Teach­ers’ fund seeks a stake in mall gi­ant

Deal comes as Gen­eral Growth plans to get out of bank­ruptcy

Austin American-Statesman - - FRONT PAGE - By Kate Alexan­der

The Teacher Re­tire­ment Sys­tem of Texas is buy­ing into the mall busi­ness.

The $97 bil­lion pen­sion fund an­nounced Mon­day that it planned to in­vest $500 mil­lion in the nation’s sec­ond-largest mall op­er­a­tor, Gen­eral Growth Prop­er­ties Inc.

The $500 mil­lion deal is part of the fund’s sub­stan­tial shift away from tra­di­tional stocks and bonds and into al­ter­na­tive in­vest­ments to im­prove re­turns and re­duce volatil­ity.

Gen­eral Growth filed for bank­ruptcy last year af­ter the credit mar­kets dried up and left the mall op­er­a­tor hold­ing $27 bil­lion in debt. It was the largest com­mer­cial real es­tate col­lapse in Amer­i­can his­tory.

Now, Gen­eral Growth is aim­ing to emerge from bank­ruptcy in Oc­to­ber, with the help of three pri­vate in­vest­ment firms, af­ter re­ject­ing a takeover of­fer from its biggest com­peti­tor, Simon Prop­erty Group.

If ap­proved by the bank­ruptcy judge, the re­tire­ment sys­tem’s in­vest­ment would give the fund a 5 per­cent stake in the re­or­ga­nized com­pany.

The re­tire­ment sys­tem’s money is not es-

sen­tial to Gen­eral Growth’s exit from bank­ruptcy but does en­hance the com­pany’s fi­nan­cial po­si­tion, ac­cord­ing to a com­pany state­ment.

Gen­eral Growth has the op­tion of re­duc­ing the re­tire­ment sys­tem’s stake by half with no penalty if it can sell the stock at a price higher than the $10.25 a share that the sys­tem is pay­ing.

The mall com­pany would pay the re­tire­ment sys­tem a $15 mil­lion penalty if it found an­other buyer for all of the 48.8 mil­lion shares the pen­sion fund plans to buy.

Steve Le­Blanc, who leads the sys­tem’s pri­vate mar­ket team, said Gen­eral Growth of­fered high-qual­ity as­sets, strong man­age­ment and a clear op­er­at­ing strat­egy.

“We be­lieve (Gen­eral Growth) is very well-po­si­tioned to cre­ate sub­stan­tial long-term value,” Le­Blanc said in a state­ment.

The com­pany owns more than 200 malls across the coun­try, in­clud­ing some prime prop­er­ties, such as West­lake Cen­ter in Seat­tle and Fa­neuil Hall in Bos­ton.

None of its 15 Texas malls is in the Austin area. It was a half-owner of High­land Mall, but that mall is now owned by a dif­fer­ent en­tity.

“The eq­uity in­vest­ment by TRS is yet an­other vote of con­fi­dence in the fu­ture of GGP,” the com­pany’s chief ex­ec­u­tive of­fi­cer, Adam Metz, said in a state­ment Mon­day.

The re­tire­ment sys­tem’s shares are priced at 25 per­cent be­low what Gen­eral Growth’s stock was trad­ing for Fri­day.

On Mon­day, the shares closed at $13.71, down 4 cents.

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