Bloomberg has reported that the mall REIT General Growth Properties has failed to make a $144 million payment earlier this month on a mortgage associated with Lakeside Mall in Michigan. As a result, the mortgage has been transferred to a service provider that specializes in handling troubled commercial mortgages, which should come as concerning news to not just General Growth Properties investors but also other investors in other mall REITs.
Based on the latest financial statements released by General Growth Properties, Lakeside Mall is one of its bottom performers, as shown by the fact that it has an 85 percent occupancy rate compared to the average of a 96 percent occupancy rate for the mall REIT. However, it is curious that General Growth Properties has failed to make the payment because it should have no problems doing so, based on a relatively manageable debt level as well as relatively few debt obligations until 2018.
So far, General Growth Properties has not provided an explanation for its choice, whether because Lakeside Mall’s fair value was not worth the mortgage or something else. As a result, there is rampant speculation, with some people suggesting that it might not be an isolated case but a problem with mall REITs as a whole.
Source: General Growth Properties, Inc. (NYSE: GGP)
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