UPDATE: General Growth Replaces CFO, Suspends Dividend
28 minutes ago - Dow Jones News
Related Companies
Symbol Last %Chg
GGP 10.86 43.08%
SPG 88.74 0.92%
VNO 85.02 0.76%
As of 12:26 PM ET 10/3/08
(Updates throughout including stock price, analysts' comments and additional background.)
By Angela Pruitt
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Beleaguered General Growth Properties Inc. (GGP) replaced its chief financial officer while suspending its stock dividend as the mall developer struggles to stay afloat in a sea of debt.
Wall Street cheered General Growth's announcement Friday that Bernard Freibaum was no longer chief financial officer. As the company searched for permanent successor, Chief Accounting Officer Edmund Hoyt, a 22-year company veteran, will serve in the role on an interim basis.
The company's shares soared 43% to $10.85 in recent trading.
UBS Analyst Jeffrey Spector said while Freibaum was a well-regarded executive in the REIT industry, General Growth's debt woes happened under his watch. He "was comfortable" with the company's high leverage, Spector said. He adding the company was taking the necessary steps toward its long-term interests.
"We believe for the best long-term interest of (General Growth) it was important for the board to take this step," said UBS in a report. "We see this as a positive sign and hope this allows the board to move GGP in a new direction."
General Growth's stock tumbled 48% on Thursday, its sharpest decline this year, amid recent stock sales by top executives to cover margin calls and concerns about the financial health of life-insurance companies, a key financing source for the company.
Friday's announcement comes nearly two weeks after the second-largest U.S. mall owner and operator said it should be able to offer long-term fixed-rate portfolio mortgage financing to lenders in November, while pursuing other financing for maturing debt. The company also noted various capital-raising efforts being explored - including divestitures, preferred-stock sales and mergers.
Friebaum unloaded some 83% of his 7.6-million-share stake of late to satisfy margin calls, including just short of 3 million shares Thursday.
General Growth said Freibaum still has about $3.4 million of margin debt outstanding. The company also said that its executives have no more margin loans outstanding, eliminating the need for them to further dump stock in order to pay back the debt.
UBS said the disclosure on executives' margin loans should alleviate some of the pressure on the stock. General Growth was among a number of real-estate investment trusts that sought shelter under the SEC's temporary short-selling ban.
General Growth has been struggling to deal with a $27 billion debt load. The company has hinted for weeks that if it can't refinance its debt, it might raise new capital by selling assets or new shares, the latter move being one that would dilute existing shareholders.
Roughly 60% of the 17.5 million shares General Growth executives owned as of March - before the recent sales - were bought on margin, SEC filings show.
With Freibaum's latest sale, he, Chief Operating Officer Bob Michaels and seven other executives have sold some 8.6 million shares the past two months to satisfy margin calls.
Separately, the company said it suspended the dividend amid uncertainty and volatility in the capital markets. And, noted that all distributions currently required to maintain REIT status have been made this year.
"If the company remains a going concern, we feel the dividend will be reinstated," said RBC Capital Markets in a report. The firm said the previous dividend remained well covered by cash flow.
General Growth Now Seen As Acquisition Target
The recent developments have made General Growth a prime acquisition target for big mall developers like Simon Property Group Inc. (SPG), Vornado Realty Trust (VNO) and Australian-based Westfield, analysts say.
"There is no question, there are many potential buyers. At the same time, I'm still not sure...GGP is a willing seller," UBS' Spector said, noting joint ventures and the selling of core assets are also alternatives. RBC Capitalsaid that given the quality of General Growth's portfolio, Simon Property or Westfield is the likely suitor.
However the firm noted that it spoke with the management of Simon Property "who did not indicate talks were in progress."
- By Angela Pruitt, Dow Jones Newswires, 201-938-2269, angela.pruitt@dowjones.com
(Donna Kardos contributed to this story)
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(END) Dow Jones Newswires
10-03-08 1157ET
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