GGP: Likely to get fair value

There hasn’t been much news on the GGP front. After news developments on an hourly basis, we have gone almost two weeks without major news on GGP. For patient investors, the reward will be worth the wait.

Steven Roth, of Vornado Realty Trust, recently published his annual letter. In there he discussed GGP and the likely buyout price. On discussion about distressed sellers/buyers, he mentioned:

Analyst Michael Billerman recently noted that the anticipated avalanche of “distressed sellers” has yet to materialize, thereby creating a class of “distressed buyers.”  Legendary trader Ace Greenberg famously noted that there are no illiquid markets, just incorrect prices.  Here are my observations:

· Today, lenders are not selling at panic distressed prices.  This is very different than the 1990s – who can forget the RTC, etc.
Sellers, and sellers who were lenders (and not natural holders) will flood to market as prices rise.  Assets will soon trade a plenty (just look at the volumes flooding into special servicing) but in controlled processes at clearing, but not distressed prices.(6)

The footnote (6) states:

(6) Look at General Growth – all the money was made buying securities in the panic.  Whoever the final acquirer turns out to be, they will be paying a fair, not distressed price.

We have one of the best investor/manager in the REIT space staying GGP will sell for fair price. The big money was made when investors sold GGP as they worried about the company filing bankruptcy and getting liquidated. It created an excellent opportunity for the distressed buyers, to capitalized on the distressed sellers mistake. We are now in a market where there is very little, if any, distressed selling happening. If you compare today’s market to the 1990s, we are in a very different market.

GGP so far has gotten offer, Simon’s first offer, that was assuming a distressed market valuation. It is clear that Simon is going to offer a much more realistic valuation/offer in its second round.

Ackman has mentioned that ‘fair value’ for GGP is in the $20-40 range. This would mean a 50-150% upside from current prices. I don’t know where GGP will eventually end up but I still expect plenty of upside from the current prices.

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