Brookfield’s $15 Billion Deal for GGP Is Bad News for the American MallBy and
Offer for mall owner’s shares ‘wholly inadequate,’ BTIG says
Analysts recommend shareholders vote against Brookfield bid
Brookfield Property Partners LP’s deal to take over retail landlord GGP Inc. is “wholly inadequate,” “a negative for the sector” and “neither exciting for GGP shareholders nor a good read-through for mall asset values.” In fact, “investors should vote against the transaction as it does not offer sufficient value.”
Those are the initial conclusions of Wall Street analysts examining Brookfield’s agreement to buy the 66 percent of GGP that it doesn’t already own. Shareholders of GGP, the second-largest U.S. mall owner, will receive $23.50 in cash, one Brookfield unit or a share of a new real estate investment trust for each share they own, according to a statement Monday. The cash consideration is $9.25 billion with 61 percent of the deal in cash and 39 percent in equity, the companies said, and the total value of the acquisition is almost $15 billion, according to data compiled by Bloomberg.
Mall owners are trying to stay relevant as brick-and-mortar retailers shut down stores at a record pace, hammered by the rise of Amazon.com Inc. and other online retailers. Brookfield’s deal for GGP follows an agreement in December for Australia’s Westfield Corp., which has malls across the U.S., to be acquired by Unibail-Rodamco SE. Meanwhile, Macerich Co. and Taubman Centers Inc. have faced pressure from activist investors.
The bid is dragging down retail REITs across the board. Simon Property Group Inc., the largest U.S. mall owner, was down 3 percent to $148.71 at 10:39 a.m. in New York. GGP fell 4.2 percent to $20.27, while a Bloomberg index of regional mall companies fell 3.3 percent. Brookfield Property declined 4.5 percent to $18.52.
For GGP stockholders, the question is whether Brookfield Property, a unit of Brookfield Asset Management Inc., is underpaying them for their shares. In a note to investors late Monday, BTIG LLC analysts James Sullivan and Ami Probandt estimated the value of the new offer at $21.90 a share, below estimates of $28.06 to $32.93 a share for the net asset value of GGP’s holdings. The offer is “wholly inadequate,” they wrote.
“GGP management has clearly stated on numerous occasions to shareholders that its assets are worth substantially more than where its shares are currently trading,” Sullivan and Probandt said. The mall owner’s shares closed at $21.21 on Monday, before the agreement was announced. “We recommend that GGP’s independent shareholders reject the new offer.”
Despite the disappointing price, shareholders will probably accept the offer, according to Green Street Advisors LLC. The real estate research firm puts the odds of a deal being completed at 90 percent.
“Though the ultimate outcome of the long-awaited BAM (via BPY)/GGP marriage leaves much to be desired, it is difficult to conclude that shareholders are better off rejecting and waiting for a better offer down the line,” Green Street analysts led by DJ Busch said in a report Tuesday.
Brookfield’s proposed takeover is subject to the approval of GGP shareholders representing at least two-thirds of the company’s outstanding stock and shareholders representing a majority of the GGP stock not owned by Brookfield and its affiliates. The deal is scheduled to close early in the third quarter. Goldman Sachs Group Inc. is serving as financial adviser to a special committee of the GGP board that approved the deal, and Citigroup Inc. is serving as financial adviser to GGP.
The deal with Brookfield “provides GGP shareholders with certainty of value, as well as upside potential through ownership in a globally diversified real estate company,” Daniel Hurwitz, GGP’s lead director and chairman of the special committee, said in Monday’s statement.
Brookfield Property is seeking to unlock value like it has since it acquired Rouse Properties Inc., a GGP spinoff, in 2016, said Chief Executive Officer Brian Kingston. The asset manager has since repurposed much of the land that Rouse’s malls were located on for residential, commercial and office space by bringing it into the broader Brookfield business.
“This is a tough environment for retail real estate companies today,” he said in a telephone interview. “But there are a lot of things on this land that you can do to enhance the value that may not necessarily be retail. We have expertise in multifamily, office and hotels. As soon as we brought Rouse in, we were able to unleash all of those.”
GGP’s properties include Las Vegas’s Grand Canal Shoppes and Tysons Galleria in McLean, Virginia. The urban areas where the malls are situated are extremely valuable, presenting a major opportunity, Kingston said.
“This is something that is going to play out over very long periods of time,” he said. “These are big repositionings.”
The following are comments on the agreement from Wall Street analysts:
- “Do investors really believe it makes sense to recombine GGP with RSE?” Boenning & Scattergood analyst Floris van Dijkum said in in a note Tuesday, referring to Rouse’s one-time ticker symbol. “We believe investors should vote against the transaction as it does not offer sufficient value. We note that Brookfield has essentially silenced sell-side analysts as most banks are involved on the transaction in one way or another. GGP does not need to do any transaction as it has balance sheet strength and earnings growth to ride out the cyclical slowdown.”
- “While the offer is neither exciting for GGP shareholders nor a good read-through for mall asset values, we think it has a better-than-not shot of getting approved given the significant turnover in GGP’s shareholder base over the past year (lower cost base), negative industry/asset value trends and lack of a competing bid,” Mizuho Securities USA LLC analyst Haendel St. Juste said in a note on Tuesday.
- “While we still see value in mall stocks, we think the GGP news is negative for the sector and, as such, we are moving our three previously overweight-rated mall REITs to neutral: GGP, MAC and SPG,” JPMorgan analysts led by Michael W. Mueller and Anthony Paolone said in a note Tuesday, referring to Macerich and Simon Property.
— With assistance by Lily Katz, and Joshua Fineman