For those that don't follow me regularly, I released bearish research and shorted GGP at around $57 in 2007. It was a very profitable trade since GGP filed for bankruptcy a year later. Ackman from Pershing Square bought GGP shares/calls/swaps between 50 cents and 2 dollars per share, resulting in what looks like a home run deal.

He was confronted by Hovde Advisors, a DC asset management firm who was short the stock, over valuation and the closest thing to a hedge fund soap opera episode ensued.

While the SPG offer is nowhere near where Ackman was forecasting, it has been a profitable deal nonetheless.

I have made the subscription version of the full analysis available to anyone who registers now that this story has pretty much played its course. The full comparative analysis with updated valuation is now freely available upon free registration here: Middleton vs Ackman vs Hovde on GGP - subscription edition w. updated valuation 2009-12-26 20:43:17 1.51 Mb.You may click here to subscribe to premium research or to register for free. Readers should be cognizant of the marketing component of investors publicly stated valuations. To illustrate this, Let me post three paragraphs from the aforementioned analysis that pretty much says it all (keep in mind that SPG just offered $9 or so per share). I'll leave it up to the readers to determine who was the most accurate regarding GGP both on the short side going down (I think I was the only one declaring a position publicly) and on the long side going up (I did not have a position):

GGP valuation analysis

Hovde Capital Advisors

Hovde applies Q3 2009 annualized NOI (adjusted for lease termination fees, tenant allowances, maintenance capital expenditure and other non cash items) to Ackman's May 2009 GGP valuation analysis, and estimates the implied equity value of $5.73 per share at a 7.5% cap rate and negative $5.03 per share at an 8.5% cap rate. After incorporating the conversion of the unsecured debt into equity at price of $6 per share, the implied equity value is $5.94 per share at a 7.5% cap rate and $3.62 per share at an 8.5% cap rate

Ackman's response

Based on cash NOI (not adjusted for lease termination fees, tenant allowances, maintenance capital expenditure) for LTM ending Sep 2009, Ackman values GGP at $23.7, $32.0 and $41.6 per share at cap rate of 7.21%, 6.71% and 6.21%, respectively

Boombustblog's view

Based on our observations about assumed NOI and cap rate for valuation, we have revised Ackman's valuation analysis.

We computed cash NOI (adjusted for lease termination fees, tenant allowances, maintenance capital expenditure and other non cash items) for LTM ending Sep 2009. However, to factor in the impending rental decline to be realized in the short term largely owing to lease roll-overs, we estimated 2010 NOI assuming y-o-y decline of 7.5% against 5.4% y-o-y decline in 3Q09. We applied estimated 2010 NOI and more realistic cap rate range of 7.0% to 8.0% to the Ackman's valuation analysis. GGP's valuation is $6.8 per share under the base case and $13.6 per share and $0.8 per share under the optimistic case and adverse case, respectively.

It appears as if SPG offered a reasonable acquisition premium (in equity) over what we feel is reasonable for GGP. The cash offer was accurate to within eighty cents! It looks like someone over at Simon Properties reads the BoomBust! Ackman's (publicy disseminated) valuations were apparently in the stratosphere (and our analysis clearly demonstrated this point) while Hovde was a little pessimistic. Of course, the deal is not closed yet, so this is all just speculation for right now. I recommend all interested parties register and choose a free (or premium paid) subscription and download the full 11 page analysis referenced above.

Below is a quick chronology of events: