Fairholme Proposes Equity Investment in General Growth Properties, Inc.

MIAMI, March 10 /PRNewswire-FirstCall/ -- Fairholme Capital Management, L.L.C. on behalf of The Fairholme Fund (Ticker: FAIRX) and The Fairholme Focused Income Fund (Ticker: FOCIX), each a series of Fairholme Funds, Inc., today announced a proposal pursuant to which the Funds would acquire approximately 271.3 million shares (or approximately $2.713 billion) of new equity capital of the reorganized General Growth Properties, Inc. (Ticker: GGP) at $10.00 per share to facilitate GGP's emergence from bankruptcy. In addition, under the proposal, the Funds would provide funding of approximately $67.5 million in connection with the $250 million rights offering of General Growth Opportunities, a new subsidiary of GGP, at $5 per share. The Funds currently hold approximately $1.83 billion in face amount of GGP's unsecured indebtedness.

The proposal responded to a request by GGP of its largest stakeholders concerning their interest in making a commitment to subscribe for new common stock of GGP upon the effectiveness of GGP's anticipated plan of reorganization, with the proceeds to be applied to redeem existing unsecured creditors at par plus accrued interest and to provide funds to pay for emergence costs and working capital needs after emergence. The proposal was designed to respond to GGP's additional request that the commitment be consistent with the parallel equity investment proposed by Brookfield Asset Management Inc. on February 24, 2010.

The proposal, which is described in the letter and indicative terms attached hereto as Annex A, involves commitments by the Funds and Pershing Square, each severally but not jointly, and in accordance with the terms and conditions described in the term sheet. The proposal is not binding. Any binding commitment will be reflected only in mutual agreed definitive documentation.

Information About Fairholme Capital and the Funds

Fairholme Capital Management, L.L.C. is registered with the SEC as an investment adviser and, as of March 9, 2010, has approximately $15 billion of assets under management. Fairholme Capital is the investment manager of the Fairholme Funds, Inc. and its series The Fairholme Fund and The Fairholme Focused Income Fund, each of which is an Investor under the terms attached hereto as Annex A. Operating and investment decisions for Fairholme Capital and the Funds are made by Bruce R. Berkowitz, in conjunction with Charles M. Fernandez. Mr. Berkowitz is the founder and Managing Member of Fairholme Capital and the President and a Director of Fairholme Funds, Inc. Mr. Charles M. Fernandez is the President of Fairholme Capital and a Vice-President and a Director of Fairholme Funds, Inc.

The Funds investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Funds, and may be obtained by calling shareholder services at 866-202-2263 or visiting our website at www.fairholmefunds.com. Read it carefully before investing.

Investing in the Fairholme Fund involves risk including loss of principal. The Fairholme Fund is non-diversified, which means that the Fairholme Fund invests in a smaller number of securities when compared to more diversified funds. Therefore, the Fairholme Fund is exposed to greater individual stock volatility than a diversified fund. The Fairholme Fund also invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods.

The Fairholme Focused Income Fund is a non-diversified mutual fund, which means that the Fund invests in a smaller number of securities when compared to more diversified funds. This strategy exposes the Fund and its shareholders to greater risk of loss from adverse developments affecting portfolio companies. The Fund's investments are also subject to interest rate risk, which is the risk that the value of a security will decline because of a change in general interest rates. Investments subject to interest rate risk will usually decrease in value when interest rates rise and rise in value when interest rates decline. Also, securities with long maturities typically experience a more pronounced change in value when interest rates change.

Shares of the Funds are offered through the Funds' distributor, PFPC Distributors, Inc.

As you know, Fairholme Capital Management, LLC ("Fairholme") is the largest unsecured creditor of General Growth Properties, Inc. (the "Company"), holding approximately $1.83 billion in face amount of unsecured indebtedness, and Pershing Square Capital Management, L.P. ("Pershing Square") is the largest economic owner, with a 25% economic stake in GGP equity (including approximately 7.5% of the common stock outstanding) and $434 million in face amount of unsecured indebtedness.

You have asked if we, as your largest debt and equity stakeholders, are interested in making a commitment to subscribe for new common stock of the Company upon the effectiveness of the Company's anticipated plan of reorganization, with the proceeds to be applied to redeem existing unsecured creditors at par plus accrued interest and to provide funds to pay for emergence costs and working capital needs after emergence. You have asked us for a commitment that is designed to be consistent with the parallel equity investment proposed by Brookfield Asset Management Inc. in their letter of February 24, 2010 (the "Brookfield Proposal"), but is also capable of being adapted as circumstances change.

In response to your request, we would like to propose to commit, severally but not jointly, $3.925 billion of new equity capital at a value of $15 per current share on the terms and conditions described in the term sheet attached as Annex A. Our proposal includes:

• a commitment to purchase $3.8 billion of common stock of the reorganized Company ("New GGP"), after giving effect to the distribution of General Growth Opportunities, at a price of $10 per share;
• a commitment to provide the currently unfunded $125 million of capital to backstop a $250 million rights offering by General Growth Opportunities at a price of $5 per share.

