General Growth Properties shares hammered again

The fiscal house is teetering, the architect is gone and it's almost time for scrap haulers to bundle up the debt and salvage assets of General Growth Properties.

That's the apparent status of one of the biggest mall owners in Las Vegas and the second-largest real estate investment trust, or REIT, in America.

Shares in General Growth -- owners of Shoppes at Palazzo, Grand Canal Shoppes, Fashion Show, Meadows and Boulevard malls -- on Tuesday sank more than 50 percent to $3.51 before recovering slightly to close at $4.50 on the New York Stock Exchange, down $3.25, or 41.94 percent.

The tumble marks a new nadir for stock that traded as high as $57.84 in the past year.

That was before investors decided the firm was so far in debt it may not recover, insiders sold shares by the millions to meet margin calls and Chief Financial Officer Bernard Freibaum departed on Thursday after 15 years. The company also suspended its dividend.

Freibaum was at the helm with Chief Executive Officer John Bucksbaum while General Growth borrowed billions, including a $14 billion debt deal for Rouse Co. in 2004 that included Fashion Show.

"Investors just keep pummeling this thing. I can't imagine there is a share left to sell," RBC Capital Markets analyst Richard Moore said Tuesday, when trading volume for General Growth stock was triple the typical level. "I'm at a loss for how you can dream up more pressure on this thing."

A company official said management is working on "a variety of options," and pointed to statements Bucksbaum made weeks ago during an interview.

Bucksbaum spoke about the approximately $1.1 billion in debt due by the end of the year, including $650 million in loans on Fashion Show and another $250 million for Palazzo.

"There are literally billions of dollars worth of mortgages we have coming due," Bucksbaum said. "We've talked about the bank facility that has been used to refinance some of the most recent mortgages."

Merrill Lynch issued reports saying the departure of Freibaum may help and offer solutions short of an outright sale.

One suggested a "major asset sale," but added, "we believe that there is value in the stock as the assets continue to produce solid cash flow."

Moore said it's possible managers could right the listing ship, but he's not sure how.

"They are going to sell the company," said Moore. "I don't think the credit crisis ends tomorrow morning."

Moore said one scenario for a sale would be somebody assuming General Growth's $27 billion in debt and buy shares for $10 to $12 each -- which would value the company at $30 billion to $33 billion.

Moore said Simon, the nation's largest REIT and owners of the Forum Shops at Caesars, has debt totaling about 40 percent of assets, compared to General Growth's 90 percent.

That means Simon could absorb a purchase without overreaching.

"They have plenty of money, they have it internally," Moore said of Simon.

Moore isn't the only one questioning the capacity of General Growth to remain intact.

After Standard & Poor's downgraded the company's debt on Monday, analyst Jeffrey Laverty at Oscar Gruss & Son told Bloomberg News restructuring "is inevitable."

Of remaining General Growth shareholders, Laverty said, "It is more than likely they get wiped out."

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.