NEW YORK, April 2 (Reuters) - Hedge fund manager William Ackman, who controls 25 percent of General Growth Properties Inc GGP.N shares, said bankruptcy was the best option for the second largest U.S. mall operator, which is facing billions in loans it cannot refinance.
“Bankruptcy is not just designed for companies that are insolvent,” Ackman told a packed room of real estate investors, owners, analysts and bankers attending the New York University Schack Institute of Real Estate 14th Annual REIT Symposium.
“Bankruptcy is also designed for companies that are solvent, but have liquidity problems that are due to events outside of their control,” said Ackman, head of New York-based Pershing Square Capital Management LP.
General Growth, the Chicago-based real estate investment trust (REIT) faces more than $27 billion in debt that comes due over the next several years and has already defaulted on many mortgage loans and corporate bonds.
A spokesman for the mall owner and operator said it was continuing discussions with “our lenders as it pertains to our current debt situation.”
It has repeatedly said that, if it cannot obtain refinancing or loan extensions, it may seek Chapter 11 bankruptcy protection. At the same time, it has been trying to assuage mortgage and bond holders, fighting not to file.
The company owns more than 200 U.S malls in 44 states. Among its holdings are some of the most profitable malls in the country.
“I think it’s a great company,” Ackman said. “It’s got phenomenal assets.”
Ackman began buying up General Growth shares after the company's market capitalization fell to $104 million from $9.4 billion in the 60 days after Lehman Brothers Holdings Inc LEHMQ.PK filed for bankruptcy and the credit markets shut down.
Ackman said that, without the debt problems, it could easily retain its value through the economic downturn because of the high-quality malls its has in its portfolio.
“It’s one of the most interesting investment opportunities I’ve seen in my career,” he said.
Ackman, is pursuing another challenge on the real estate front. He controls 7.8 percent of Target Corp TGT.N and is pushing for five seats on its board. Ackman wants the retailer to sell its credit card operations and spin off the land under its stores as a REIT to boost its stock price.
A General Growth bankruptcy could be a boon for shareholders, he said.
He compared its plight to that of Alexander's Inc ALX.N, the failed department store. Real estate titan Steve Roth, chairman of Vornado Realty Trust VNO.N, bought the shares and put the company into bankruptcy in 1992.
He closed the department store and developed the property. The stock soared past $450 a share and closed on Thursday at $169.24. General Growth shares closed at 68 cents.
“I’ve learned that, when a solvent company files for bankruptcy and you have a lead equity holder, you can marshal it thorough the bankruptcy process,” Ackman said.
“If you’ve got a situation where you have a small equity cap and you can sell 90 percent of your stock and de-equitize yourself or you can file and retain equity value for shareholders, you should look at that very, very seriously.”
Real Estate mogul Sam Zell, who sold Equity Office, the giant U.S. office owner, at what is now seen as the top of the market, said General Growth would likely file for bankruptcy protection.
“I do not believe GGP will be liquidated,” Zell said, speaking at the same conference. “I expect the company to file bankruptcy. It will do a prepackaged. It will be reorganized and it will be taken public.” (Reporting by Ilaina Jonas; Editing by Andre Grenon)
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