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Hours before Victoria Ward Ltd. was to announce the sale of its 65-acre retail and entertainment complex to Alexander & Baldwin Inc., board members hastily convened a special meeting.
Victoria Ward Ltd.'s new owner
is a shrewd and savvy dealmakerBy Rick Daysog
rdaysog@starbulletin.comThe Friday morning session was called to consider a new proposal from Ala Moana Center's owner, General Growth Properties Inc., which had submitted a last minute bid to pay $250 million -- including $200 million in cash and the assumption of $50 million in debt -- to acquire all of Victoria Ward's stock and real estate.
While Alexander & Baldwin executives thought they had a deal, Victoria Ward selected General Growth, which offered $10 million to $25 million more than Alexander & Baldwin, depending upon how the complicated offers are valued.
The end-run was classic General Growth.
"General Growth is very opportunistic in this way," said Matt Ostrower, an analyst with Morgan Stanley in New York. "That's what they are known for."
General Growth and Victoria Ward officials declined to comment on the bidding process. Alexander & Baldwin and its chief executive officer, W. Allen Doane, said they were disappointed by the "last-minute events" that led to the selection of General Growth but declined further comment.
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In many ways, the Victoria Ward deal underscores General Growth's well-earned reputation as a savvy dealmaker willing to take bold steps to preserve and expand its shopping center franchise.In 1999, when Japan-based Daiei Inc. put Ala Moana up for sale, some local real estate executives questioned whether a new owner would retain General Growth to continue managing the property.
But the Chicago-based real estate investment trust stepped into the bidding process with an $810 million offer that topped a proposal by a team that included Alexander & Baldwin, Kamehameha Schools and Victoria Ward's former development partner Simon Property Group.
And while the Ala Moana purchase initially strained General Growth's balance sheets, it paid off handsomely.
For the 12 months ending June 30, 2001, Ala Moana generated $76.2 million in net operating income for General Growth, making it the most profitable shopping center of the 142 malls owned or managed by the company.
For General Growth, the Victoria Ward property is expected to pay off in a similar way.
John Bucksbaum, General Growth's chief executive officer, said the Victoria Ward properties will generate $21.5 million net operating income during the first year of ownership.
That would place the center among the top income producers in General Growth's portfolio, behind Ala Moana and a handful of others, Bucksbaum said.
And when combined with Ala Moana Center, two nearby office buildings owned by the company and the Prince Kuhio Plaza in Hilo, the Victoria Ward properties will boost General Growth net income from its Hawaii operations to nearly $110 million a year.
That means that roughly 10 percent of General Growth's business will come from Hawaii.
"They think that Hawaii has a lot of growth potential," said Rich Sweigard, a research analyst with MacDonald Investments Inc. in Cleveland who noted that General Growth's investment in Hawaii since 1999 will exceed $1 billion. "There's a lot of upside for the company in Hawaii."
But there's a big downside for retailers, according to some local real estate executives.
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Less competition
The Victoria Ward sale, which is expected to close by July 31, will give General Growth a virtual monopoly over the retailing business in Honolulu's urban core, said Steve Sofos, president of Sofos Realty Co., a local commercial brokerage that leases space for dozens of retailers.That domination will snuff out the healthy competition between landowners that has fueled Hawaii's retail boom during recent years, he said.
"This is a brilliant move on General Growth's part but it's a disastrous move for retailing in Hawaii," said Sofos. "It will literally create a monopoly for General Growth and it will allow them to dictate which tenants will come into Hawaii and which won't."
Bucksbaum disagreed, saying the Victoria Ward and Ala Moana properties represent a small portion of the retail space available in Hawaii.
Owning the two large retail parcels is different from owning two interisland airlines, he added.
Unlike the failed Aloha and Hawaiian airlines merger, which would have forced local consumers to rely on one major carrier for flights to the neighbor islands, retailers have plenty of places to locate their businesses, Bucksbaum said.
Bucksbaum also took issue with the criticism that the Victoria Ward deal was a defensive move that was intended to protect the company's interest in Ala Moana Center.
With a net income of $21.5 million, General Growth will be getting a healthy 8.5 percent rate of return on its $250 million investment in Victoria Ward, he said.
That yield indicates that General Growth is not overpaying for the property to protect its investment in Ala Moana Center, but is investing in a profitable venture, Bucksbaum said.
"It appears that they got this for a pretty darn attractive price," added Morgan Stanley's Ostrower. "It looks like a steal to me."
Founded: 1954 General Growth Properties Inc.
Headquarters: Chicago
Chief executive officer: John Bucksbaum
Employees: 3,000
Properties: 142 regional shopping malls in 39 states
Retail space: 126 million square feet
Annual revenues: $1.2 billion
Retail tenants: 15,000 nationwide
Key properties: Ala Moana Center, Prince Kuhio Plaza (Hilo), Mayfair Mall (Wauwatosa, Wis.), Tyson's Galleria (McLean, Va.), Tucson Mall (Tucson, Ariz.)
Founded: 1930 Victoria Ward Ltd. facts
Chief executive officer: Mitch D'Olier
Employees: 71
Land area: 65 acres
Properties: 29 buildings and 17 ground leases
Retail space: 600,000 square feet
Annual revenues: $30 million
Number of retail tenants: 120
Anchors: Borders Book Music & Cafe, The Sports Authority, Nordstrom Rack, Dave & Buster's, Consolidated Ward 16 Theatres
