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This Week in Retail: General Growth Properties Files Plan To Split into Two Firms

Also This Week: Wells Fargo Closing 638 Stores; Benihana and Bugaboo Creek Chains Go Up for Sale; Body Central Sets IPO for Expansion Funds; and hhgregg Set To Open 10 More Mid-Atlantic Stores This Fall
July 14, 2010
General Growth Properties Inc. filed its proposed plan of reorganization to emerge from Chapter 11 protection this past week.

GGP said expects to emerge from its financial restructuring with a significantly improved balance sheet and substantially less debt. Since December 2009, GGP has successfully and consensually restructured approximately $15 billion in project-level debt.

Under the plan, GGP will satisfy its debt and other claims in full and implement a recapitalization with $7 billion to $8.5 billion of new capital. At emergence, GGP will split itself into two separate publicly traded companies ("New GGP" and "Spinco"), and current shareholders will receive common stock in both companies.

The New GGP will remain the second-largest shopping mall owner and operator in the country, with more than 180 properties in 43 states, and will focus on largely stable, income-producing shopping malls and other real estate assets.

Spinco will hold a diversified portfolio of properties with little debt and with near-, medium- and long-term development opportunities, including GGP's master-planned communities segment and a series of mixed-use and mall development projects.

The plan is based on investment agreements with affiliates of Brookfield Asset Management, Fairholme Capital Management and Pershing Square Capital Management, which have committed to provide $8.55 billion in capital as follows.
  • $6.3 billion of new equity capital at $10 per share of New GGP.

  • $250 million backstop equity commitment for a rights offering by Spinco at $5 per share.

  • $1.5 billion backstop debt commitment for a New GGP credit facility by Brookfield, Pershing Square and Fairholme.

  • $500 million backstop equity commitment by Brookfield and Pershing Square for a rights offering by New GGP at $10 per share.

  • In addition, GGP has executed an agreement with the Teacher Retirement System of Texas (TRS), a public pension plan, for an investment of $500 million in shares of New GGP common stock at $10.25 per share.

Key features of these agreements provide GGP the option to replace a portion or all of the capital being provided by Fairholme, Pershing Square and TRS with the proceeds of equity issuances at more advantageous pricing. To determine whether it can utilize these options, GGP intends to access the public capital markets. As a result, GGP intends to file a registration statement on Form S-11 with the Securities and Exchange Commission to raise equity capital prior to or shortly after emergence from Chapter 11.

Separately, GGP established a long-term strategic alliance through which Jones Lang LaSalle acquired the management and leasing responsibilities for the properties in GGP's third-party management division.

The portfolio of 18 regional shopping malls and community centers in 11 states adds more than 11 million square feet to Jones Lang LaSalle's retail portfolio of 84 million square feet in the Americas and 265 million square feet worldwide. In addition, through the strategic alliance, the two firms will work together to pursue opportunities for Jones Lang LaSalle to provide additional third-party services to new and existing clients.

The change in management and leasing responsibilities is effective immediately.

Approximately 200 employees who comprise the management teams at the 18 properties plus 30 corporate employees who provide services to the properties will become Jones Lang LaSalle employees. Mark Hunter, former senior vice president of third-party management at GGP, Donn Fuller, who held the position of vice president of asset management and development at GGP, and John Taylor, who was vice president of accounting and finance at GGP, will become senior vice presidents at Jones Lang LaSalle.

The properties are: Alexandria Mall (Alexandria, LA); Branson Landing (Branson, MO); Burbank Town Center (Burbank, CA); Cherokee Square Shopping Center (Tullahoma, TN); Festival Bay Mall (Orlando, FL); Kings' Shops (Waikoloa, HI); Laurel Commons (Laurel, MD); Northgate Mall (Tullahoma, TN); Palladio at Broadstone (Folsom, CA); Queen Ka'ahumanu Center (Kahului, HI); The Shops at Georgetown Park (Washington, DC); The Shops at Tanforan (San Bruno, CA); St. Lawrence Centre (Massena, NY); Swansea Mall (Swansea, MA); Towson Commons (Towson, MD); University Mall (Tampa, FL); Westdale Mall (Cedar Rapids, IA); Windward Mall (Kaneohe, HI).

Wells Fargo Closing 638 Stores

By: Andrew Deichler
Wells Fargo & Co. is restructuring its Wells Fargo Financial division. As a result, the bank will close its 638 Wells Fargo Financial stores and no longer originate non-prime portfolio mortgage loans. The division's remaining loan products will be integrated into Wells Fargo's other business units.

Due to the consolidation, more than 3,800 Wells Fargo Financial employees will lose their jobs by this time next year. 2,800 employees are slated to be laid off in the next 60 days, with the remaining 1,000 job cuts coming in the next 12 months.

The restructuring stems from Wells Fargo's 2008 acquisition of Wachovia. With more than 6,600 Wells Fargo and Wachovia community bank stores and 2,200 Wells Fargo Home Mortgage locations, Wells Fargo determined that there was no longer a need for a separate network of financial offices. According to the bank, less than 2% of its real estate loans were originated in Wells Fargo Financial stores in the first quarter.

