General Growth Properties Inc., the nation’s second-largest mall owner, said Monday it won a $500 million equity investment from a large Texas pension fund and still expects to emerge from bankruptcy by October.
The investment from the Teacher Retirement System of Texas, provides fresh capital for General Growth, which in May won a $6.55 billion equity investment from Canada’s Brookfield Asset Management Inc., Fairholme Funds Inc and Pershing Square Capital Management LP to fund its exit from Chapter 11.
"General Growth has certainty on its ownership and a capital plan that has some very strong, well-established backers," said Alexander Goldfarb, an associate director at Sandler O’Neill & Partners LP in New York.
"The Texas investment helps diversify the financial backers and further solidifies General Growth’s financial position. It could help attract other investors, given that ownership and control are now less concentrated."
According to a joint statement, the Texas fund will pay $10.25 each for shares of a reorganized General Growth.
The investment requires approval by the U.S. bankruptcy court in Manhattan and does not include a stake in a new company being spun off to General Growth shareholders.
Based in Chicago, General Growth owns or has stakes in more than 200 malls in 43 U.S. states, including Faneuil Hall in Boston and Harborplace in Baltimore.
The company filed for bankruptcy in April 2009 after tight credit conditions left it unable to refinance maturing commercial mortgage-backed securities.
"We continue to make excellent progress with our restructuring plan and are well on our way to exiting Chapter 11 by October," Chief Executive Adam Metz said.
The Brookfield-led investment beat out a rival bid by Simon Property Group Inc., the largest U.S. mall owner.
General Growth posted a first-quarter profit in May, helped by an improved economy, higher sales for retail tenants and stabilizing occupancy rates.
In a court filing, General Growth said it has already restructured $14.71 billion of secured mortgage debt, reorganizing a majority of its operating entities and obtaining confirmed plans for 262 affiliates.
"General Growth was a national, high quality retail platform that was just overlevered and relied too heavily on CMBS," Goldfarb said. "It is not that the malls themselves were not performing."
Separately, General Growth said it agreed for Jones Lang LaSalle Inc. to take over its third-party leasing and management business for 18 malls in 11 states, including the Burbank Town Center in California and The Shops at Georgetown Park in Washington. The terms were not disclosed.
An August 4 hearing has been scheduled to approve the Texas fund investment, which expires on Dec. 31, 2010 unless extended and has a $15 million breakup fee, the court filing shows.
UBS Investment Bank, Miller Buckfire & Co and Weil Gotshal & Manges LLP advised General Growth on the investment.
General Growth shares rose 3 cents to $13.78 in afternoon trading on the New York Stock Exchange.
