Académique Documents
Professionnel Documents
Culture Documents
January21,2010
HovdeCapitalAdvisorsLLC
TableofContents
OurGoals
InconsistentCalculationofNOI
FlawedCapRateAnalysis
InconsistentCalculationofLeverage
InconsistentComparisonofDebtCosts
IrreconcilableValuationofDevelopmentAssets
IrreconcilableValuationofCash
IrreconcilableValuationofOtherAssets
BankruptcyRisks
RecentRetailandConsumerData
Summary
Appendix
Disclosures
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HovdeCapitalAdvisorsLLC
(p.3)
(p.410)
(p.1112)
(p.1317)
(p.1821)
(p.2225)
(p.2627)
(p.2829)
(p.3032)
(p.3334)
(p.3539)
(p.4041)
(p.4243)
OurGoals
WecontinuetoreceivenumerousfollowupinquiriesintotheGeneralGrowth
situation,whichhascausedustoexaminethePershingSquareanalysispublished
onDecember22,2009,inevengreaterdetail.Wehavealsoreceivedinquiriesas
tosourcedataforfundamentaloperatingandtransactionaldata,whichwehave
providedinthispresentationforreference.
Uponfurtherreview,webelievePershingSquaresanalysisisnotonlydeeply
fundamentallyflawed,butitcontainsnumerousfactualerrorsand
methodologicalinconsistencies,whichwedetailinthispresentation,thatcause
ittobemateriallymisleadinginitsconclusions.
Webelievethemarketismadeupofdifferingviewsoftheworldandwe
appreciatethisdiversityofopinionandanalyticalinterpretation itisthe
lifebloodofmarkets.Wecanagreetodisagreeonmattersofopinion,butwhen
thefactsaremisrepresentedeitherthroughattemptedsleightofhandor
negligence,webelievethisneedstobebroughttoinvestorsattention.
Wecontinuetoencourageinvestorstodotheirownanalysisandduediligence
andcheckthefactsofanythirdpartyanalysis.
NOTE:FUNDSADVISEDBYHOVDECAPITALADVISORS,LLCANDONEOFITSPRINCIPALSHAVESHORTPOSITIONSINGGWPQASWELL
ASANOTHERCOMPANYMENTIONEDINTHISPRESENTATION.SEEADDITIONALIMPORTANTDISCLOSURESATPAGE43.
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InconsistentCalculationofNOI
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HovdeCapitalAdvisorsLLC
WhyDoesPershingSquareCalculateNOIDifferently
WhenComparingGGPandSPG?
WhencalculatingandcomparingNOI,PershingSquareusesasreported
NOIforbothcompaniesasthestartingpointforitscalculation,whichit
adjustsforseveralnoncashitems.However,eachcompanyreportsNOI
usingadifferentmethodology;sothisanalysisisbasedoninconsistency
fromthestart.
SPGincludescorporate(termedhomeandregionalofficecosts),general
andadministrativeexpensesincalculatingitsreportedNOI.
GPPexcludestheseexpensesincalculatingitsreportedNOI.SinceGGPis
anationalmallplatformaccordingtoPershingSquare,theexpensesthat
goalongwithmanagingthisplatformshouldbeincludedastheyarein
SPGscalculation,ortheseexpensesshouldbedeductedinthecalculation
ofSPGsNOI.
PershingSquarestatesthattheiranalysisisappletoapples although
wehaveshownwhyitisclearlynot.
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SPGsDefinitionofNOI
HovdeCommentary
SPGsdefinitionofNOIstartswithoperatingincomewhichincludescorporate
expenses,G&Aexpenses,andpropertymanagementexpenses,whichGeneral
GrowthEXCLUDESasshownonthefollowingpages.
*Source:SPGQ309supplementalfinancialfiling.
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SPGsReconciliationofNOI
*Source:SPGQ309supplementalfinancialfiling.