"The economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States," said David Kvamme, president of Wells Fargo Financial.

None of Wells Fargo's community banking or home mortgage stores would be affected by the restructuring, the bank said. Instead, Wells Fargo Financial customers' loans will now be handled at these locations, as well as through phone banks and the company website.

Wells Fargo estimates that it will incur pre-tax charges of $185 million, including $137 million in severance costs for the second quarter. The remaining charges are expected to hit primarily in the third quarter. Wells Fargo believes that ongoing savings will offset these charges in less than two years.

"We know that this decision will be extremely difficult for those dedicated team members and their families who will be affected," said Kvamme. "We have already identified positions for thousands of our employees and are committed to finding new positions for as many impacted team members as possible."

Benihana and Bugaboo Creek Chains Go Up for Sale

Benihana Inc., operator of the nation's largest chain of Japanese theme and sushi restaurants, has decided to explore strategic alternatives, including a possible sale, in order to maximize shareholder value.

Benihana operates 97 restaurants nationwide, including 63 Benihana teppanyaki restaurants, nine Haru sushi restaurants, and 25 RA Sushi Bar restaurants. Under development at present is one Benihana teppanyaki restaurant. In addition, 21 franchised Benihana teppanyaki restaurants are operating in the U.S., Latin America and the Caribbean.

"While the company strongly believes in the renewal program and that significant progress has been made toward achieving its goals, the company has also stated its intention to commence an expansion plan through restaurant development and/or acquisitions. However, growth would be predicated on raising additional capital, and the company is reluctant to issue new equity at current price levels," said Richard C. Stockinger, CEO of Benihana. "Furthermore, several large shareholders have expressed disagreement with the board and have indicated a desire to seek board membership to pursue a change in the company's strategic direction."

"The combination of issues relating to raising new capital and the divergent views of these shareholders have made it extremely difficult for the company to implement with confidence a growth plan that would include organic growth as well as acquisitions at this time," Stockinger added. "As a result, the board has determined that the best course of action is to engage in a formal review of strategic alternatives available to the company with the assistance of a qualified financial advisor, including a possible sale. The objective would be to enhance shareholder value, while also maintaining and furthering the strategies the company has initiated."

The company does not intend to disclose developments with respect to the progress of its strategic review until such time as it has approved a transaction.

Separately, CB Holding Corp., parent company of Charlie Brown's Steakhouse, Bugaboo Creek Steak House and The Office Beer Bar & Grill restaurants, has hired investment banking firm Raymond James to assist it in its evaluation of strategic alternatives for its Bugaboo Creek Steak House brand.

"Bugaboo Creek Steak House, with its high standard of affordable hospitality and entertaining experiences, holds a unique and compelling position in the casual dining restaurant category," said Sam Borgese, president and CEO of CB Holding. "We remain passionately committed to our valued Bugaboo Creek Steak House customers and our restaurant employees while we evaluate the best strategic plans for the brand,"

Bugaboo Creek Steak House serves more than 3.5 million guests each year in its lodge-like restaurants. The brand consists of 30 restaurant units along the Eastern Seaboard and employs 1,840 people. CB Holding acquired Bugaboo Creek in 2007 for $31 million.

Body Central Sets IPO for Expansion Funds

Body Central Acquisition Corp. in Jacksonville, FL, has filed paperwork for an initial public offering to raise up to $86.25 million to open 60 to 70 stores within the next two years.

Founded in 1972, Body Central is a growing, multi-channel, specialty retailer of apparel and accessories at value prices.

With 197 stores in 23 states as of June 20, the company said it has considerable room to continue to expand in existing and adjacent markets. It expects to open 30 new stores in fiscal year 2010 and approximately 30 to 40 new stores in fiscal year 2011. In addition, it said it can continue to open new stores at an annual rate of 15% for the next several years.

hhgregg Set To Open 10 More Mid-Atlantic Stores This Fall

hhgregg is continuing its Mid-Atlantic expansion as it plans to open 10 new stores in the Washington DC area this fall. The Indianapolis-based appliance and electronics retailer is starting the process to fill approximately 500 open positions at its new locations.

The company plans to hire approximately 50 employees for each of the following store locations.
* Fairfax, VA: 12189 Fair Lakes Promenade Drive
* Falls Church, VA: 5710 Columbia Pike
* Fredericksburg, VA: 1731 Carl D. Silver Pkwy
* Springfield, VA: 6640 Loisdale Road
* Sterling, VA: 46301 Potomac Run Plaza #120
* Woodbridge, VA: 14500 Potomac Mills Road
* Frederick, MD: 7320 Guilford Drive
* Largo, MD (Landover): 1020 Shoppers Way
* Rockville, MD: 1501 Rockville Pike
* Waldorf, MD: 3000 Festival Way

So far this year, hhgregg has opened 30 new stores in Virginia, Pennsylvania, Delaware and Maryland.

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