Ala Moana owner
to purchase JP Realty
for about $1.1 billion

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By Robert Burgess
Bloomberg News

CHICAGO >> General Growth Properties Inc., the second-largest U.S. shopping mall owner, agreed to buy JP Realty Inc. for about $1.1 billion in cash, stock and assumed debt, adding 18 regional malls in eight states in the West.

JP Realty investors will receive $26.10 in cash for each share, 6.8 percent above the closing price Friday. Chicago-based General Growth, owner of Honolulu's Ala Moana Center, will pay $440 million in cash, and assume $460 million in debt and $116 million of preferred shares, said Chief Executive John Bucksbaum.

The purchase marks further consolidation of the mall business two months after Rodamco North America NV was sold for $5.3 billion. General Growth lost out in the bidding for Rodamco, and analysts expected the company to look for other purchases, especially after selling $345 million of stock in December.

"General Growth has been looking for a use of those proceeds and this deal fits their agenda," said Matthew Ostrower, an analyst at Morgan Stanley Dean Witter & Co, which rates General Growth a "strong buy" and doesn't own shares in the company.

Salt Lake City-based JP Realty, whose chairman and founder, John Price, was appointed as ambassador to the Republic of Mauritius, has a stake in 50 malls, strip shopping centers and warehouses containing 15 million square feet of space. The properties are in Utah, Idaho, Arizona, Nevada, Washington, California, Wyoming, New Mexico, Colorado and Oregon. JP Realty's largest mall is the 1.17-million-square-foot Boise Towne Square mall in Boise, Idaho. General Growth owns 141 shopping malls in 39 states with 125 million feet of space.

Shares of General Growth rose $1.06 to $44.28 today and are up nearly 38 percent in the past 52 weeks. JP Realty gained 2 cents to $26.55 today after rising $2.10 yesterday, a sign that some investors expect a competing offer for the business may emerge.

"It's not inconceivable another bid may come about, but all the major players are tied up" on their own acquisitions, said Cydney Donnell, who manages $2.8 billion in real estate securities at European Investors, including General Growth shares. "It's a fair price."

The U.S. mall industry has consolidated as landlords jockey to get control the best-performing malls and gain negotiating leverage with retailers. More than a third of U.S. malls are owned by public real estate companies, up from less than 20 percent in 1995, according to Prudential Financial.

In the fourth quarter, the earnings of real estate investment trusts that own shopping malls rose an average of 8.6 percent, compared with a 5.7 percent gain for the real estate investment trust industry, according to Salomon.

Occupancy at JP Realty's malls is 83 percent and the company's 2001 sales averaged $260 per square foot, General Growth said. By comparison, General Growth's malls are 91 percent occupied and had sales of $355 a square foot.

"We see that as an opportunity for us," Bucksbaum said, referring to JP Realty's occupancy. "The intermountain region is experiencing above normal growth relative to the rest of the U.S. Companies and people are moving to the area, and we see that type of growth continuing."

The company expects to boost JP Realty's occupancy by using its relationship with national retailers to add their stores to the centers, which they may have avoided in the past because of JP malls' smaller size and markets, he said. JP Realty officials weren't available for comment.

General Growth said it expects to generate a return of 10 percent during the first 12 months after the purchase is completed, which is expected in the second quarter.

Since losing out on the Rodamco purchase, General Growth has held other mall acquisition talks, analysts said. Last week, Salomon Smith Barney analyst Jonathan Litt said the company was in talks to buy the Tysons Corner Mall in McLean, Va., for $550 million. Last month Prudential Financial said General Growth was a candidate to buy closely held Westcor Realty, which owns malls in the southwest, a deal worth about $2 billion.

General Growth was one of the most active buyers of malls in the 1990s, acquiring about $7 billion of real estate, including Ala Moana, one of the best performing malls in the U.S. based on sales. General Growth is controlled by the Bucksbaum family, which starting building malls in the 1950s.

Today, General Growth is headed by John Bucksbaum, 44, the son of co-founder Matthew Bucksbaum.