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GGPsDefinitionofNOI
*Source:ExcerptfromGGWPQQ309supplementalfinancialfiling;emphasisadded.
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GGPsReconciliationofNOI
*Source:GGWPQQ309supplementalfinancialfiling;emphasisadded.
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HovdeCapitalAdvisorsLLC
BasedonPershingSquaresMethodologyandComparableNOI,
SPGsCalculatedNOIIs$3.4Billion,Not$3.2Billion
HovdeAnalysis(1)
PershingSquareAnalysis*
Startwith:
SPGLTMNOI(Pershingcalc.)
Plus:LTMHomeandRegionalOfficeCosts
Plus:LTMG&ACosts
ComparableLTMNOI
$3,227
149
20
$3,396
*PershingSquareCapitalManagement,L.P.LLCADetailedResponseto
HovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page
23.
(1)Source:SPGQ309andQ408supplementalfinancialfilings.
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FlawedCapRateAnalysis
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BasedonPershingSquaresMethodologyandComparably
CalculatedNOI,SPGsImpliedCapRateWas7.1%,NOT6.7%
HovdeAnalysis(1)
PershingSquareAnalysis*
SPGLTMNOI(millions)
Plus:LTMHomeandRegionalOfficeCosts
Plus:LTMGeneralandAdministrativeCosts
$3,227
149
20
ComparableLTMNOI
ImpliedCapRate
$3,396
7.1%
HovdeCommentary
Basedonaconsistentmethodologywith
thewayGGPcalculatesitsNOI,SPGs
NOIwouldbe$3.396billionandwould
implyacaprateof7.1%,not6.7%.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponseto
HovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page
23.
(1)Source:SPGQ309andQ408supplementalfinancialfilings.
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Inconsistent CalculationofLeverage
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13
WhyDoesPershingSquareCalculateLeverage
DifferentlyWhenComparingGGPandSPG?
Whencomparingleverage,PershingSquare
deductscashincalculatingdebtforGGP,but
doesnotforSPG,whichhasover$4billion*
ofcashonhand.
WhydoesPershingSquarenotprovideany
detailontheircalculationsinthissectionof
theiranalysis?
*Source:SPGQ309supplementalfinancialfiling.
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WhyDoesPershingSquareCalculateLeverage
DifferentlyWhenComparingGGPandSPG?
PershingSquareAnalysis*
HovdeCommentary
Thecalculationoftheseratiosis
notconsistent.ForGGP,net
debtisbeingused,whilefor
SPG,grossdebtisbeingused.
Asnotedpreviously,Pershing
Squareassumestheconversion
ofunsecureddebtforcomparing
leveragebutdoesnotassume
theconversionforvaluation
purposes.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
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WhyDoesPershingSquareCalculateLeverage
DifferentlyWhenComparingGGPandSPG?
HovdeAnalysis
(figuresinmillions)
(Pershing Square
Current
GGP
Total Debt (w/JV @ Share)
Using
assumption of
Pershing
Pershing
Using
unsecured
Square
Square
Comparable
conversion)
GGP (1)
Presentation
SPG (1)
NOI Method
SPG
NOI Method
SPG
27,868
27,868
25,041
25,041
25,041
(6,382)
(121)
(46)
(46)
Less: Cash
(692)
(4,066)
(4,066)
NOI (1)
2,478
2,478
3,227
3,227
3,396
Leverage
11.2x
8.3x
7.8x
6.5x
6.2x
Clearlythesepresentquitedifferent
pictures,andtheinconsistencyinthe
methodologyofcalculationisobvious.
(1)PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
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SummaryofNOI,Leverage,andCapRateCalculation
PershingSquarecalculatesNOIandleveragedifferentlyforGGPandSPG
andthencomparesthemasapplestoapples whichtheyarenot.
Asaresultofthisinconsistency,webelievemostofPershingSquares
assertionsasitrelatestovaluationandleverageareinaccurateand
misleading.
