Brookfield Property Partners is willing to pay nearly $15 billion to deepen its control of the Chicago-based real estate trust GGP, a sign, analysts say, that the company wants to turn the publicly-traded REIT private.
Offering either $23 or nearly one percent of a limited partnership unit in its company per share, Brookfield is prepared to foot a maximum payout of $14.8 billion to buy all available shares in the trust.
In total, the bid represented a 21 percent premium on GGP stock, which closed at $19.01 per share last week, although some consider the Brookfield’s proposal a low-ball offer because it’s well below independent value assessments.
If the deal goes through, it would put Brookfield in control of GGP’s collection of retail holdings, which includes malls and shopping across the continental U.S. as well as three sites in Hawaii.
“Brookfield’s access to large-scale capital and deep operating expertise across multiple real estate sectors combined with GGP’s high-quality retail asset base will allow us to maximize the value of these irreplaceable assets,” Brian Kingston, the group’s chief executive, said. “We are excited about the opportunity 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.”
GGP, previously known as General Growth Properties, filed for what was the largest real estate bankruptcy to-date in 2009, according to a report by real estate research firm Green Street Advisors. The following year, Brookfield Asset Management led a consortium of investors to recapitalize General Growth, spin off its assets and create a publically traded real estate investment fund.
Brookfield Property Partners, the company’s publically traded subsidiary, which trades on the New York Stock Exchange as BPY, holds a 34 percent stake in GGP, according to Green Street, but it could increase that share to 45 percent.
Brookfield already has a robust global portfolio, which is anchored by its 260 office properties and includes multifamily, retail and other assets totaling nearly $100 billion. It also has three seats on GGP’s board of directors but it would need to win votes from other, smaller shareholders if it indeed wants to take the REIT private.
Green Street estimates the net asset value of GGP at $27.75, which would put Brookfield’s offer at 20 percent discount to face value. However, the firm acknowledged that the low valuation might be a response to the poor state of brick and mortar retail across the country.
The market value of GGP’s shares has been on the decline for more than a year, but Green Street noted that it shot up 17 percent when news of the Brookfield’s acquisition broke. The analysis firm recommends that GGP investors hold onto their shares for the time being.
Should the bid be accepted, current GGP shareholders would control roughly 30 percent of the combined company, according to a statement released by Brookfield.
“This transaction will provide GGP shareholders the option to immediately realize value for their shares at a 21% premium in cash and the opportunity to continue to participate in the growth of a leading, globally diversified real estate company that will be able to grow faster and create more value than either could on a stand-alone basis,” Kingston said.