The General's Growth Stops Short

General Growth Properties Inc. GGP, the country's second largest shopping-mall owner is plunging today after it reported lower than expected earnings, as well as plans for a spin off of 30 properties. The Chicago-based real estate investment trust reported core funds from operations (FFO) for the second quarter of 20 cents per share. This is down sharply from a year ago, when the company was still in bankruptcy. Wall Street had been expecting FFO of 23 cents per share. As such, shares are off ~7% as of the time of this writing. The company also announced it will spin off 30 properties to shareholders through a special dividend. The newly formed REIT will be known as Rouse Properties Inc. Interviewed by Bloomberg, Craig Guttenplan, an analyst at CreditSights Inc. said, “They're probably malls that don't have the same kind of growth prospects. It's not where GGP wanted to focus its investment.” General Growth has been one of the most amazing Chapter 11 bankruptcy trades of all time. The company filed not because it could not pay its bill, but because it was unable to refinance because of the credit crisis and collapse of the commercial mortgage- backed securities market. Shares fell well under $1, and a bevy of noted investors, such as Bill Ackman, Bruce Berkowitz and others invested in the company, propped it up and got it out of bankruptcy. Shares have since returned to the NYSE, and returned from bankruptcy protection in November 2010. It spun out Howard Hughes HHC upon reemergence. Howard Hughes, a real estate development company is chaired by Ackman. The company said that FFO fell because of lower income from lease terminations. Sandeep Mathrani, GGP's chief executive officer commented, “As we conclude the mid-point of the year, I am pleased with the progress we have made towards strengthening the balance sheet, streamlining the portfolio, reinvigorating our leasing efforts and rightsizing the organization.” Mr. Mathrani added, “Our recently announced plan to spin-off Rouse, a 30-mall portfolio, to GGP stockholders will enable us to efficiently achieve our strategic objective to focus on our core mall portfolio, which generates comparable tenant sales approaching $500 per square foot." Conversely, competitor Simon Property Group SPG reported better than expected earnings last week and raised guidance for the rest of the year, so it looks as if GGP's growth may be slowing down. The sharp pullback in today's share price could prove to be a buying opportunity over the long run, but there was a lot of technical damage done today, and it will be a while before shares return to where they were before the earnings release. To me, that does not sound like a "General" I would want leading me or my portfolio. ACTION ITEMS:

Bullish:
Traders who believe that General Growth Properties will return to its former glory after the spin off of the 30 malls might want to consider the following trades:

• Look to go long GGP on today's large dip. It is probably overdone at this point, considering shares have pulled back sharply from their 52 week highs.

Bearish:
Traders who believe that the commercial real estate market is going to finally fall may consider alternate positions:

• Short GGP, and competitors, such as Macerich MAC, Simon Property Group, Vornado Realty Trust VNO and others. The spin off of the 30 properties by GGP could suggest that the commercial real estate market is not as healthy as everyone thought initially.

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