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Mall Mergers Accelerate with Brookfield Property's Buyout of GGP

GGP Inc., the second-largest U.S. mall landlord, agreed Monday to be taken over by a unit of Toronto-based Brookfield Asset Management Inc.

(Bloomberg)—As the age of Amazon takes its toll on retailers, mall owners are finding it may be better not to confront the turmoil on their own.

GGP Inc., the second-largest U.S. mall landlord, agreed Monday 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 U.S., to be acquired by Unibail-Rodamco SE. Meanwhile, Macerich Co. and Taubman Centers 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 centers to take advantage of the land they occupy in urban areas, including adding “experiential” elements such as restaurants, theaters and gyms. GGP Chief Executive Officer Sandeep Mathrani is among those looking for ways to repurpose malls.

Brookfield Property Partners LP, which with its affiliates own about 34 percent 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, 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.

Repurposing Land

Brookfield Property is seeking to unlock value like it has since it acquired Rouse Properties Inc. 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 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 center, you need to own the best centers. And that’s what you’re seeing.”

‘Upside Potential’

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 cash portion of the deal will be funded by a combination of approximately $4 billion from joint-venture equity partners, and financing from a syndicate of lenders that include Deutsche Bank AG, Morgan Stanley, RBC Capital Markets and Wells Fargo & Co.

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.

--With assistance from Sarah Mulholland.To contact the reporters on this story: Scott Deveau in New York at [email protected] ;Noah Buhayar in Seattle at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Kara Wetzel


© 2018 Bloomberg L.P

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