Brookfield Property Partners LP offered to buy the shares of Brookfield Office Properties Inc. that it doesn’t already own to consolidate holdings and create one of the largest commercial real estate landlords.
Brookfield Property is planning a tender offer of the New York-based landlord’s shares for stock or cash at a value of $19.34 each, according to today’s statement. That is 15 percent more than Brookfield Office’s closing price on Sept. 27. The deal is valued at $5 billion based on Hamilton, Bermuda-based Brookfield Property’s closing share price, the company said.
The transaction would combine the office company, restructured in 2010 as an owner of skyscrapers on three continents, with Brookfield Property’s retail, apartment, industrial and hotel holdings. Both companies are units of Toronto-based Brookfield Asset Management Inc., and the deal would group all of the parent’s commercial real estate investments under one entity, according to the statement.
“The corporate structure was not what Brookfield wanted it to be,” said Alex Avery, an analyst at CIBC World Markets Inc. in Toronto. “They wanted to house all their real estate investments under one umbrella.”
Brookfield Property, spun off from Brookfield Asset this year, currently owns 51 percent of Brookfield Office, according to the statement. The acquisition would create a combined company with 330 million square feet (31 million square meters) of office, retail and industrial space on four continents.
“The combination of these leading commercial real estate platforms will create a diversified portfolio of best-in-class real estate for investors seeking attractive risk-adjusted returns,” Ric Clark, chief executive officer of Brookfield Property, said in the statement.
Brookfield Property also holds stakes in companies including General Growth Properties Inc., the No. 2 U.S. mall owner, and Rouse Properties Inc., a retail landlord spun off from General Growth.
Executives of Brookfield Asset told investors two weeks ago that they were looking to make “transformative transactions” to enhance the value of Brookfield Property and attract new shareholders, according to Avery. Brookfield Asset, which also invests in renewable power and infrastructure engineering, held 56 percent of Brookfield Property as of June 30, according to data compiled by Bloomberg.
With Brookfield Property trading on its own, “for that to function properly, it needs to be large, liquid and unique,” said Avery, who has a “buy” rating on Brookfield Office.
Brookfield Office’s assets include lower Manhattan’s Brookfield Place, formerly known as the World Financial Center; the 72-story First Canadian Place in Toronto; Bank of America Plaza in Los Angeles; and Houston’s Allen Center complex. It also is in the process of buying MPG Office Trust Inc., making it the biggest office owner in downtown Los Angeles.
It also controls office properties in Sydney, Melbourne and Perth in Australia, as well as seven buildings and development sites in London, including 20 Canada Square in Canary Wharf and the 100 Bishopsgate project.
The acquisition should help Brookfield Office contend with its highest-profile challenge: finding tenants for some 2.7 million square feet of offices at Brookfield Place New York that were formerly rented by Merrill Lynch & Co. and its subtenants, Avery said. The larger company would have more patience to fill those offices without deeply discounting asking rents, he said.
Brookfield Office shares rose 14 percent, the most since March 2009, to $19.07. Brookfield Property was little changed at $19.38.
In a separate statement, Brookfield Office said its board set up a special committee to review the proposal. It told shareholders they don’t need to take action at this time.
Shareholders can choose to receive either one limited partnership unit of Brookfield Property or $19.34 in cash, for a maximum cash consideration of $1.7 billion.