INDIANAPOLIS, April 22 /PRNewswire-FirstCall/ --
Commits Additional $1.5 Billion
to Strengthen Balance Sheet of Reorganized GGP and Eliminate
Uncertainty Contained in Brookfield-Sponsored Proposal
Financially Superior Proposal Without Expensive and Dilutive
Warrants
SPG Would Designate Only Two GGP Directors, Waive Numerous
Costly Fees Contained in Brookfield
Plan and Pay Unsecured Creditors Default or Compound
Interest
SPG Proposes Former Ernst & Young
Partner Dale Anne Reiss and Wharton Real Estate Professor
Peter Linneman as GGP Board
Members
Simon Property Group, Inc. (NYSE: SPG) ("SPG") announced that it
has sent a letter to General Growth Properties, Inc. (NYSE: GGP)
("GGP") outlining improvements and modifications to the terms of
SPG's April 14th proposal to
recapitalize GGP. As previously announced, SPG would invest
$2.5 billion at the same per share
price as the plan of reorganization sponsored by Brookfield Asset
Management. To date, Paulson & Co., ING Clarion Real
Estate Securities, Oak Hill Advisors, RREEF and Taconic Capital
Advisors have committed to invest a combined $2.1 billion in GGP without receiving any of the
highly dilutive and expensive warrants that GGP proposes to issue
to Brookfield, Pershing Square and Fairholme Capital.
The amended proposal offers significantly higher value and
substantially greater certainty to GGP and all of its stakeholders
than the transaction proposed by Brookfield. Most
notably:
- SPG has agreed to backstop a $1.5
billion credit facility necessary for GGP to close and
emerge from bankruptcy, thus eliminating a great risk and
uncertainty inherent in the Brookfield-led proposal;
- SPG would agree to limits on its governance rights, including a
cap on its voting rights at 20%, the right to designate only 2 of 9
GGP board members (as opposed to the 3 of 9 that Brookfield has
nominated). SPG's proposed nominees, Dale Anne Reiss and Peter Linneman, are both highly respected, have
significant experience in the real estate industry and are not
affiliated with SPG;
- SPG has agreed to waive a $12.5
million fee that would be levied by Brookfield, Pershing
Square and Fairholme Capital for their commitment to backstop the
contemplated GGO rights offering; and
- SPG will agree to pay the holders of GGP's unsecured claims
cash equal to the amount of accrued and unpaid pre-petition and
post-petition interest at the stated non-default contract rate
through the effective date of the plan plus default
or compound interest, if any.
Following is the text of the letter sent by SPG to GGP:
April 21, 2010
CONFIDENTIAL
Mr. Adam Metz
Chief Executive Officer
General Growth Properties, Inc.
110 North Wacker Drive
Chicago, Illinois
60606
Dear Adam:
This will formally confirm that Simon Property Group remains
prepared to participate in the recapitalization of General Growth
Properties on the terms we proposed in our letter of April 14th, subject to the improvements and
modifications in favor of GGP and its stakeholders which we have
discussed with you and your team and which are described in this
letter. Our amended proposal delivers significantly higher
value and substantially greater certainty of closing to GGP and all
of its stakeholders than the transaction proposed by Brookfield
Asset Management.
Consideration. Simon would: acquire
250,000,000 shares of common stock in GGP for $2.5 billion in the aggregate, or $10.00 per share; fully backstop the additional
380,000,000 shares of common stock to be issued in the GGP
reorganization and recapitalization, also at $10.00 per share, for $3.8
billion in the aggregate, to the extent commitments have not
been received from other investors for that capital (as of today,
$2.1 billion of such commitments have
already been received, and Simon is highly confident of placing all
of the contemplated equity capital); fully backstop the
$1.5 billion credit facility
contemplated to form a part of GGP's post-recapitalization balance
sheet; and fully backstop the GGO rights offering, to the extent
not backstopped by identified co-investors.
