Mystery Around This Mall REIT Mortgage Default

chart01Bloomberg 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) 

http://www.bloomberg.com/news/articles/2016-06-16/day-of-reckoning-comes-for-u-s-shopping-malls-laden-with-debt

http://www.streetinsider.com/Analyst+Comments/Mizuho+Analyst+Takes+Exception+to+Bloomberg+Story+on+General+Growth+(GGP)+Lakeside+Mall+Strategic+Default/11747868.html

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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