Youcanthaveitbothways:
EitherGGPsNOIislowerthanPershingSquarepresentsbecauseitexcludes
corporateandG&AexpensesorSPGsNOIishigherbecauseitincludesthese
expenseitems.
EitherGGPsleverageishigherifitisgrossedupforitscashbalanceandlower
NOIorSPGsleverageislowerifitscashisnettedoutofitsdebtanditsNOIis
higher.
EitherGGPtradesatamuchlowerimpliedcapratethanPershingSquare
presentsorSPGtradesatamuchhigherimpliedcapratethanpresented.
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InconsistentComparisonofDebtCosts
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WhyDoesPershingSquareCompareRateson
MortgageDebttoRatesonUnsecuredDebt?
PershingSquareAnalysis*
HovdeCommentary
Thiscomparisonisnot
applestoapples.When
comparingmortgagedebtto
mortgagedebt,SPGhas
moreattractivelypriced
mortgagedebt,witha
weightedaveragerateof
5.17% perpage46ofSPGs
Q309supplementalfinancial
report.Seenextpage.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
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SPGsSecuredDebtIsLowerCost
ThanGGPs
SPGActualBalanceSheetData
PershingSquareAnalysis*
Source:SPGQ309supplementalfinancialfiling,p.46.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
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SPGsUnsecuredDebtTradesatMoreAttractiveYields
ThanEvenGGPsSecuredDebt
HovdeCommentary
SPGsunsecureddebtof
comparablematurityto
GGPssecureddebttrades
ataLOWERyieldto
maturity(4.59%),
suggestingSPGcould
refinancethisdebtata
morefavorablecostthan
GGPsfinancing.In
addition,GGPssecured
debtrequiresamortization.
*Source:Bloomberg,asof1/14/2010.
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Irreconcilable ValuationofDevelopment
Assets
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WeCannotReconcilePershingSquaresCalculationof
DevelopmentPipelineAssets
PershingSquareAnalysis*
HovdeCommentary
PershingSquarestatesthatitappliesa
35%discounttotheseassets;however,
perpages3335thecompanysQ309
supplementalreport,theseassetstotal
$1.05billion,whichwouldimplya
valueof$653millionusinga35%
discountasopposedtothe$779
millionPershingSquareusesinits
analysis.Wasthisacalculator
malfunction?
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page26.
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PershingSquareAppliesa35%DiscounttoGGPs
DevelopmentPipeline TheCompanyItselfThinks
53%ofTheseAssetsMayNeedToBeWrittenOff
PershingSquareAnalysis
HovdeCommentary
Ofthe$1.05billionofdevelopmentprojects,$536.6million(53%)
aresignificantdeferreddevelopmentprojects,whichthecompany
discussesinfootnote(d)onpage35ofitsQ309supplemental.The
footnotereads: Inlate2008,wesuspendedourElkGrove
Promenade,TheShopsatSummerlinCentre(SM)andother
developments.AsofSeptember30,2009,wehadincurred
$459.7Mofdevelopmentcostsassociatedwiththese
developments,withthemajorityofthecostsbeingincurred
priortosuspension.Wearecurrentlyobligatedunderexisting
contractualobligationstolocaljurisdictionsandprospective
tenantstospendanadditional$23.8M.Adecisionabout
whethertoproceedandcompletethesedevelopmentswill
dependontheCompany'sliquidityposition,marketconditions
andsuchcontractualobligations.Adecisiontoabandon
completionofthesedevelopmentswouldlikelyresultinthe
marketingforsaleofsuchproject,potentiallyresultingina
writeoffofasubstantialportionofthecostsincurredtodate.
(emphasisadded)
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page26.
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PershingSquareAppliesa35%DiscounttoGGPs
DevelopmentPipeline TheCompanyItselfThinks
53%ofTheseAssetsMayNeedToBeWrittenOff
PershingSquareAnalysis
HovdeCommentary
Of the $1.05 billion of development
projects, $536.6 million (53%) are
significant
deferred
development
projects, which the company discusses in
footnote (d) on page 35 of its Q309
supplemental.
