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27-03-2017 Hits:79245 BoomBustBlog Reggie Middleton

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This appears to be harp on GGP insider sales day. First a comment frrom a BoomBustBlogger, then my own observations:

From a blog reader -

VP sells 50k shares, then CEO buys 10k shares
VP of Corporate Development sells 50k shares on 8/7/2008 at 27.29 and now has 192k remaining shares to meet a margin call. It states as much in the footnotes - "sold to fund margin call". She reported the sale at 6:30 pm today. John Bucksbaum probably knew about this, because he apparently bought 10k shares today at 26.76, and then filed it at 8pm today, 1.5 hours after her filing. I am unsure who they think they are kidding when they go out and "counter" each sale with a placeholder purchase that is much smaller than the corresponding sale, but that appears to be the game here.

Telling the tale in chronological order

This picture details recent events in chronological order (click pic to enlarge):

ggp_margin_call_chronology.png

 

Management is doing anything it can to keep the stock up. These timed small purchases smack of desperation on the part of the CEO and CFO, who are probably paying whatever margin calls they may have by selling other possessions or using savings, but physically cannot buy any more than they are because of their heavy personal debtloads. The irony is they are the ones with the most debt of anyone at this company.  By keeping the stock up, they are trying to avert their own margin calls, and are using the dividend payments to pay off their margin interest.

 

Where we stand right now

I am currently seeing the stock retesting the 25.7 low we saw on 8/4/2008.  That low is what probably what prompted the margin calls in the first place.  Typically those calls offer some flexibility on when shares need to be sold, hence their selling over the following few days when the stock had rebounded a bit, which naturally helped their margin balances.  More margin calls will probably felt at this level, but will really ramp at around the 22 level.

Now, for my take on the situation: 

As mentioned in my many analyses, GGP's founding family and upper management's leverage may very well lead to the managing of the share price and dividend level more than the management of the company. This portends ill endings for the value orientated shareholders, for management is destroying value to maintain the dividend. See GGP Shenanigans for more on my thoughts on this. Despite the rampany buyuing, excessive leverage, the attempt to imprudently maintain the dividend, it appears that the sh1t has hit the fan for these fellows. Few realize how much upper management has been forced to sell this year. Let's take a look-see...

image007.gif

As youcan see, management has net sold about 600,000 shares of the company stock this year. More than me, and I'm totally bearish.

image008.gif

They have sold net a total of $15.5 million dollars YTD, and it appears that selling is about to ramp up due to margin call pressures.

Recent Insider Trading Activity: General Growth Properties Inc

         

Date

Name

Transaction

Num Shares

Price(s)

Value

Shares bought

Total bought

Shares sold

Total sold

Net

8/8/2008

FREIBAUM BERNARD

Purchased

1,400

$26.50

37,100

1,400

 $       37,100

     

8/5/2008

MICHAELS ROBERT A

Sold

700,000

$27.13

18,990,000

   

  700,000

($18,990,000)

 

6/27/2008

STEWART BETH A

Sold

8,000

$35.04

280,288

   

      8,000

($280,288)

 

5/16/2008

WYANT ROBERT C

Sold

2,000

$43.67

87,340

   

      2,000

($87,340)

 

5/2/2008

WYANT ROBERT C

Sold

3,300

$43.13

142,346

   

      3,300

($142,346)

 

3/18/2008

STEWART BETH A

Sold

10,000

$34.11

341,100

   

    10,000

($341,100)

 

2/14/2008

FREIBAUM BERNARD

Purchased

30,200

$36.26

1,090,000

30,200

 $  1,090,000

     

2/14/2008

BUCKSBAUM JOHN

Purchased

137,491

$36.32

4,990,000

137,491

 $  4,990,000

     

12/20/2007

BAYER JOEL L

Purchased

10,000

$41.00

410,000

10,000

 $     410,000

     

12/19/2007

FREIBAUM BERNARD

Purchased

15,000

$41.26

618,975

15,000

 $     618,975

     

12/19/2007

SCHLEMMER JEAN C

Sold

75,000

$41.30

3,100,000

   

    75,000

($3,100,000)

 

12/18/2007

METZ ADAM S

Purchased

5,000

$41.55

207,750

5,000

 $     207,750

     

Totals

         

199,091

 $  7,353,825

798,300

($22,941,074)

($15,587,249)

 

I expect the insider selling to add to the financing and macro pressures and when (not necessarily if) the company is forced to face the music and cut the dividend that it cannot currently fund from operations (and must fund from equity offerings and mortgage refi's)you will see capitulation in the share price. I predicted this in December, if you followed my analyses. Keep in mind that REIT investors are primarily income investors, thus a dividend cut will collapse the share price significantly. Management knows this, and combined with the fact that management is probably using the dividend income stream to pay their personal margin expense, I feel such an event will be both inevitable and disastrous.