Warrants. Neither Simon nor any of the other
purchasers of GGP equity as part of the recapitalization would
receive any warrants or similar up-front payment or fees in
respect of their commitment to invest in GGP, either on an interim
basis, or as part of the post-reorganization consideration to be
issued in respect of these equity investments. As we
previously noted, we estimate that by eliminating these warrants,
and their dilutive effect, this benefit could be at least
$895 million, or $2.75 per share based on today's share count.
Governance. As you know, in order to
avoid the perceived risk of any challenge to the proposed
transaction, Simon proposed substantial limits on its governance
rights, described in Annex A to our April
14 letter. In response to your request, and in order
to even further dispel any concerns, by market participants,
regulators or otherwise, regarding GGP's independence after the
consummation of a Simon-led recapitalization, Simon would agree to
the revised limits on its governance rights described in Annex A
hereto, including a cap on its voting rights at 20%, the right to
designate only 2 of 9 members to the GGP board of directors (as
contrasted with the 3 of 9 that Brookfield would have the right to
nominate pursuant to its proposal), and the requirement that any
such nominees be independent and not affiliated with Simon.
In fact, our 2 proposed directors are Dale Anne Reiss, former Senior Partner and
Global Americas Director with Ernst & Young, LLP, and
Peter Linneman, Professor of Real
Estate, Finance and Public Policy at the Wharton School of
Business. Both are distinguished professionals with
substantial real estate expertise who are not affiliated with
Simon.
In this regard, it is not Simon's intent to gain control of GGP
pursuant to the backstop obligations it is undertaking so as to
provide certainty to GGP and assure a robust post-recapitalization
capital structure, and, as set forth on the revised Annex A
attached, Simon would agree to dispose of any interest in GGP in
excess of 45%, regardless of any other requirement to do so, and to
in any event dispose of any interest in GGP in order to satisfy any
applicable regulatory authority, or avoid or lift any injunction,
and accordingly to provide GGP with great certainty as to closing
and equally great certainty as to its ability to operate
independently and be perceived as doing so by the market and all of
its constituencies.
Co-Investors. As of the date of this letter,
Simon has received commitment letters from Paulson & Co.,
Taconic Capital, ING Clarion Real Estate Securities, Oak Hill
Advisors and RREEF who are together interested in co-investing, in
the aggregate, at least $2.1 billion
in equity in connection with a Simon sponsored recapitalization of
GGP, discussions with other potential sources of capital are
ongoing, and Simon is highly confident of placing all of the
contemplated equity capital. As noted, to the extent that
Simon does not find replacements for the full amount of the
Pershing Square and Fairholme commitments, Simon will fully
backstop the entire amount of such co-investment commitments,
without any warrants, as well as backstopping an additional
$125 million investment in GGO as
Pershing Square and Fairholme are currently contemplated to do.
As noted, GGP would not be expected or required to issue any
warrants or incur any up-front commitment or other similar payments
or fees in respect of the Simon, Paulson or other commitments to
support the GGP recapitalization. Moreover, the Paulson and
other co-investor equity commitments would be subject to claw-back
reduction or cancellation by GGP on the same terms as are those of
the existing Pershing Square and Fairholme commitments, subject
only to the payment of a modest cancellation fee on any unused
commitments of the equity co-investors other than Paulson.
Additionally, although the Brookfield proposal would prohibit
GGP, at closing, from having any five investors (other than
Brookfield, Pershing Square and Fairholme) who together owned 30%
of GGP's common stock, Simon has agreed to lower this limit from
five to four, permitting GGP greater flexibility in seeking
additional investors in its recapitalization.
$1.5 Billion Debt
Incurrence. Under the Brookfield proposal, GGP must
incur an additional $1.5 billion of
new, unsecured corporate debt in order to close and emerge from
bankruptcy. We understand that GGP has not yet obtained this
new debt. Simon will eliminate the risk with respect to this
$1.5 billion of capital, and the
contingency the requirement to raise it imposes on the
Brookfield-sponsored recapitalization, by agreeing to backstop the
entire amount, on mutually agreeable market terms. Simon will
also provide full assistance to GGP in helping arrange this
facility, to the extent GGP so requests.
