TORONTO _ Brookfield Property Partners LP offered $18.8-billion in stock and cash to fully acquire U.S. shopping mall owner GGP Inc. in a deal announced Monday, doubling down on the future of bricks-and-mortar retail even as many merchants face increasing pressure from e-commerce.
The Toronto-based company (TSX:BPY.UN), a publicly-traded real estate subsidiary of Brookfield Asset Management, already holds a 34 per cent stake in GGP (NYSE: GGP).
The Chicago-based mall owner, which has 126 retail properties in 40 U.S. states, said it has formed a special committee of its non-executive, independent directors to review and consider the offer.
The acquisition is an opportunity to leverage Brookfield’s expertise to grow, transform or reposition GGP’s shopping centres, “creating long-term value in a way that would not otherwise be possible,” said Brian Kingston, chief executive officer of Brookfield Property Group.
“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,” he said in a statement on Monday.
Brookfield is offering $29, or US$23, in cash or 0.9656 of a Brookfield Property Partners unit in exchange for each GGP share. The amount of cash offered is capped at $9.4 billion, while the number of shares offered is limited to 309 million, worth roughly $9.4 billion.
Brookfield Property Partners said the offer is a premium of 21 per cent to where GGP shares were trading before reports of a possible offer last week.
Shares of Brookfield Property Partners were down more than three per cent in midday trading in Toronto on Monday to $29. Shares of GGP in New York, however, were up more than seven per cent to US$23.77.
However, GGP shares are down nearly five per cent year-to-date, including Monday’s lift, as its retail tenants increasingly come under pressure from e-commerce sellers competitors, such as Amazon.
But Brookfield’s Kingston sounded bullish on American shopping malls on its third-quarter earnings call earlier this month. He said that its U.S. mall business _ which consists of 126 regional malls containing roughly 11.4 million square metres _ saw positive financial results, with occupancy rising 80 basis points to 95.4 per cent.
“Well-located, high-quality, retail real estate in the United States continues to perform well, despite negative perception in the public markets,” he told analysts on Nov. 2.
“While many retailers continue to face significant challenges in growing their businesses, those retailers that are focused on the intersection between bricks and mortar retail and online sales channels continue to expand and grow.”
He added in a letter to unitholders that it has continued to acquire big-box anchor spaces in malls and reposition them, calling it “one of the best opportunities in U.S. retail today.”
John Williams, a partner at retail consulting company J.C. Williams Group, said there is “deep concern” in the U.S. about a “potential retail apocalypse” amid pressure on traditional retailers and shopping centres, some of which are overleveraged.
However, he added, premier shopping centres in prime locations continue to draw in shoppers. And the shopping centres being revitalized _ such as by using food as opposed to department stores as anchor tenants _ to improve the shopper’s experience will be rewarded, he said.
“The mall is nowhere near dead, and the good tenants are still very vital,” Williams said. “And I think it’s a matter of reinvention, to some degree, the tenant mix.”
Mark Rothschild, a real estate analyst with Canaccord Genuity in Toronto, said Brookfield has signalled its interest in GGP for several years.
“It’s only really been the last couple of years that GGP’s stock price has not done well, which created the opportunity for Brookfield to do this,” he said.
However, Rothschild said it was surprising that Brookfield made the bid without partners, using its own expensive capital for the transaction.
The offer comes after Brookfield in 2010 invested $2.5 billion for a 27 per cent stake in GGP as part of a deal for its emergence from bankruptcy. Brookfield has since moved to increase its stake, and in November 2013 Brookfield Property Partners invested another US$1.4 billion.