Brook­field Prop­erty Part­ners makes of­fer to buy GGP

Com­pany bank­ing on fu­ture of malls

Packet & Times (Orillia) - - BUSINESS - ARMINA LIG­AYA

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-and­mor­tar 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 nonex­ec­u­tive, 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 high­qual­ity 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.”

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