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January 18, 2018

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General Growth plan would spin off Summerlin into separate company

A development today in the General Growth Properties Inc. bankruptcy case could see the firm's big Summerlin planned community spun off into a separate company.

Chicago-based General Growth, which filed for bankruptcy protection last year after it became overwhelmed with $24.6 billion in debt, is a big player in the Las Vegas economy.

Besides its extensive Summerlin property and commercial real estate holdings, including 7,400 acres of undeveloped land, General Growth owns five Las Vegas-area shopping malls.

They are Fashion Show, Shoppes at the Palazzo and the Grand Canal Shoppes at the Venetian on the Las Vegas Strip; as well as the Boulevard and Meadows malls. It also owns the unfinished and mothballed Shops at Summerlin Centre.

Today, General Growth announced plans for Canadian company Brookfield Asset Management Inc., one of the world's largest real estate investors and asset managers, to invest in a proposed recapitalization of General Growth valued at $15 per share or $2.625 billion. The plan was offered as an alternative to Simon Property Group's unsolicited $10 billion takeover offer for General Growth.

Today's plan, subject to bankruptcy court approval, calls for General Growth to distribute to General Growth shareholders shares in "GGO," or General

Growth Opportunities, a new company that would own certain "non-core assets" such as all of General Growth's master-planned communities and certain malls.

Summerlin, the Shops at Summerlin Centre, the TPC Summerlin golf course, an interest in Summerlin Hospital property and an option to acquire air rights to the Fashion Show mall would be transferred to GGO.

"These assets produce little or no current income but have the potential for significant long-term value," General Growth said in a statement.

Besides earning a 30 percent stake in the company, Brookfield's investment will allow General Growth to pursue additional capital-raising alternatives up to a total of $5.8 billion, including the issuance of new equity, asset sales and limited new debt issuance, said General Growth.

The company didn't say if any of the Las Vegas malls would be sold under the plan.

"This proposed plan offers significant value for all of our stakeholders," Adam Metz, CEO of General Growth, said in a statement. "It is designed to allow GGP to deliver a minimum of $15 per share in value to our existing common shareholders, while providing our unsecured creditors with par plus accrued interest. The Brookfield-sponsored recapitalization -- coupled with the more than $13 billion of restructured debt, our compelling scale as the second-largest regional mall owner, our fortress assets and a business plan that focuses on further deleveraging the balance sheet and building liquidity -- provides a strong financial foundation for the future. In addition, GGP shareholders will be able to participate in the value-creation opportunity presented by this plan."

"We are excited about the opportunities this recapitalization creates for our company and all of our stakeholders," Thomas H. Nolan Jr., president and chief operating officer of General Growth, said in a statement. "GGP has an extremely strong portfolio of successful properties, while GGO will have a large portfolio of opportunistic assets that have substantial long-term value, as well as certain assets where we believe value can be created through restructuring. By creating two separate companies, we enable both companies to manage their core strengths, take advantage of different market opportunities and appeal to distinct groups of investors with their own investment criteria. Our shareholders will be able to participate in the expected future value creation of both of these companies."

General Growth said the Brookfield agreement follows GGP's successful restructuring -- or agreements to restructure -- more than $13 billion of secured mortgage debt and the emergence from bankruptcy of more than 200 subsidiaries owning 108 properties.

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