If the company itself
believes 53% of these assets may need to
be written off completely, does 35%
seem like an appropriate way to discount
this possibility?
Assuming these
deferred assets are written off, another
$266 million would need to be
subtracted.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page26.
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Irreconcilable ValuationofCash
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WeJustDontKnowWhatElseToSayAboutThis
PershingSquareAnalysis*
HovdeCommentary
Everyonemakesmistakessometimes?
Source:GGWPQQ309supplementalfinancialfiling.
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
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Irreconcilable ValuationofOtherAssets
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WeCannotReconcilePershingSquaresCalculationof
OtherAssets
GGPsActualBalanceSheet(1)
PershingSquareAnalysis*
*PershingSquareCapitalManagement,L.P.LLCADetailedResponsetoHovdesShortThesisonGeneralGrowthPropertiesDecember22,2009,page25.
(1)Source:GGWPQform10Q93009,p.3.
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BankruptcyRisks
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BankruptcyRisks
Astockpriceisnotnecessarilyanindicationofsolvency.
Publiclytradedcomparablesarenottheonlyfactorsconsideredinabankruptcyvaluation
analysis;therefore,privatemarkettransactionswherecapratesaremuchhigherarelikelyto
beconsideredintheanalysis.
Webelievetherelativeeaseofconsensusontheplanofemergencerelatedtosecured
creditorsthusfarhasbeendrivenbythefactthatmuchofthedebtincludedinthisplanwas
CMBSloans,wheretheserviceristypicallycontractuallyobligatedtoliquidateassetswithina
specifiedperiodoftimeuponforeclosure,whichwouldlikelyleadtovaluedestruction.In
addition,servicershaveeconomicincentivesnottoforecloseonassetsandrisklosingfee
income.Thisisincontrasttoothersecuredlendersandunsecuredlenders,whichcan(and
oftenwantto)ownandoperateassetstomaximizerecoveryvaluesand,therefore,havemore
negotiatingleverage.
AccordingtoCRTCapitalGroupLLC,postpetitioninterestonthebondsandtheunsecured
termloancouldamounttonearly$500millionassumingemergencebyMay1,2010,which
wouldfurtherjeopardizeanyequityrecovery(1).
Webelieveunsecuredcreditorswouldbeoutoftheirmindstoallowthemselvestobe
equitizedataninflatedvalueandhavetheirclaimdiluted.Webelievethecreditorsarelikely
torejectanyproposedplanvaluethatallowscurrentequityholderstoretainasignificant
stakeinthecompany.
(1)Source:DottingtheI'sandCrossingtheT'sKevinStarke,CFA,CRTCapitalGroupLLC,12/28/09.
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BankruptcyRisks
Inouropiniontimeisnotonequityholdersside:
Thelongerthecompanyremainsinbankruptcy,themore
difficultitbecomesforthecompanytorenewleases,
attractnewtenants,anddemandbetterpricinginlease
negotiations.
Thelongerthisdynamiccontinues,themoreextendedthe
declineinthecashflowstreamthatwillbecome
embeddedinthecompanyovertime.
GGPishighlyleveraged;therefore,smallchangesinNOI
canleadtosubstantialchangesinvalueandweakens
chancesforanequityrecovery.
Legalfees,otherbankruptcycosts,andunpaidinterest
continuetoaccrue,erodinganypotentialequityrecovery.
