No. of Recommendations: 14
Ralph: For you to buy a number of shares of the new GGP-A, you must think that there as virtually no chance that GGP would re-enter bankruptcy again the way they did a few years ago. I assume that this is probably your current thinking. Is it?

Yes, this is indeed the case. There is entirely new management, there are very strong and disciplined controlling shareholders, and the balance sheet, while still a bit too levered, is much, much better. Remember that what drove the old GGP into bankruptcy was a lot of maturing near-term debt during a Credit Crisis and rapidly falling commercial real estate prices.

None of these conditions are present today. Total debt is $18.9B, but 92.6% is fixed rate. Debt maturities are well-staggered, with the largest (through 2017) coming due in 2016, and that is only $2.2 B. There is no credit crunch (although there's no guarantee one won't occur again, which would affect ALl borrowers), and I like to think that a 40% decline in CRE values is quite an odd event.

As for overall debt leverage, I do get concerned with leverage ratios of over 50%, as is the case with GGP. However, tenant cash flows from highly-productive malls have been among the most stable of any property type. And the percentage of free cash flows dedicated to holders of the pfds is quite low. So it would take a major and very serious recession to slash GGP's free cash flows and imperil the pfd dividend.

Gracepeace, your point about a possible future deterioration of market and credit conditions is well-taken. But this is a potential problem for all creditors and holders of pfd stocks, and not so much a specific worry for GGP's pfd holders. Of course, the credit standing of GGP isn't as strong as it is for some other REITs that use lower debt leverage. But much of this risk is offset by GGP's property type and its cash flow stability. YTFCs for the better credits are in the high 4% to high 5% range. The new GGPpA offers a yield of 6.4%, which seems about right to me given the modestly higher credit risk.

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