Closing Certainty. As a condition to its
obligation to consummate its investment, Simon would require GGP to
have a minimum liquidity of only $350
million, and a maximum aggregate indebtedness of
$22.25 billion, in each case as you
have requested as a variation from the terms of the Brookfield
transaction. This provides GGP with $300 million more liquidity flexibility – and
therefore greater certainty of closing – than the more stringent
standards insisted upon by Brookfield (minimum liquidity of
$500 million and maximum aggregate
indebtedness of $22.1 billion).
Further, with respect to the GGO spin-off, Simon would agree to
delete the concept of "Essential Assets," thereby providing GGP
with greater latitude in structuring the GGO spin-off and
eliminating any risk that a delay in the formation of GGO and the
transfer of assets to it will jeopardize the closing of the entire
GGP recapitalization or allow any party the opportunity to
renegotiate the terms of its investment.
Preemptive Rights. Brookfield would have
preemptive rights with respect to issuances of stock by either GGP
or GGO so long as it is a 5% or greater holder in the respective
entity. Simon will agree to limit its preemptive rights in
GGP, such that they would only apply for so long as Simon holds a
15% or greater interest in GGP.
GGO Backstop Fee. Brookfield, Pershing
Square and Fairholme propose to receive an aggregate of
$12.5 million, payable in GGO shares,
as a fee for their commitment to backstop the contemplated GGO
rights offering. Simon and its co-investors will waive this
fee.
Default and Compound Interest. Simon will
agree to pay the holders of unsecured claims in GGP cash in the
amount equal to the amount of accrued and unpaid prepetition
interest and postpetition interest at the stated non-default
contract rate through the effective date of the plan plus default
or compound interest, if any, as reflected in the Plan Summary Term
Sheet attached to our proposed form of Investment Agreement.
The Brookfield proposal would not provide unsecured creditors
with any recovery for the amount of their claims with respect to
default or compound interest.
No Financing or Other Contingencies. As in
our initial proposal, there will be no financing condition
whatsoever to Simon's obligations to close the transaction.
As you know, Simon has an equity market capitalization in
excess of $27 billion, $3.5 billion of available cash on its balance
sheet, and $3.3 billion of available
borrowing capacity under its revolving credit facility. Simon
would be fully and immediately responsible for its commitment and
backstop obligations. Simon's investment would not be
contingent on any vote of Simon shareholders.
Improvement to Brookfield Terms. Except as
specified herein, the terms of Simon's formal binding contractual
commitment to invest in GGP would be substantially identical to
Brookfield's obligations pursuant to the Brookfield Investment
Agreement and the other agreements contemplated thereby. Our
proposed form of Investment Agreement, reflecting the revised
proposal described above (and including the Plan Summary Term
Sheet, also revised to reflect the improvements to our proposal
described in this letter), and which we are prepared to enter into
immediately, is being forwarded separately by our counsel to your
counsel, together with a comparison to the form of agreement we
provided to you on April 14 and
copies of the additional commitment letters we have received from
Taconic Capital, ING Clarion Real Estate Securities, Oak Hill
Advisors and RREEF.
We look forward to speaking to you on Thursday and to continuing
our work towards an agreement.
Very truly yours,
David Simon
Chairman of the Board and
Chief Executive Officer
cc: Board of Directors, General Growth Properties, Inc.
Official Committee of Equity Security Holders
Official Committee of Unsecured Creditors
Jackson Hsieh, UBS Investment
Bank
Antitrust Protections
The U.S. antitrust authorities have consistently recognized that
the retail real estate industry is highly competitive and
fragmented. It is one of the only industries exempted from
the notification and waiting period requirements of the
Hart-Scott-Rodino Act. Furthermore, the federal antitrust
agencies and the courts have repeatedly indicated that there is no
separate relevant product market for shopping malls. Rather,
a properly defined relevant market would include all retail real
estate.