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RecentRetailandConsumerData
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RecentRetailandConsumerDataConfirm
OngoingWeaknessinMallFundamentals
OveragerentsinGGPsNovemberoperatingstatementshowedan
insignificantincreasefromOctober,confirmingourviewthatmany
retailersarelikelygeneratingsalesbelowthresholdlevelsnecessary
togeneratesignificantlevelsofoveragerents.(1)
Consumercreditshoweditslargestcontractiononrecord,declining
$17.5billioninthemonthofNovember.(2)
Decemberretailsalesdeclined0.3%,missingexpectationsforan
increase.Traditionallymallbasedcategoriessuchasconsumer
electronicsandappliancesandmiscellaneousretailersshowed
exceptionalweakness,falling2.6%and1.0%,respectively.(3)
Footlocker(NYSE:FL)announcedplanstoclose117storesin
January2010.(4)
WilliamsSonoma(NYSE:WSM)announceditplanstoreduceits
squarefootageby12%in2010andisactivelyrenegotiatingmore
favorableleasetermsfromlandlords.(5)
(1)
GGWPQNovembermonthlyoperatingstatement.(2)FederalReserveBoardofGovernors,ConsumerCredit,1/8/2010.(3)USCENSUSBUREAUADVANCEMONTHLYSALESFORRETAILANDFOOD
SERVICES,1/14/2010.(4)Companypressrelease,1/8/2010.(5)Companypressrelease,1/14/2010.
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Summary
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Summary
Basedontheforegoingpointsinthispresentationandothermaterial
flawswehavehighlightedpreviously,webelievePershingSquares
analysisisfactuallyinaccurateandmisleading,regardlessofones
opinionofthecompanyorpotentialoutcomeofthebankruptcyprocess.
GiventhatPershingSquarehasarepresentativeonGGPsBoardof
Directors,howcanGGPsBoardofDirectorsallowPershingSquareto
disseminatesuchinaccurateandmisleadingdata?
HowcaninvestorsblindlyfollowtherecommendationsofPershing
Squarewithoutscrutinizingthefactualaccuracyofthesupporting
analysis,whichwehaveshowntobefaulty?
Wecontinuetoencourageinstitutionalandretailinvestorsinthese
typesofinvestmentstobewaryofselfinterestedthirdparties
promotingstocksbasedoninaccurateandmisleadinganalysis.We
encourageinvestorstodotheirownanalysisandduediligenceand
checkthefactsofanypotentialinvestment.
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WeBelieveOurAnalysisIsGenerousTowardstheCompany
andThatItIsQuestionableWhetherThereWillBeValuefor
CurrentShareholdersUsingCapRatesWeThinkAreTooLow
Assumes 10% Decline in NOI (1)
Pershing Square Analysis Framework (2)
($ in millions, except per share data)
Cash NOI
Cap Rate
Implied Value of GGP's REIT
Low
$ 2,000
8.5%
23,529
High
$ 2,000
7.5%
26,667
(28,174)
(121)
(1,766)
1,448
653
$ (4,431)
(28,174)
(121)
(1,766)
1,448
653
$ (1,294)
Per Share
$ (13.86)
$ (4.05)
(1)SeecalculationofNOIonpage30ofGeneralGrowthProperties,FoolsGold,HovdeCapitalAdvisors,LLC,December15,2009.
(2)AnalysistakenfromTheBucksReboundBeginsHeredatedMay27,2009 PershingSquareCapitalManagement,L.P.(p.56),updatedforQ309financialstatements.
(3)HovdeCapitalAdvisorsanalysisassumescashNOIof$2.0billionand,unlikePershingSquare,assumescashispaidoutin feestosecuredandunsecuredcreditors.
