Experts: Redevelopment Opportunities, Tax Break Make Brookfield/GGP Merger A Good Deal

While stock analysts believe the deal was undervalued, real estate experts said Brookfield's acquisition of GGP is good for both parties, particularly because it is forming a REIT.

Brookfield's announcement Monday that it was acquiring GGP in a $9.25B deal impacted most mall stocks. Shares in Simon Property Group, Macerich and Taubman fell in trading after analysts and investors anticipated GGP, which rejected a $14.8B offer in December, would only accept a larger offer.

GGP accepted a $23.50/share cash offer instead.

Abbell Associates CEO Liz Holland said the value of the deal was great for GGP shareholders, as they received a premium over what GGP stock was trading at. Analysts criticizing the value of the merger may be more concerned GGP shareholders are not being paid enough in light of the difference between private and public market valuations.

Colliers International U.S. Chief Economist Andrew Nelson said GGP shareholders received good compensation with per share pricing. And GGP shareholders have a new REIT to go with their cash premiums.

Holland said the new REIT stock, BPY U.S. REIT, will be beneficial for any GGP shareholder with a REIT allocation. Under new tax laws, REIT dividends are taxed at a pass-through rate, meaning they have a better treatment, versus regular stock dividends.

Retail REITs are trading for less than net asset value, suggesting that values are due to fall, Nelson said.

JLL Retail CEO Greg Maloney felt it was only a matter of time before Brookfield and GGP would agree on a deal. Brookfield's 35% stake in GGP gave it an intimate understanding of how GGP valued its assets, and the type of value it wanted to create long term. GGP, in its shareholder calls, has always stressed its assets are redevelopment plays.

The new deal gives GGP capital and redevelopment expertise to meet its goals.

Brookfield is known for adding new uses to its assets, and that dovetails with the changes happening in high-end retail. Adding food and beverage, hospitality and entertainment components to retail all make sense, and Maloney sees more opportunities for consolidation in the future, as retail operators adapt to changing demographics and consumer trends.

Nelson said the Brookfield-GGP deal is more one of breadth than scale, similar to last December's Unibail-Westfield merger. This gives tenants a broader range of site opportunities, while landlords have their choice of preferred tenants because they have locked in a greater share of the market.

Holland said both deals speak volumes about the viability of prime retail space.