In Wednesday’s Wall Street Journal, there was an article on GGP’s plan to spin off 30 of its weaker malls and create a new publicly traded company, Rouse Properties Inc.
General Growth executives tout the separation as a means for General Growth to focus its resources on its remaining 137 best-performing malls. The spinoff, to be called Rouse Properties Inc., then can concentrate on buying and rehabilitating so-called B malls, which mostly are lower-productivity malls in secondary and tertiary markets.[...]
“Rouse is being created to be a B-mall consolidator,” Mr. Mathrani said in a December interview at General Growth’s Chicago headquarters. “They can actually be a viable, strong B-mall company. We’re putting assets into this business that are good assets.”
GGP did something similar with much of their non-mall portfolio in 2010, creating Howard Hughes Corporation. The HHC IPO debuted at $30.00 per share and currently trades at $46.21 a gain of 20%+. GGP on their other hand, is only up 5% since HCC’s IPO.
But how will Rouse perform? According to PwC’s most recent Real Estate Investor Survey, Class B+ Malls are trading at cap rates of 7.75% or about 175 bps above their Class A+ counterparts. That’s more than a 20% discount.
The question yet to be answered is, Is GGP trading at a discount because these assets are currently in their portfolio?
Will this discount be passed along to Rouse, causing GGP’s stock to pop, but not Rouse’s? Or will something similar to what happened for the HHC IPO and Rouse will be the one to pop?