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BoomBustBlogger NDbadger commented in the "It was bound to happen. Reggie Middleton vs Ackman vs Hovde on GGP!" thread:

I didn't find Hovde's analysis compelling. Would have liked Ackman to have spent more time on the dilution issue, as NOI will be shared by more shareholders. Also looks like he is using a post bankruptcy cap rate, which is aggressive, at least for now. That said, so far he is doing a masterful job navagating the company through bankruptcy. If he succeeds, this will truly be one of the great investment stories of our time.

I feel that the term "aggressive" is putting it lightly. Barring insider information or a connection with the judge (which he very well may have), no one really knows how GGP will emerge post bankruptcy, hence attempting to pro-forma using assumptions based on more assumptions of cap rate post emergence is literally a financial version of fantasy football.

The valuation of a real property portfolio using common equity share comps is stretching it as well, particularly when comparing one of the weakest companies in the business (currently in bankruptcy) with one of the strongest companies in the business. There really is no comparison without a significant discount to GGP, and even then you are comparing apples with oranges.

The dilution issue is pretty big (over 100% dilution), but not as big as the macro assumptions used to power Ackman's analysis, which are also very aggressive and cherry picked from anecdotal points that essentially fail to form a trend that actually supports his thesis. If anything, the trend disputes his thesis!

Hovde had several technical valuation issues in his presentation, which Ackman duly noted, but the gist of his message was essentially unanswered - most likely because it couldn't be.

I think many investors are getting confused by the fact that GGP's share prices has risen so much, and contributing that to the premise of Ackman being correct on the valuation vs his being able to pull off a profitable trade by riding an aggressive rally that has thrown the fundamentals out of the window. We have just underwent the most aggressive rally in the history of the market (save the great depression, and we all know how that rally turned out) in which the weakest companies rallied the most while the strongest prospects barely moved. Without such a rally, does anyone truly believe that GGP's stock would be worth $25 to $40? or even $12 while still in bankruptcy? GGP's management has destroyed immense amount of shareholder value and have held the dividend from $60 all the way down into bankruptcy, apparently failing to acknowledge their problems until well after it was too late.

Reference "Most Profitable CEOs Get Smallest Gains in Biggest Stock Rally Since 1930" from Bloomberg:

Money managers ignored profitability to snap up stocks that dropped the most in the credit crisis, leaving opportunities for value investors in 2010, say Raiffeisen Capital Management and Credit Andorra. They’re buying this year’s laggards, betting companies with the highest returns on shareholders’ capital will be rewarded as the Federal Reserve prepares to raise interest rates and the government removes stimulus.

“The best rally in our lifetime has left even more opportunities,” said Vienna-based Herbert Perus, head of global equities at Raiffeisen, whose team helps manage $36 billion and has bought J&J shares. “Well-managed companies with extremely good balance sheets were left behind.”

Creating Value

Fewer than 215 companies in the S&P 500 created value in 2009 as the U.S. economy experienced the worst contraction since the Great Depression, according to data compiled by Bloomberg based on consulting firm Stern Stewart & Co.’s EVA model. Their so-called return on invested capital exceeded the cost of funding their operations, the economic value added data show.