LV mall owner buying Western retail operation for $1.1 billion

Monday, March 4, 2002 | 11:11 a.m.

SUN STAFF AND WIRE REPORTS

CHICAGO -- General Growth Properties Inc., the second-largest U.S. shopping mall owner, said today it agreed to buy JP Realty Inc. for about $1.1 billion in cash, stock and assumed debt, adding 18 regional malls in eight states in the West.

In Nevada, General Growth is a big player in the Las Vegas retail market with its Meadows and Boulevard malls. JP Realty owns a neighborhood shopping center, Fremont Plaza, anchored by a Smith's Food & Drug store at North Jones Boulevard and U.S. 95 in Las Vegas, and also has a community shopping operation in Sparks.

JP Realty investors will receive $26.10 in cash for each share, 6.8 percent above JP Realty's closing price Friday. General Growth will pay $440 million in cash, and assume $460 million in debt and $116 million of preferred operating units, John Bucksbaum, chief executive officer of the Chicago-based company, said on a conference call.

The purchase marks further consolidation of the U.S. mall business less than two months after Rodamco North America NV was sold for $5.3 billion. General Growth lost out in the bidding for Rodamco, and analysts expected the company to look for other purchases, especially after raising $345 million from the sale of stock in December.

"General Growth has been looking for a use of those proceeds and this deal fits their agenda," said Matthew Ostrower, an analyst at Morgan Stanley Dean Witter & Co, which rates General Growth a "strong buy."

Salt Lake City-based JP Realty, whose chairman and founder, John Price, was appointed as ambassador to the Republic of Mauritius, has a stake in 50 malls, strip shopping centers and warehouses containing 15 million square feet of space. The properties are in Utah, Idaho, Arizona, Nevada, Washington, California, Wyoming, New Mexico, Colorado and Oregon. JP Realty's largest mall is the 1.17-million-square-foot Boise Towne Square mall in Boise, Idaho. General Growth owns 141 shopping malls in 39 states with 125 million feet of space.

Occupancy at JP Realty's malls is 83 percent and the company's 2001 sales averaged $260 per square foot, General Growth said. By comparison, General Growth's malls are 91 percent occupied and had sales of $355 a square foot.

"We see that as an opportunity for us," Bucksbaum said on the conference call, referring to JP Realty's occupancy. "The intermountain region is experiencing above normal growth relative to the rest of the U.S. Companies and people are moving to the area, and we see that type of growth continuing."

General Growth said it expects to generate a return of 10 percent during the first 12 months after the purchase is completed, which is expected in the second quarter.

Since losing out on the Rodamco purchase, General Growth has been active in other mall acquisition talks, analysts said. Last week, Salomon Smith Barney analyst Jonathan Litt said the company was in talks to by the Tysons Corner Mall in McLean, Virginia, for $550 million. Last month Prudential Financial said General Growth was a candidate to buy closely held Westcor Realty, which owns malls in the southwest, a deal worth about $2 billion.

The U.S. mall industry has consolidated as landlords jockey to get control the best-performing malls and gain negotiating leverage with retailers. In the fourth quarter, the earnings of real estate investment trusts that own shopping malls rose an average of 8.6 percent, compared with a 5.7 percent gain for the REIT industry, according to Salomon.

"It's difficult for a company of that size and in that region to get the benefits of size that we offer," Robert Michaels, president, said on the conference call, referring to JP Realty.

General Growth was one of the most active buyers of malls in the 1990s, acquiring about $7 billion of real estate, including Hawaii's Ala Moana, one of the best performing malls in the U.S. based on sales.

The REIT is controlled by the Bucksbaum family, which starting building malls in the 1950s. Today, General Growth is headed by John Bucksbaum, 44, the son of co-founder Matthew Bucksbaum, company chairman, and nephew of the late Martin Bucksbaum, also a co-founder.

Last month, General Growth said 2002 funds from operations would range from $5.31 to $5.56 a share. If the JP Realty transaction closes in the second quarter, the company said it anticipates that it would raise the low end of that range.

General Growth plans to fund the cash portion of the purchase with a combination of cash and marketable securities and new loans, the company said in the statement.

Shares of General Growth rose 25 cents to $42.25 in early trading today. They have risen 24 percent in the past year. Salt Lake City-based JP Realty share rose $2.15 to $26.58 and are up 40 percent in the past year.