NEW YORK General Growth Properties Inc (GGP.N), the U.S. mall owner that has been operating in bankruptcy, will pay the heirs of late billionaire Howard Hughes $230 million to resolve a long dispute over its acquisition of Summerlin, a huge Las Vegas residential development.
The settlement also means that the Hughes heirs plan to vote for the No. 2 U.S. mall owner's plan to emerge from bankruptcy, reversing their earlier opposition.
Known as an eccentric recluse, Hughes died in 1976, and his assets including casinos and many aircraft went to his heirs. The aviator and movie producer had no children. The heirs, who number in the hundreds, are mainly shareholders of the former Hughes Corp and heirs of those shareholders.
The settlement is one of the last hurdles that General Growth needed to clear before emerging from Chapter 11, expected in November.
According to its plan of reorganization, General Growth intends to split itself in two. One company will retain its name and high-profile malls including Fanueil Hall Marketplace in Boston and Fashion Show in Las Vegas. The other company, temporarily called Spinco, will consist of malls and shopping centers under various stages of development, land and other non-income-producing properties.
"The fact that the payment has been taken care of reduces the uncertainty associated with the company," said Green Street Advisors analyst Cedrik Lachance.
Shares of General Growth were up 3.3 percent at $15.58 in early afternoon on the New York Stock Exchange.
The two parties also reached an agreement on the form of payment to the Hughes heirs. General Growth had pushed to leave open its options to pay the amount in cash, a note from the spinoff or in stock of either company. The heirs balked at payment related to the spinoff.
The new agreement calls for Chicago-based General Growth to pay the Hughes heirs $10 million in cash and $220 million of either cash or stock of the reorganized General Growth.
"It was both the amount and the currency, and this settles both of them," said David Elkins, who negotiated the proposed agreement as one of the three representatives of the Hughes heirs.
According to General Growth's agreement with its new investors, its debt and certain liabilities, including any Hughes settlement for General Growth, are to be capped at $22.97 billion. The agreement calls for the spinoff company to absorb most of any overflow, according to a disclosure statement filed on August 27.
"The economic arrangement that exists between Spinco and General Growth as to who bears ultimate responsibility for the Hughes heirs claim is not impacted by the currency used in the settlement," General Growth President and Chief Operating Officer Thomas Nolan said.
The settlement requires approval by U.S. Bankruptcy Judge Allan Gropper in Manhattan.
Summerlin is a 22,500-acre master-planned community located roughly 12 miles from downtown Las Vegas. It has nearly 100,000 residents, 26 public and private schools, close to 150 parks, golf courses, medical facilities and shopping centers.
Rouse Co had acquired Summerlin from the Hughes estate in 1996. Included in the deal was a final payment to be made in 2009 based on half the value of the unsold, undeveloped land.
That schedule went on hold when General Growth, which had bought Rouse in 2004, filed for Chapter 11 in April 2009 after tight credit conditions left it unable to refinance billions of dollars of debt.
General Growth's plan to emerge from bankruptcy calls for Canada's Brookfield Asset Management Inc (BAMa.TO), Fairholme Funds Inc and Pershing Square Capital Management LP to provide about $8.55 billion.
The case is In re: General Growth Properties Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-11977.