovdeCapitalAdvisorsLLC 65
Source:GeneralGrowthSECfilings:,USBureauofLaborStatistics.
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TheUnemployedDontShopMuch
HovdeCapitalAdvisorsLLC 66
%ofGGP Unemp.
State GLA(1) Rate
CA 9.1% 14.7%
MI 6.0% 12.3%
FL 5.9% 11.5%
GA 4.5% 10.2%
NV 3.8% 12.3%
US
10.0%
Source:USBureauofLaborStatistics,asofNovember2009.
(1)GeneralGrowthSECfilings.December29,2009
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LasVegas(3.8%ofGGPGLA)
HovdeCapitalAdvisorsLLC 67Source:CBRichardEllis.
Retail
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LasVegas(3.8%ofGGPGLA)
HovdeCapitalAdvisorsLLC 68Source:CBRichardEllis.
December29,2009
Dont Take Our Word Use
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Don tTakeOurWord Use
IndependentThird
Party
Data
Sources
Wewouldencourageinvestorstoconducttheirownresearchoncommercialrealestateandregionalmall
fundamentalsto
better
understand
what
is
happening
inprivatemarkets.
Inadditiontovastamountsofdataavailablefrompubliccompanies,therearenumeroussourcesofindependent
third
party
data
providers
that
track
demographicandemploymenttrendsaswellastrendsinrealestatefundamentals(occupancy,rents,
transactionaldata,
etc.),
such
as
CB
Richard
Ellis,
Jones
LangLaSalle,Reis,andRealCapitalAnalytics tonameafew.
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Summary
HovdeCapitalAdvisorsLLC 70December29,2009
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Summary We
would
encourage
investors
to
conduct
their
own
analysis
based
on
the
extensive
data
availableinthepublicrealmandthirdpartyindependentdata,asopposedtorelyingontheopinionofanyone,letaloneananalysisperformedbyPershingSquarethatreliesuponproformafigures,undisclosedcalculations,andspeculationsastothefuturedirectionorperceivedlevelofcaprates. Webelievewheninvestorsdotheirownhomework,theywillarriveataconclusionsimilartoours.
WebelieveourcalculationofNOIisaccurateandinlinewithconsensusestimatesbysellsideanalystsandthatPershingSquaresestimateisnotconsistentwiththemethodologyusedbymostWallStreetanalysts,andinouropinion,isnotbasedonreasonableassumptions.
ContinuedsignificantdeclinesinrentalratesandleasingspreadsarelikelytodrivesubstantiallylowerNOIfortheforeseeablefuture,makingourNOIestimategenerousinour
view.
Giventhatthepurchaseofthemasterplannedcommunitysegmentassetswasnearwhatweviewaspeakpricesandthesubsequentdeclineinlandprices,wethinkthereislittle,ifany,valueintheseassets. Furthermore,theheirsoftheHughesestateholdacontingentclaimrelatedtothevaluationoftheseassets,and,ifthereissignificantvalueintheseassets,the
resolutionof
this
claim
could
result
in
asubstantial
unfunded
liability,
which
Pershing
Square
hasfailedtoincludeinitsanalysis
Aswehavedemonstrated,webelievethevalueoftheGeneralGrowthManagementInc.businesssegmentisimmaterialtotheanalysisoftheGeneralGrowthenterprisegivenitsapparentnegativeoperatingearnings.
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Summary(Continued)
DespitethecommentaryofPershingSquare,webelievethatmarketbased,observabledatapointsandcomparableanalysissuggestthatcapitalizationratesforGeneralGrowthassetsarenotbelow8%inourview.
LeverageatGeneralGrowthisnotsustainableinourviewanddebtservicecoverageappearsminimal
based
on
the
companys
own
projections,
suggesting
deleveraging
is
required
and
thatlowerportionsofthecapitalstructuremaybeatriskofsignificantdilutionoftheirclaims. Wewouldencourageequityinvestorstothoroughlyresearchtheextentofnonequityclaimstounderstandthepotentialriskofdilution.
Thepotentialforthecompanytobeacquiredbyastrategicsuitorseemsuncertain,thoughthelikelihoodofatransactionatcurrentequitypricelevelsappearsremoteinourview,given
thatthe
parties
that
are
purported
to
be
the
acquirers
of
the
company
have
acquired
the
unsecureddebtbutapparentlylackinterestintheequityatmuchlowerprices.
RetailstoreclosuresarecontinuingtoaccelerateandpoorholidaysalesarelikelytoleadtofurthertenantdistressandstoreclosuresthatwillpressuretheoperatingfundamentalsofGeneralGrowthandmallsingeneral.
Westand
by
our
original
analysis
and
believe
it
is
questionable
whether
there
will
be
any
valueforcurrentshareholdersinGGPcommonstock. Wehavenointerestincontinuingapublicdialogueonthiscompanyandwouldagainencourageinvestorstoperformtheirowninvestigationintothefacts.
HovdeCapitalAdvisorsLLC 72December29,2009
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Disclosures
FundsadvisedbyHovdeCapitalAdvisors,LLCandoneofitsprincipalshaveestablishedshortpositionsinthecommonstockofGeneralGrowthProperties(OTC:GGWPQ)andinthe
commonstockofMacerich(NYSE:MAC).Theirpositionsinthesestocksandothersmay
changewithout
further
notice.
NeitherthefundsadvisedbyoranyaffiliatesofHovdeCapitalAdvisors,LLCholdpositionsinanycompaniesmentionedinthisdocumentotherthanthosementionedabove.
TheopinionsandviewsexpressedinthisdocumentandtheanalysissetforthhereinmaychangeandHovdeCapitalAdvisors,LLCisnotundertakingtoupdateitsopinions,viewsor
analysis.
Althoughthefactualinformationcontainedinthisdocumentisbelievedtobeaccurate,HovdeCapitalAdvisors,LLCdoesnotwarrantitsaccuracyorcompleteness.
Thisdocumentisnotintendedtobe,andshouldnotbeconstruedas,investmentadviceora
recommendationto
buy
or
to
sell
any
security.