Brookfield Property Partners has added about US$2 billion to its offer to purchase GGP Inc., and says it now has a definitive agreement to acquire all outstanding shares of the U.S. mall owner which it does not currently own.

The Ala Moana Centre in Hawaii is the world’s largest outdoor shopping centre. It is part of the GGP portfolio of properties. (Courtesy GGP Inc.)

BPY (BPY.UN-T) is the property arm of Toronto-based Brookfield Asset Management (BAM.A-T). The offer raises the cash portion from $7.4 billion when Brookfield made its initial offer for GGP (GGP-N) on Nov. 3, 2017, to $9.25 billion. It raises the per-share value from $23 to $23.50.

Based on Brookfield’s estimate of 61 per cent cash and 39 per cent in equity, the acquisition is valued at about $15 billion.

GGP shareholders can opt for either $23.50 in cash,; or either one Brookfield unit or one share of a new BPY U.S. REIT security, for each GGP share. BPY’s per unit distribution is more than 40 per cent higher than the per-share dividend received by GGP shareholders.

GGP shareholders will own approximately 26 per cent of the combined company. 

Brookfield already owned 34 per cent of GGP (General Growth Properties) at the end of 2017.

“Compelling transaction” for Brookfield

“This is a compelling transaction that enables GGP shareholders to receive premium value for their shares and gives them the ability to participate in the long-term upside of their investment,” Brian Kingston, CEO of Brookfield Property Partners, said in the release.

“We are pleased to have reached an agreement and are excited about combining Brookfield’s access to large-scale capital and deep operating expertise across multiple real estate sectors with GGP’s portfolio of irreplaceable retail assets.”

The transaction will result in the creation of a BPY U.S. REIT (“BPR”). BPR shares are structured to provide an economic return equivalent to BPY units, including identical distributions.

“Since receiving Brookfield’s initial proposal in November, the special committee has conducted extensive due diligence, specifically evaluating the optimal consideration structure for GGP’s shareholders,” Daniel Hurwitz, lead director and chair of the special committee, said in the release. 

“After careful consideration, assisted by our independent advisors, the special committee determined that Brookfield’s improved proposal, which includes an increase in the cash portion of the consideration and the ability to receive shares in a newly listed REIT entity, provides GGP shareholders with certainty of value, as well as upside potential through ownership in a globally diversified real estate company.”

The release says the GGP special committee unanimously recommends shareholders accept the increased offer.

History between BPY, GGP

Brookfield took its original stake in the company in 2010, while GGP was bankruptcy protection after defaulting on $900 million in loans. Brookfield injected $2.6 billion into GGP, allowing it to exit bankruptcy protection in November 2010, pay back its creditors and make a substantial rebound.

Shortly thereafter Sandeep Mithrani became the CEO, replacing Adam Metz who had ascended to the job in 2008 as GGP spiraled into its financial crisis. Mithrani had formerly headed the retail division of Vornado Realty Trust.

With approximately $90 billion in assets and annual net operating income of more than $4 billion, the combined company will be one of the world’s largest commercial real estate enterprises.

Brookfield is funding the acquisition through $4 billion from joint venture equity partners, and financings from a syndicate of lenders. BAM will also convert $500 million in BPY class-C Junior Preferred Shares into BPY units at a price of $23.50 per unit, resulting in BAM’s acquisition of approximately 21.3 million BPY units.

The transaction is subject to multiple approvals, including:

* GGP shareholders representing at least two-thirds of the outstanding GGP common stock and

* GGP shareholders representing a majority of the outstanding GGP common stock not owned by BPY and its affiliates.

* Other customary closing conditions.

The sale is expected to close early in the third quarter of 2018. 

About Brookfield, GGP

Brookfield Property Partners is one of the world’s largest commercial real estate companies, with approximately $68 billion in total assets. It is a leading owner, operator and investor in commercial real estate, with a diversified portfolio of office and retail assets, as well as interests in multi-family, triple net lease, industrial, hospitality, self-storage, student housing and manufactured housing assets.

Brookfield Property Partners is the flagship listed real estate company of Brookfield Asset Management, a leading global alternative asset manager with more than $285 billion in assets under management.

GGP Inc. is an S&P 500 company focused exclusively on owning, managing, leasing and redeveloping retail properties throughout the U.S. GGP is headquartered in Chicago.