GGP Ails Won’t Affect Promenade in Rogers

Deadlines to restructure billions in debt are looming, but even a Chapter 11 bankruptcy filing by General Growth Properties Inc., co-owner of Pinnacle Hills Promenade, won’t impact operations at the outdoor mall in Rogers.

Although some wild rumors flew when news first hit that GGP announced in an SEC filing Nov. 10 that it was being forced to consider a court-structured reorganization, no doors are or will be closing.

However, if GGP does enter into a Chapter 11 bankruptcy, the company may have to consider selling assets such as its stake in the Promenade to relieve debt, raise capital and reduce its massive retail footprint.

Pinnacle Group executive vice president John George said the partnership of Johnelle Hunt and Tim Graham would consider buying out the remaining stake should it become available.

The Promenade is a 50-50 joint venture between GGP and the Pinnacle Group and is not part of its wholly owned portfolio.

“We’ll have to wait and see [GGP’s] position,” he said. “If it was an opportunity, we’d sure look at it. We know it’s a good deal.”

A Target store is still scheduled to open in March, and Michael’s, an arts and crafts store, and Famous Footwear will open soon after, according to George. The property is around 85 percent occupied and once Target opens there will be more than 1 million SF of retail with room to grow.

GGP formed a limited liability company solely for the purposes of representing its 50 percent stake in the Promenade, which opened in 2006 and is valued at more than $100 million. George said GGP has around 15 to 20 similar joint ventures around the country.

The idea of buying out GGP’s stake would have been unfathomable just two years ago when the Promenade opened, but the Chicago-based mall operator is leveraged to the hilt at the worst possible time during the worst retail and credit environments seen in decades.

GGP, following the $12 billion purchase of the Rouse Co. in 2004, is the second-largest mall owner in the U.S. with around 200 properties. It borrowed heavily to finance its expansion, and its balance sheet reflects $24.8 billion in debt with cash-on-hand of less than $140 million.

GGP share prices have been battered, trading at an all-time low of 40 cents on Nov. 19, a precipitous fall of 99 percent from its 52-week high of $49.79.

It has already placed three prized Las Vegas malls — two of which had $900 million in debt coming due on Nov. 28 — up for sale along with dozens of others.

“We may not be able to refinance or repay our substantial indebtedness, which could have a materially adverse affect on our business, financial condition, results of operations and common stock price,” GGP stated in an amendment to its annual report filed Nov. 10. “We have a substantial amount of debt which we may not be able to refinance or repay. As of September 30, 2008, we have approximately $1.13 billion and $3.07 billion in debt maturing in 2008 and 2009, respectively.

“Due to the continued weakness in the credit markets, there can be no assurance that we will be able to refinance this debt on acceptable terms or otherwise. Our ability to successfully refinance our debt is also negatively effected by recent downgrades of our debt by national credit ratings agencies as well as the real or perceived decline in the value of our properties based on deteriorating general and retail economic conditions.”

GGP is in danger of defaulting on numerous corporate bonds. Its stock was dropped from the S&P 500 and a drop from the New York Stock Exchange for trading at less than $1 could be a condition to trigger other defaults.

“We believe there is a significantly increased risk that the sales of stores operating in our centers will decrease, negatively affecting their ability to make minimum rent payments and increasing the risk of tenant bankruptcies,” GGP’s amended report stated. “In addition to the direct adverse effect of tenant failures to pay minimum rents and tenant bankruptcies on our operations, these events also negatively affect our ability to attract and maintain minimum rent levels for new tenants.

“These circumstances negatively affect our revenues and available cash, and also reduce the value of our properties, reducing the likelihood that we would be able to sell such properties, on attractive terms or at all.”

Retail sales plunged in October, and store closings and cancelled expansions are spreading.

“It’s not just General Growth,” George said. “It’s almost a cancer around the country that has hit all at once. You look around and everyone is feeling it in some form or fashion. I’ve never seen anything like it where the entire country is affected.”

George said GGP has been “a very good partner.”

“And they still are,” he said. “They keep us informed and they want us to do well. Regardless of their financial situation as a whole, if [the Promenade] does well, they do well.”

Dec. 1 is the deadline for refinancing some of GGP’s debt, and the Pinnacle Group will be paying close attention to see if the beleaguered company can secure the refinancing it needs to avoid potential reorganization.

“We’ll be watching for it from the sidelines and pulling for them,” George said. “As a partner, we want things to work out for them.”