Developer General Growth moving subsidiaries out of bankruptcy protection

By Steve Green (contact)

Wednesday, Nov. 25, 2009 | 2:05 a.m.

Shopping mall and land development giant General Growth Properties Inc. is working to quickly move hundreds of its subsidiaries out of bankruptcy protection, including several in Las Vegas.

The Chicago company, weighed down by $27 billion in debt and hurt by the recession, filed for Chapter 11 bankruptcy reorganization on April 16.

On Nov. 19, General Growth (GGP) announced it had reached agreements to restructure some $8.9 billion of mortgage loans by extending their maturities and with continuation of interest at the current non-default rates.

“We are extremely pleased to reach this consensual agreement with lenders representing more than half of the mortgage debt covered by the bankruptcy proceedings,” Thomas H. Nolan Jr., chief operating officer of General Growth, said in a statement.

“We believe that these agreements provide a basis for consensually completing a restructuring of the debtors’ remaining approximately $6 billion of secured mortgage loans and we are hopeful that our other secured mortgage lenders will work with us to reach agreements quickly,” he said. “We are working with the unsecured creditors committee, the equity committee and other constituents to resolve the restructuring of our corporate level debt and equity and believe that these agreements with our mortgage lenders represent an important step toward establishing a long-term capital structure for GGP.”

General Growth said that under the terms with the lenders modifying the mortgages, the lenders will receive 100 percent recovery of past-due funds owed to them and will be paid restructuring fees; and that the loans will be modified to give the lenders additional rights to protect their interests.

On Monday, the company filed papers in U.S. Bankruptcy Court in New York reporting its plans to file a disclosure statement and plan of reorganization to move more than 170 of its 388 bankrupt subsidiaries out of bankruptcy by the end of the year.

The Las Vegas properties that would exit bankruptcy under the plan before 2010 include the Grand Canal Shoppes mall at the Venetian, the Boulevard Mall and some of the company’s office developments in Summerlin at Corporate Pointe and the Crossing Business Center.

Not included on the list are the Fashion Show mall on the Las Vegas Strip, Shoppes at the Palazzo at the Palazzo and the main Howard Hughes Properties Inc. land development business in Summerlin.

General Growth said that moving as many properties as possible out of bankruptcy by the end of the year will give them viable capital structures and reduce “administrative costs and burdens associated with operating in Chapter 11.”

General Growth said the $8.9 billion mortgage restructuring will “likely incentivize the debtors’ other project-level secured lenders to reach similar agreements, ultimately allowing for a comprehensive reorganization of the entire GGP enterprise.”

Separately, an appeal from the bankruptcy court is pending in federal court in New York pitting heirs of billionaire Howard Hughes against General Growth in a dispute over payments owed to the heirs for the value of undeveloped acreage in Summerlin.

The heirs, organized as A&K Endowment Inc., on June 16 appealed a bankruptcy court ruling they said compromised their claim to be paid for their interest in 7,400 acres in Summerlin.

In 1996, the heirs sold Summerlin developer Howard Hughes Corp. to Rouse Co., which was later acquired by General Growth. Terms of the 1996 deal called for the heirs to share in the profits as the Summerlin land was developed — including a final payment to be made based on an appraisal of the land this year.

Also, heading into the holiday shopping season, General Growth on Nov. 5 reported lower revenue for the third quarter — $760.1 million vs. $814.7 million in the third quarter of 2008.

Core funds from operations, a profitability measure for real estate investment trusts like General Growth, were $88.9 million or 28 cents per share in 2009’s third quarter, down from $199.2 million or 62 cents in the 2008 period.

“Although comparable and total tenant sales on a trailing 12-month basis continue to be down, third quarter 2009 comparable-tenant sales were only down 4.6 percent as compared to the third quarter 2008,” Adam Metz, chief executive officer, said in a statement. “September 2009 comparable-tenant sales actually increased 0.8 percent as compared to September 2008 comparable-tenant sales. While we are hopeful these trends will continue, our outlook remains cautious for the upcoming holiday season.”