According to recent estimates, there are over 100,000 shopping
centers of all kinds in the U.S. containing approximately 7 billion
square feet. Moreover, in addition to the wide variety of
physical stores, e-commerce websites and mail order catalogs have
become established and powerful retail outlets. Only a small
fraction of U.S. retail sales are conducted in properties owned by
SPG and GGP.
SPG strongly believes that its proposal to take a passive
minority stake, with numerous procedural and governance safeguards,
and together with a group of highly sophisticated, experienced and
independent investors, does not pose any concern for the
stakeholders of GGP.
Specifically, Simon's acquisition of a 20% voting interest / 25%
economic interest in GGP and the right to designate 2 of 9 members
to the GGP board with independent directors, unaffiliated with
Simon, will be subject to substantial limitations and restrictions.
Among other things:
- GGP will remain a separate company, with its own management and
board, and a majority of independent board members. All
leasing decisions will be made at the property/operating company
level, and Simon will not directly or indirectly try to influence
them.
- The Simon designated GGP board members will not be affiliated
with Simon and their service on the GGP board would be consistent
with applicable antitrust laws and other rules.
- Simon designated GGP board members shall not be allowed to cast
a vote on any capital investment, acquisition or divestiture
decision of GGP that relates to mall/lifestyle center properties
that are within the trade area of a mall/lifestyle center that
Simon manages or has an interest in.
To the extent that Simon acquires in excess of the 45% interest
of GGP in order to fulfill the investment currently contemplated to
be provided by Pershing Square and Fairholme, Simon will sell or
distribute the excess interests, or to put the excess interests
into a trust with the following terms and conditions, among
others:
- The excess interests would be nonvoting pending
disposition.
- The trustee would be instructed to sell the excess interests,
either as a block or in a series of sales, at such time and under
such conditions as to ensure that the divestitures do not adversely
affect GGP or its ability to raise capital.
- The trustee would not be a director, officer, manager, agent or
employee of Simon and would expressly have no fiduciary duty to
Simon other than to carry forth the purposes of the trust
agreement.
SPG would also sell, distribute or put into a trust additional
GGP shares to the extent required by regulatory authorities.
About Simon Property Group
Simon Property Group, Inc. is an S&P 500 company and the
largest real estate company in the U.S. The Company currently
owns or has an interest in 381 properties comprising 260 million
square feet of gross leasable area in North America, Europe and Asia. Simon Property Group is
headquartered in Indianapolis,
Indiana and employs more than 5,000 people worldwide.
The Company's common stock is publicly traded on the NYSE
under the symbol SPG. For further information, visit the
Simon Property Group website at www.simon.com.
Forward-Looking Statements
Certain statements made in this press release may be deemed
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company
believes the expectations reflected in any forward-looking
statements are based on reasonable assumptions, the Company can
give no assurance that our expectations will be attained, and it is
possible that actual results may differ materially from those
indicated by these forward-looking statements due to a variety of
risks, uncertainties and other factors. Such factors include, but
are not limited to: the Company's ability to meet debt service
requirements, the availability and terms of financing, changes in
the Company's credit rating, changes in market rates of interest
and foreign exchange rates for foreign currencies, changes in value
of investments in foreign entities, the ability to hedge interest
rate risk, risks associated with the acquisition, development,
expansion, leasing and management of properties, general risks
related to retail real estate, the liquidity of real estate
investments, environmental liabilities, international, national,
regional and local economic climates, changes in market rental
rates, trends in the retail industry, relationships with anchor
tenants, the inability to collect rent due to the bankruptcy or
insolvency of tenants or otherwise, risks relating to joint venture
properties, costs of common area maintenance, competitive market
forces, risks related to international activities, insurance costs
and coverage, terrorist activities, changes in economic and market
conditions and maintenance of our status as a real estate
investment trust. The Company discusses these and other risks and
uncertainties under the heading "Risk Factors" in its annual and
quarterly periodic reports filed with the SEC. The Company may
update that discussion in its periodic reports, but otherwise the
Company undertakes no duty or obligation to update or revise these
forward-looking statements, whether as a result of new information,
future developments, or otherwise.
SOURCE Simon Property Group, Inc.