Highlights

We would like to highlight the following items in our proposal:

• Ample Liquidity. When taken together with the Brookfield Proposal, our commitments would provide a total of $6.3 billion of committed equity capital for New GGP in addition to $250 million of committed equity capital for GGO. Combined with $1.5 billion of unsecured indebtedness, for which we expect a commitment can be available shortly, New GGP will have $7.8 billion in cash proceeds, sufficient (i) to pay in cash all unsecured creditors at par plus accrued interest, (ii) to pay exit costs and (iii) to provide appropriate working capital for New GGP upon emergence, without requiring the asset sales contemplated by the Brookfield Proposal. GGO will also be fully funded with a $250 million rights offering backstop from Pershing Square, Fairholme, and Brookfield.
• Flexibility to Manage Cost of Capital. Our $3.8 billion of commitments with respect to New GGP may be cutback by the Company in favor of future equity capital raises at a lower cost of capital, subject to a minimum purchase by Fairholme and Pershing Square totaling $1.9 billion. In addition, as with the Brookfield Proposal, we would be willing to permit up to $500 million of incremental equity capital to be raised by New GGP on terms that are mutually acceptable to all parties. In light of the fact that New GGP will likely be the second or third largest REIT as ranked by equity market capitalization upon emergence, we believe there will be a large demand for New GGP stock, even at values higher than $10 per share.
• Funding Certainty. As your largest stakeholders, we are familiar with the Company and, more importantly, our interests are aligned with yours. Accordingly, there will be no due diligence condition to our commitments and we will work to keep other conditions to a minimum as described on Annex A. We anticipate no regulatory or antitrust concerns. We do not believe any proposal from a third party without significant current interests in the Company can provide similar certainty of funding.
• Confirmation Certainty. The Investors include both the Company's largest equity owner and two of its largest creditors. We expect broad support from all of the Company's main constituencies, including employees and business partners. Since creditors will receive par plus accrued interest under any expected plan of reorganization, stockholder support is the key element for any plan confirmation and any capital raising or change-in-control transaction. We believe that the Brookfield Proposal (or any similar proposal), when coupled with our commitments, provides substantially higher short term and long term value than a sale of the Company now and will achieve overwhelming shareholder support.
• No Exclusivity; Complete Freedom to Take Better Proposal. Our proposal leaves the Company completely free to pursue better alternatives. The proposal includes no overbid protections, break fees, exclusivity provisions or similar "deal protections".
• No Cash Fees. We seek no commitment fees, ticking fees or other fees, other than reimbursement for our out-of-pocket expenses. In exchange for its approximately $2.78 billion commitment, Fairholme will received $15 strike price warrants on GGP. Pershing Square will receive no upfront commitments fees or warrants for its approximately $1.15 billion commitment unless and until its proposed commitment is funded.
• Speed. As you know, we are deeply familiar with the Company. We are prepared to execute and deliver definitive documents for submission to the Court for approval as soon as practicable, preferably by next week. We can proceed at the same time as the Brookfield Proposal or before it, as you wish.

Suggested Next Steps

We believe it would take no more than a week to reach agreement on definitive documentation for submission to the Bankruptcy Court for approval. As discussed above, we require no exclusivity agreement, whether during this initial period or afterwards, and are willing to proceed in parallel with any other proposal you are considering.

Once our commitments are reflected in definitive documents approved by the Court, we also are flexible on schedule for consummation of the plan of reorganization. We support a prompt exit but have structured our commitments to provide the Company with the option to extend through December 31, 2010 as necessary.

There can be little doubt that this is a poor time to sell a newly relisted REIT. GGP has suffered from the worst recession since the Great Depression and from the last two years of its financial distress, including bankruptcy. We are convinced that GGP's operations will improve when it emerges from bankruptcy and benefits from an improvement in the economy. We respectfully submit, as your largest stakeholders, that the long-term value of GGP is significantly greater as a stand-alone company than the proceeds generated by a sale to a third party. The newly reorganized GGP, with the benefit of strong sponsorship and with the longest dated, lowest-cost, non-recourse capital structure in the REIT industry, offers extraordinary potential for intermediate and long-term investors.

* * * *

Please understand that, notwithstanding anything to the contrary contained herein, this letter is only an expression of our serious interest and is not intended to, and shall not, constitute a binding agreement of either of us or any of our respective affiliates, or an offer by either of us or any of our respective affiliates to enter into a binding agreement, or create any legal obligations on the part of either of us or any of our respective affiliates with respect to any of the matters set forth herein. Please also understand that we defer entirely to the Company with respect to how and when to solicit stakeholder acceptance of its plan of reorganization. Any solicitation of a plan of reorganization must be made only after appropriate disclosure and in compliance with applicable laws and, accordingly, this letter is not intended to, and shall not, constitute a solicitation of any holder of claims or interests.

Thank you for your time and consideration. We look forward to discussing our proposal with you. If you have questions, you are welcome to contact either of the undersigned or external legal counsel Andy Dietderich at Sullivan & Cromwell LLP (212-558-3830; [email protected]).

ANNEX A

Indicative Terms for Equity Commitments

The following summary has been prepared to facilitate the preparation of a definitive commitment agreement on the terms below ("Commitment Agreement"). The summary is not binding, and any binding commitment will be reflected only in mutually agreed definitive documentation.

(1) To the extent required by the NYSE rules, the definitive agreement providing for the Warrants will provide that, until shareholders approve the sale of common shares pursuant to the Warrants, the Warrants will not be exercisable for common shares but instead will be exercisable for participating convertible preferred shares having terms to be agreed by the Company and the Investors with the goal that the value per preferred share will at all times be at least equal to the value per common share.

SOURCE Fairholme Capital Management, L.L.C.

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