Older US malls get a second lease of life
Developers and funds snap them up to convert into residential or office options
As the age of Amazon takes its toll on retailers, US mall owners are finding it may be better not to confront the turmoil on their own.
GGP Inc, the second-largest US mall landlord, has agreed to be taken over by a unit of Toronto-based Brookfield Asset Management Inc. The deal follows an agreement in December for Australia’s Westfield Corp, which has malls across the US, to be acquired by Unibail-Rodamco SE. Meanwhile, Macerich Co and Taubman Centres Inc have faced pressure from activist investors.
Mall owners are trying to stay relevant as brick-and-mortar retailers shut down stores at a record pace, buffeted by the rise of e-commerce. Navigating that landscape may be easier with a big investor that sees an opportunity to make properties more attractive to shoppers — and to take advantage of depressed stock prices.
“Consolidation is happening because prices have fallen below the asset values,” said Lindsay Dutch, an analyst with Bloomberg Intelligence. “If you believe that malls are not dying, you’re buying assets at a discount that will have value into the future.”
Landlords have been focusing on buying and revamping shopping centres to take advantage of the land they occupy in urban areas, including adding “experiential” elements such as restaurants, theatres and gyms. GGP CEO Sandeep Mathrani is among those looking for ways to repurpose malls.
Brookfield Property Partners LP, which with its affiliates own about 34 per cent of GGP, reached a deal to buy the rest of the Chicago-based company after raising its offer from a November bid. GGP shareholders will receive either $23.50 (Dh86.25), one Brookfield unit or a share of a new real estate investment trust for each share they own, according to a statement.
The cash consideration is $9.25 billion with 61 per cent of the deal in cash and 39 per cent in equity, the companies said, and the total value of the acquisition is almost $15 billion.
Repurposed
Brookfield Property is seeking to unlock value like it has since it acquired Rouse Properties Inc. in 2016, said CEO 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. “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 latest round of mall industry consolidation is tied to investors looking for the best assets as the retail industry shakes out, said Alexander Goldfarb, managing director at Sandler O’Neill & Partners LP.
There will be “further refinement of portfolios,” he said. “You don’t need to own every centre, you need to own the best centers. And that’s what you’re seeing.”
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.