Brookfield Chairman Ric Clark On The GGP Takeover And The Future Of American Malls
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The news last week that Brookfield Property Partners would acquire mall owner GGP for $9.25B in cash caused a plunge in mall REIT share prices, widespread outcry from analysts and speculation the “lowball" offer could spark a bidding war.
Brookfield Property Partners Chairman Ric Clark discussed the deal with Bisnow from his New York City office days after it was announced.
“Some of the headlines were worse than they ought to be,” Clark said. “[GGP shareholders] are going to get a lot of cash in a price well in excess of where the shares were trading the day before our offer was announced.”
The offer worked out to be $23.50 a share, and GGP's share prices were at $20.46 when the market closed on Thursday.
As part of the sale, Brookfield is creating a new REIT, which will be called BPY U.S. REIT, and shareholders will be able to elect to receive shares in that new entity, worth 40% more than GGP's current dividend.
Brookfield already owns 34% of GGP, and the merger will form one of the country’s largest publicly traded owners of retail properties. But following the offer, some analysts panned the price as a discount for a company with a portfolio of strong assets.
BTIG analysts James Sullivan and Ami Probandt wrote in a report that the offer was "wholly inadequate," according to Bloomberg, and recommended GGP's independent shareholders reject it. BTIG wrote that the offer values GGP at a 21.9% discount to what the company would be worth if its properties were sold separately.
“Why should the shareholders gift that arbitrage to Brookfield and award a very valuable management fee stream to Brookfield Asset Management shareholders in the process?" the report stated.
Clark declined to speculate on whether or not the sale would go through, but said there is broad investor support for the sale.
He noted that GGP owns high-performing malls in Class-A locations, and while those "aren't going anywhere," they will require attention.
“Our view is [GGP malls] are better owned in a diversified portfolio. And in the long term, it’s going to be a win-win for shareholders,” said Clark, adding he believes the offer was fair. “We think our organization has the ability to help our mall division create value.”
Shoppers are flocking online, retail across the country is struggling and mall REIT prices have been slumping. Some mall owners like Westfield Corp. and Simon Property Group have started adding office, dining and event spaces to their properties in an attempt to increase foot traffic.
Clark said traditional malls are under stress, and many need to add value by focusing on animating spaces.
“There’s office space companies talking to malls, there’s experiential retail talking to malls,” Clark said. “There’s going to be a period of capital investment — but ultimately I think these properties will be more valuable. It will just take time and investment.”