Brookfield bids $14.8B to acquire rest of Simon mall rival GGP

November 13, 2017

Brookfield Property Partners LP has bid about $14.8 billion to acquire the stake it doesn’t already hold in U.S. mall owner GGP Inc. as the companies seek to repurpose struggling bricks-and-mortar shopping centers.

GGP, formerly known as General Growth Properties, is the second-largest shopping mall company behind Indianapolis-based Simon Property Group. Simon tried to acquire GGP in 2010 for $6.5 billion but was spurned in favor of Brookfield's partial acquisition.

Brookfield said Monday in a statement that it offered $23 a share for the 66 percent of GGP it doesn’t own. That’s about 21 percent more than Chicago-based GGP’s closing price on Nov. 6, the day before Bloomberg News reported Brookfield had held discussions about taking the company private. GGP said in a separate statement that its board formed a special committee to review the unsolicited proposal.

GGP shares climbed above the offer price Monday morning, gaining 5.9 percent, to $23.52 each.

Brookfield Property Partners is the real estate unit of Toronto-based Brookfield Asset Management Inc. Brookfield Asset has been focusing on buying and revamping shopping centers to take advantage of the land they occupy in urban areas, CEO Bruce Flatt said on a conference call last week.

GGP last month reached an agreement with AvalonBay Communities Inc. to build apartments at a shopping center in Seattle, and CEO Sandeep Mathrani said the company “will look to explore similar projects at other locations.”

Brookfield Property plans to “leverage our expertise to grow, transform or reposition GGP’s shopping centers, creating long-term value in a way that would not otherwise be possible,” CEO Brian Kingston said in his statement. The transaction would create one of the largest listed property companies in the world, with stakes in almost $100 billion of real estate globally and annual net operating income of about $5 billion, Brookfield said.

In the third quarter, Brookfield exercised all of its outstanding warrants in GGP, bringing its ownership stake to 34 percent from 29 percent, the company said in a statement earlier this month. The 68 million shares were purchased for $462 million.

“Although there could be other bidders, we do believe Brookfield is the logical buyer for GGP given its ownership stake,” Stifel analysts Simon Yarmak, Jennifer Hummert and Alexander Fraser said in a research note before Monday’s announcement.

The combined company would be about 30 percent owned by existing GGP shareholders, Brookfield Property said.

Brookfield Asset, which invests across real estate, infrastructure, renewable energy and private equity, said in November that assets under management increased to more than $265 billion. The company took a stake in GGP as part of an agreement to take the company out of bankruptcy in 2010. It acquired additional GGP warrants in January 2013 and agreed to not increase its stake beyond 45 percent for the next four years.

Shares of mall companies have been hit hard as the rise of e-commerce squeezes traditional retailers. Store closures are accelerating, pressuring landlords to fill empty space and reinvent shopping centers.

Simon Property shares had fallen 7.8 percent this year through Friday. They fell 1.7 percent Monday morning, to $160.92 each.

Even after getting a boost from reports of Brookfield’s interest, GGP shares are down 11 percent since the beginning of the year.

Brookfield Property presented its proposal to GGP’s board on Friday. Goldman Sachs Group Inc. is serving as financial adviser to GGP’s special committee, and Citigroup Inc. is advising the company.

Simon owns about 241 million square feet of retail space and 325 properties, compared with 125 million square feet and 126 properties by GGP, according to a 2017 report by industry website Squarefootprint.com.

Brookfield, the owner of Rouse Properties, owns about 23.8 million square feet of retail space, mostly B-class shopping malls.





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