Brookfield bucks retail trend with bid for mall operator

Real estate unit bullish on revamping GGP’s brick-and-mortar properties

Brookfield Property Partners L.P.’s $18.8-billion bid for the portion of U.S. mall operator GGP Inc. that it doesn’t already own is underscoring the firm’s belief that brick-andmortar retail isn’t dead — it may just need to broaden its horizons.

Toronto-based Brookfield, the real estate arm of Brookfield Asset Management Inc., already owns 34 per cent of GGP. It confirmed Monday that it is offering to buy the remaining 66 per cent of Chicago-based company for US$23 per share.

“We are excited about the opportunity to leverage our 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 of Brookfield Property Group, in a release.

Brookfield has recently expressed optimism about redeveloping or revitalizing retail real estate, bucking the conventional wisdom that malls are in decline and online shopping is on the rise. Earlier this month, Brookfield Property Partners reported third-quarter occupancy for its retail portfolio was up 80 basis points, to 95.4 per cent.

“These positive results demonstrate that well-located, highquality retail real estate in the U.S. continues to perform well, despite negative perception in the public markets,” Kingston wrote in a Nov. 2 letter to unitholders. “While some retailers continue to face significant challenges in growing their businesses, those retailers focused on the intersection of bricks and mortar retail with online sales channels continue to expand and grow.”

GGP, which prides itself on owning “high-quality” retail properties in the U.S., including several locations on New York City’s Fifth Avenue, seems to fit that bill.

“GGP is not a bunch of third-tier malls that are getting destroyed by the internet,” said Mark Rothschild, real estate analyst with Canaccord Genuity. “The malls are evolving, but they’re absolutely not disappearing.”

Rothschild said the company also aims to offer “unique experiences” at its malls, giving customers a reason to go there beyond shopping.

“There are malls that no matter what happens online, that real estate is still worth a lot of money and people will go to,” Rothschild said. “And there will be things that the landlords do to make that a fun place to be, whether it’s eating, whether it’s other activities, whether it’s shopping.”

Shares of Brookfield Property Partners fell 4.47 per cent in Toronto on Monday, to $28.66. The company’s stock price has declined 2.28 per cent for the year. Meanwhile, shares of GGP jumped 8.33 per cent, closing at US$24.05 Monday, down 3.72 per cent for 2017.

GGP said in a release that its board had struck a special committee of independent directors to review and consider Brookfield’s proposal.

“There can be no assurance that a definitive offer relating to the Proposal will be made, that a definitive agreement relating to the Proposal or any other transaction will be entered into by the Company, or that any transaction will be consummated,” GGP added.

But, if the deal does go through, Brookfield said it would create

GGP is not a bunch of third-tier malls that are getting destroyed by the internet.

“one of the largest listed property companies in the world, with an ownership interest in almost $100 billion of premier real estate assets globally and annual net operating income of approximately $5 billion.”

Brookfield bought into GGP in 2010, helping the latter emerge from bankruptcy with a $2.5-billion investment that was made in return for approximately 26 per cent of the company. Hedge fund manager Bill Ackman’s Pershing Square also invested at the time, putting up $1.1-billion in exchange for an 11-per-cent stake, according to a release.

The latest GGP deal could give Brookfield another way to double down on retail, or to repurpose the valuable space it may occupy.

“We continue to acquire big-box anchor spaces in our malls and reposition them,” Kingston wrote in his letter to unit holders, prior to the deal. “We can earn excellent returns doing this and it is one of the best opportunities in U.S. retail today.”