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WeBelieveOurAnalysisIsGenerousTowardstheCompany
andThatItIsQuestionableWhetherThereWillBeValuefor
CurrentShareholdersUsingCapRatesWeThinkAreTooLow
Best Case Assumes Conversion and No
Decline in NOI (1)
2,200
Cap Rate
Implied Value of GGP's REIT
2,200
2,200
2,200
2,200
2,200
2,200
2,200
7.5%
7.5%
7.5%
7.5%
8.5%
8.5%
8.5%
8.5%
29,333
29,333
29,333
29,333
25,882
25,882
25,882
25,882
(21,174)
(21,174)
(21,174)
(21,174)
(21,174)
(21,174)
(21,174)
(21,174)
(121)
(121)
(121)
(121)
(121)
(121)
(121)
(121)
(1,766)
-
(1,766)
-
(1,766)
-
(1,766)
-
(1,766)
-
(1,766)
-
(1,766)
-
(1,766)
-
1,448
1,448
1,448
1,448
1,448
1,448
1,448
1,448
Per Share
653
8,373
4.87
653
8,373
5.63
653
8,373
6.34
653
8,373
7.01
653
4,922
1.86
653
4,922
2.38
653
4,922
2.86
653
4,922
3.31
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CommercialRealEstateValuesHave
Dropped43%SincethePeakin2007
HovdeAnalysis
General Growth Implied Market Value Analysis
($millions)
As of 12/31/2007
Total Assets
Calculation
28,814,319
(A)
3,605,199
(B)
Total Liabilities
26,884,779
(C)
Stockholders Equity
Adjusted Total Assets
Adjusted Stockholders Equity
1,456,696
32,419,518
5,061,895
(D)
( E ) = ( A ) + (B )
(F)= (B)+(D)
18,479,125
26,884,779
( G ) = ( E ) * (1 - 43%)
(C)
Accumulated Depreciation
(8,405,654) = ( G ) - ( C )
HovdeCommentary
Source:Moodys/REALCommercialPropertyIndex,RealCapital
Analytics.
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Appendix
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ReferenceMaterialsandResources
CommercialRealEstateFundamentalResearchandData (actualprivatemarketdata
depictingthedeterioratingtrendsinretailrentalratesandoccupancyaswellas
decliningcommercialrealestateassetprices)
www.cbre.com CBRichardEllis(nationalandregionaloccupancy,leasing,anddemographictrends)
www.colliers.com ColliersInternational(nationalandregionaloccupancy,leasing,anddemographic
trends)
www.reis.com Reis(marketdataonoccupancy,supply,absorption,etc.)
www.costar.com CoStarGroup(propertyleveldataonoccupancy,rentalrates,etc.)
www.rcanalytics.com RealCapitalAnalytics(comprehensiveCREtransactionaldatabase)
http://www.pwc.com/us/en/assetmanagement/realestate/index.jhtml Pricewaterhouse
Coopers(comprehensiveCREmarketdata,surveys,andforecasts)
PublicREITCompanyData (financialstatementsandoperationaldata)
http://www.sec.gov/edgar/searchedgar/companysearch.html publiccompanyfilings
www.ggp.com GeneralGrowthswebsitewithlinkstosupplementalfinancialreports
www.simon.com SimonPropertyGroupswebsitewithlinkstosupplementalfinancialreports
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Disclosures
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Disclosures
FundsadvisedbyHovdeCapitalAdvisors,LLCand/oroneofitsprincipalshaveestablished
shortpositionsinthecommonstockofGeneralGrowthProperties(OTC:GGWPQ)and
WilliamsSonoma(NYSE:WSM).Theirpositionsinthesestocksandothersmaychange
withoutfurthernotice.
NeitherthefundsadvisedbyoranyaffiliatesofHovdeCapitalAdvisors,LLCholdpositionsin
anycompaniesmentionedinthisdocumentotherGeneralGrowthPropertiesandWilliams
Sonoma.
Theopinionsandviewsexpressedinthisdocumentandtheanalysissetforthhereinmay
changeandHovdeCapitalAdvisors,LLCisnotundertakingtoupdateitsopinions,viewsor
analysis.
Althoughthefactualinformationcontainedinthisdocumentisbelievedtobeaccurate,
HovdeCapitalAdvisors,LLCdoesnotwarrantitsaccuracyorcompleteness.
Thisdocumentisnotintendedtobe,andshouldnotbeconstruedas,investmentadviceora
recommendationtobuyortosellanysecurity.
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