Brookfield Property Partners to buy US mall owner GGP

Key Points
  • Brookfield Property Partners will buy GGP for $9.25 billion in cash.
  • A GGP special committee unanimously recommends the deal to shareholders.
  • The deal comes at a time when U.S. mall owners are struggling to reinvent their properties to appease investors.
Source: GGP

Brookfield Property Partners announced Monday it finally reached a deal to buy mall operator General Growth Properties for $9.25 billion in cash.

Brookfield already owns roughly one third of GGP, which is one of the largest mall owners in the country behind Simon Property Group.

Shares of GGP jumped more than 5 percent in after-hours trade following the news, while Brookfield's stock ticked lower.

Late last year, GGP rejected a $14.8 billion cash-and-stock buyout offer (or $7.4 billion in cash) from Brookfield. The bid was deemed inadequate by an independent board at the time, and the two companies went back to the drawing table.

Earlier this month, Brookfield reportedly submitted a new offer to take over GGP, hoping to create one of the world's largest publicly traded property companies.

"We are pleased to have reached an agreement and are excited about combining Brookfield's access to large-scale capital and deep operating expertise across multiple real estate sectors with GGP's portfolio of irreplaceable retail assets," Brookfield Property Partners CEO Brian Kingston said Monday in a statement.

With the new proposal, GGP shareholders can choose to receive either $23.50 a share in cash, one Brookfield unit or shares of a new company. Brookfield plans to create a new real estate investment trust under the ticker "BPR," which will qualify as a REIT for tax purposes and issue shares in this transaction.

"This is a compelling transaction that enables GGP shareholders to receive premium value for their shares and gives them the ability to participate in the long-term upside of their investment," Kingston said.

Like its peers in the industry, GGP has been increasingly pressured by investors as retailers shutter stores in malls and landlords are forced to act quickly, filling the gaps.

GGP CEO Sandeep Mathrani said on a recent earnings conference call that the Chicago-based REIT had been trimming its exposure to apparel retailers, adding more food and entertainment options, and dividing up boxes once anchored by department stores to bring in tenants such as TJ Maxx and Dick's Sporting Goods. Many of GGP's malls have also become home to popular e-commerce brands such as Casper and Untuckit.

In December of last year, when Unibail-Rodamco agreed to buy Australia's Westfield Corp. for nearly $16 billion, the mega mall merger put more weight on GGP to hook up with Brookfield, according to real estate analysts. But the price had to be right, and $23 per share wasn't enough.

"We would hope that GGP's independent board sees through the smoke and evaluates the merits of the proposed bid in the cold, hard light it deserves," Floris van Dijkum, an analyst with Boenning & Scattergood, said at the time. "'A' malls are currently undervalued in the public markets, but sentiment can change as it has in the past."

Still, he was anticipating Brookfield would offer GGP at least $30 per share.

"I think that this deal is confirmation that a new reality/pricing has set in, even to high-quality centers," Edward Jones REIT analyst Matt Kopsky told CNBC Monday. "The pricing is a disappointment. ... There is little appetite for a portfolio of malls in this environment."

The transaction between Brookfield and GGP is expected to close early in the third quarter of this year. A GGP special committee has unanimously recommended the deal to shareholders.

GGP's stock closed Monday at $21.21, having fallen about 9 percent so far in 2018.