Bruce Flatt's comments on GGP

From his 2010 Q3 Letter to Shareholders:

 

General Growth Properties

 

Next week, General Growth Properties will emerge from bankruptcy and be split into two companies. Upon separation, we will own approximately 27% of General Growth (“GGP”) and approximately 14% of The Howard Hughes Corporation (“HHC”) on a fully diluted basis. Our overall investment will be approximately $2.5 billion, of which approximately $1 billion will be from our balance sheet and the remainder from our clients. GGP, the second largest U.S. mall owner, will complete an equity offering prior to year end to redeem some of the capital committed by other shareholders to the recapitalization and at that time, our three year involvement with GGP will result in the company being re-launched with a strong balance sheet, as it becomes a major investment for Brookfield.

 

From an economic standpoint, like most of our other businesses, we are seeing retail sales slowly recovering. With this recovery in front of us, and with some targeted strategic initiatives as well as capital investment, we believe we can remake GGP into the best retail shopping mall company in America. Recently, three of our officers were elected as board members of GGP, with me as chairman, and in addition we provided the company with a chief financial officer from our management team in order to assist in implementing its plans. GGP also last week announced the hiring of a CEO with extensive retail property experience, who we are very excited about working with. With these management additions, and in conjunction with the balance sheet strength coming out of recapitalization, we believe that GGP has substantial room to grow cash flows over the next five years.

 

In addition, as a result of the court reorganization, there are no make-whole costs to redeem the majority of the $18 billion of mortgages in place in the company and given current interest levels, the opportunity to refinance these mortgages is a benefit not envisaged two years ago. As a result, GGP is rapidly moving to lengthen the overall term of its financings, reduce interest costs, and eliminate much of the substantial amortization which was embedded into the mortgages currently in place.

 

We believe that with a concerted effort, GGP could be one of our more successful investments in the fullness of time, and we are excited to have an opportunity to be involved in this great company.

 

Full Disclosure: Long GGP / HHC

Standard Financial

Just picked up some shares of Standard Financial, which is a recent mutual-to-stock conversion selling well below book value.  Furthermore, activist investor Joseph Stilwell owns 8% of the company. Item 4 of his 13D filing states the following:

"We hope to work with existing management and the board of the Issuer to maximize shareholder value.  We will encourage management and the board to pay dividends to shareholders and repurchase shares of outstanding Common Stock with excess capital, and will support them if they do so.  We oppose using excess capital to "bulk up" on securities or to rapidly increase the loan portfolio.  We will support only a gradual increase in the branch network.  If the Issuer pursues any action that dilutes tangible book value per share, we will aggressively seek board representation."

Disclosure: Long Standard Financial (STND)

The Return of the Activist Investor...minus Chris Hohn

All week headlines have heralded the return of activist investors. However, one name is yet to be heard from - Chris Hohn. Chris Hohn is best known for his involvement in Deutsche Boerse. In the US, he was involved in a high-profile proxy battle against CSX. Unfortunately, since the credit crisis, things seemed to go downhill for Hohn and TCI Funds. Amid the commotion, Hohn's top lieutenants left the firm.

Enter the current environment. Ackman is back at it. He's teamed up with Vornado and built a massive position in JC Penney. Sardar Biglari, the controversial Chairman and CEO of Biglari Holdings, has just offered to buy Fremont Michigan InsuraCorp. Even 3G Capital, who teamed up with TCI in the CSX proxy battle, is back in the mix with an offer to buyout Burger King.

So where is Chris Hohn?

I ask because Hohn has always pursued some interesting companies. His ideal company seems to be one with monopolistic characteristics. Monopolies that are content with the status quo and just need a little push. It will be exciting to see if Hohn pops out of the woodwork in the coming months.

A Closer Look at Howard Hughes

From Amendment 1 of Form 10, Spinco, as it's referred to in the document, is:

"a real estate company created to specialize in the development of master planned communities and other strategic real estate development opportunities across the United States. Our goal is to create sustainable, long-term growth and value for our stockholders. We own a diverse portfolio of properties with a relatively small amount of debt (an amount equal to 11.7% of our total assets as of June 30, 2010) and with near, medium and long-term development opportunities, including our master planned communities, mall development projects and a series of mixed-use development opportunities in premier locations."


"We operate our business in two lines of business: Master Planned Communities and Strategic Development. 
 

        Master Planned Communities.    Our Master Planned Communities segment consists of the development and sale of residential and commercial land, primarily in large-scale projects. We currently own four master planned communities (including four separate communities in Maryland that are commonly, and collectively, referred to as the "Maryland communities") with over 14,000 acres of land remaining to be sold in desirable locations, which in some cases have no land suitable for large-scale residential development nearby. Residential sales, which are made primarily to home builders, include standard, custom and high density (i.e., condominium, town homes and apartments) parcels. Standard residential lots are designated for detached and attached single- and multi-family homes, ranging from entry-level to luxury homes. Commercial sales include parcels designated for retail, office, services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.

        Strategic Development.    Our Strategic Development segment is made up of a diverse mix of near, medium and long-term real estate properties and development projects, some of which we believe have the potential to create meaningful value. For example, the Hawaii Community Development Authority ("HCDA") approved a 15-plus year master plan that will permit us to transform 60 acres of land at our Ward Centers project in Honolulu, Hawaii into a vibrant and diverse neighborhood of residences, shops, entertainment and offices. Our Strategic Development segment includes nine mixed-use development opportunities, four mall development projects, seven redevelopment projects and eleven other property interests, including ownership of various land parcels and certain profit interests" 

Based on the unaudited Pro Forma Balance Sheet, Shareholder Equity will be just under $2.5 billion.

  

Howard Hughes Co - Ackman's Investment Vehicle?

Rumors already suggested this, but today it became official - Bill Ackman has been named the Chairman of Howard Hughes Co. General Growth Properties is expected to spin off the Howard Hughes Co upon its emergence from bankruptcy, which is expected in early November. The Howard Hughes Co will consist mostly of hard assets that currently generate little to no cash flow. Some notable examples, include, Summerlin and South Street Seaport. It will be interesting to see how active Ackman will be as Chairman. Given his reputation, it's fair to assume that he will actively pursue value enhancing opportunities. Stay tuned!

Disclosure: Long General Growth Properties (GGP)

Contango ORE (CORE)

Contango just announced that they will be spinning off their gold and rare earth mineral exploration company to shareholders. This seems to make sense, as many were concerned with this recent investment. Now investors can choose if they wish to participate in this new venture. True to form, Peak "intend[s] to run a bare-bones G&A effort" with CORE. In many ways the business model will be identical to Contango's oil and gas business. It seems Peak will make small calculated bets that will pay off handsomely if successful.

Disclosure: Long Contango (MCF)