Analyst Wary of GGP Debt

General Growth Properties has been a high-flying real estate investment trust in recent years, with the stock price more than doubling since early 2003.

But analysts at CreditSights see some potential storm clouds on the horizon. They have issued a "sell" recommendation for investors in the company's unsecured bonds.

Despite debt reduction initiatives at GGP, the analysts say that significant exposure to variable rate financing, a highly encumbered asset base and diminished financial flexibility are behind the "substantial risk" faced by unsecured bondholders.

If consumers tighten their wallets in response to rising mortgage rates and high energy prices, GGP might find it difficult to manage its "hefty debt burden," CreditSights said in a report. Specifically, the analytics firm recommends that investors sell the company's 5.375% notes due Nov. 26, 2013.

GGP purchased The Rouse Co., a real estate developer and manager, for $14.3 billion in 2004, contributing to the company's debt burden. CreditSights said that Rouse bondholders could become "structurally subordinated" if GGP has difficulty meeting cash flow needs.

Despite the concerns cited by CreditSights, the analysts noted that fundamentals at GGP were quite solid in the fourth quarter of last year, with occupancy improving to 92.5% from 92.2% three months earlier. They also noted that GGP has "continued to make headway in deleveraging following the Rouse acquisition."

By the end of this year, management of GGP plans to reduce floating rate debt to about $4 billion, down from the $9.2 billion peak reached after the Rouse transaction.

SNAPSHOT: GGP's $23 Billion in Debt

Secured-fixed 66%

Merger-related 22%


Unsecured-fixed 7%

Unsecured-variable 5%

SOURCE: CreditSights

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