General Growth Properties Rouses Rouse From Its Slumber

On the heels of last year’s spinoff of Howard Hughes Corp(HHC) which we wrote about here and here, General Growth Properties(GGP) approved plans today to spin off Rouse Properties on January 12, 2012 to shareholders as of December 30, 2011. The spinoff, which will be treated as a taxable dividend, is expected to trade as a REIT under the ticker RSE. First announced on August 1, the company revives the Rouse name(acquired in 2004) and creates a portfolio of 30 Class B malls in 19 states totaling over 21 million square feet.  The new company will have significant debt of $1.16B against just over $1.6B in equity.  A powerpoint presentation on the transaction with additional info and rationale can be found here. The company recently hired Andrew Silberfein as its first CEO. Silberfein had been executive vice president of retail & finance at Forest City Ratner Companies.

This is another transaction where existing shareholders will be left with tiny stakes as the distribution ratio is .0375 shares of Rouse for each share of GGP. This dynamic tends to lead to an initial drop in share price as investors dump their insignificant holdings.  There will, however, be a rights offering of $200 million at $15 per share subsequent to the distribution. Brookfield Asset Management, a key player in GGP’s emergence from bankruptcy with value for shareholders, has committed to exercising any rights not exercised by other shareholders.

Beginning with the bankruptcy process where pre-bankruptcy shareholders were made whole, through the spinoff of HHC and beyond, GGP and its management have consistently performed for shareholders.  Rouse may be another opportunity for shareholders to profit, particularly if economic conditions in the United States continue to improve.

Disclosure: The author holds no position in any stock mentioned

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• General Growth Properties unveils Rouse spin-off (marketwatch.com)