The Gargantuan REIT, General Growth Properties (GGP), one of the largest shopping mall owners (and owner of several large shopping centers in the Washington DC Metropolitan Area), is facing bankruptcy straight in its eyeballs. Will it blink?
GGP has failed to refinance or extend $1 billion in debt due this month, which could trigger default. Already, GGP warned of its precarious position in its quarterly filing to the SEC. Furthermore, GGP is facing an additional $3.07 billion in debt coming due in 2009.
GGP has failed to refinance or extend $1 billion in debt due this month, which could trigger default. Already, GGP warned of its precarious position in its quarterly filing to the SEC. Furthermore, GGP is facing an additional $3.07 billion in debt coming due in 2009.
GGP Says: “Our potential inability to address our 2008 and 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as an ongoing concern,” General Growth Properties said in a Securities and Exchange Commission filing. “We may be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors.”
This current financial situation will be placing the future of its assets in jeopardy. GGP will be under extreme pressure to raise additional capital to pay off these imminent obligations.
What Will GGP Do? or WWGD?
1) Issue Stock or Bonds: Now, GGP can issue stock or bonds to raise money, but who would want to buy stock/bonds in a company thats in this dire position? The company has lost 99 percent of its market value this year; its stock was trading at 48 cents per share at the close of the market on Tuesday. Skittish investors will most definitely steer clear. And the liquidity crisis means most institutional investors and banks will continue to hoard money rather than take this investment risk.
2) Ask Uncle Sam: Bailouts abound these days, perhaps a Government bailout can be GGP's white knight. Solid support for their presidential neighbor may very well pay off.
3) Cut Corners & Costs: GGP is a major employer of 4,200 professionals nationwide, will it lay people off and start buying the single-ply toilet paper for its facilities? This option may generate savings and reduce overhead, but won't generate any revenue.
4) Raise Rents: Raising tenant's rents is out of the question as it would only drive out tenants and have the opposite effect. Moreover, the weak retail segment won't bear this increase in rent.
5) Divest its Assets: Taking the Good 'ol Fashioned approach to raising capital by selling off its assets may very well be the most sensible option in this economic environment. However, this won't be a walk in the park. Challenges in the retail sector will make this a complex and lengthy proposition. GGP should be willing to take reasonable offers on its properties, since this will allow them to pay off lenders and keep afloat. Trimming down its property portfolio and getting rid of the "dogs" may improve its overall long-term position. Sometimes one has to take one step back to take two steps forward.
This current financial situation will be placing the future of its assets in jeopardy. GGP will be under extreme pressure to raise additional capital to pay off these imminent obligations.
What Will GGP Do? or WWGD?
1) Issue Stock or Bonds: Now, GGP can issue stock or bonds to raise money, but who would want to buy stock/bonds in a company thats in this dire position? The company has lost 99 percent of its market value this year; its stock was trading at 48 cents per share at the close of the market on Tuesday. Skittish investors will most definitely steer clear. And the liquidity crisis means most institutional investors and banks will continue to hoard money rather than take this investment risk.
2) Ask Uncle Sam: Bailouts abound these days, perhaps a Government bailout can be GGP's white knight. Solid support for their presidential neighbor may very well pay off.
3) Cut Corners & Costs: GGP is a major employer of 4,200 professionals nationwide, will it lay people off and start buying the single-ply toilet paper for its facilities? This option may generate savings and reduce overhead, but won't generate any revenue.
4) Raise Rents: Raising tenant's rents is out of the question as it would only drive out tenants and have the opposite effect. Moreover, the weak retail segment won't bear this increase in rent.
5) Divest its Assets: Taking the Good 'ol Fashioned approach to raising capital by selling off its assets may very well be the most sensible option in this economic environment. However, this won't be a walk in the park. Challenges in the retail sector will make this a complex and lengthy proposition. GGP should be willing to take reasonable offers on its properties, since this will allow them to pay off lenders and keep afloat. Trimming down its property portfolio and getting rid of the "dogs" may improve its overall long-term position. Sometimes one has to take one step back to take two steps forward.
6) Chapter 11: Bankruptcy.Game Over. Lenders Call the Shots. Shareholders Lose Big Time.
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