I have identified about 6% of GGP’s portfolio (mentioned in previous post) that is likely to be foreclosed upon based on the following key parameters:

· Properties with a huge amount of debt maturing over the next 2-3 years

· Properties that are underwater (LTV greater than 100%)

· Properties with very low cap rates

In
view of the fact that GGP would still need additional finance following
the assumed foreclosure of its properties and considering that
foreclosure would further worsen GGP’s chances of raising the required
financing, we have assumed that GGP would have to sell a few of its
unencumbered properties at significant discount to the estimated market
price. We have estimated a discount of 15% in addition to an 8% cost of
sales in computing the realizations from the sale of these properties. We have ran the new data and assumptions through the full financial model, and have new findings to share.

Overall
we have estimated that GGP would foreclose approximately 6% of its
portfolio in terms of market value, which would reduce GGP’s overall
re-financing needs by around 13%, with the expectation of erasing the
mortgage debt due on these properties. Also, the properties
short-listed for sale are based on the premise that the sale should
meet approximately 30% of the company’s total re-financing needs in
2008 and 2009 each.

We
have also factored in the curtailing of the company’s capital
improvement estimates by approx. 50% which together with the assumed
foreclosure and sale has reduced the refinancing requirements by 50% in
2008 and 2009.

In
addition, as a result of foreclosure, we expect GGP’s cost of financing
to increase by approximately 200 basis points. (Please refer to the
sheet ‘Foreclosure analysis’ and ‘Loan amortization schedule’ in the
attached file). Based on the above analysis, GGP’s valuation under the
base case scenario assuming foreclosure and sale has dropped
significantly, and is even lower under the recession scenario. In
essence, after this last go around of analysis, GGP is now in REAL
trouble. I will post more specfics tomorrow (foreclosure and sale
scenario) and Friday (sale only scenario).