Escalating retail headwinds aren’t only impacting retailers these days — just take a look at their landlords.
General Growth Properties, one of the largest publicly traded U.S. mall owners, received a nearly $15 billion bid on Saturday through Brookfield Property Partners to acquire the shares the item currently doesn’t own from the real estate investment trust. The news comes after reports that will Brookfield had held “preliminary discussions” with GGP about taking the company private.
Chicago-based GGP is actually often considered top of its peer group, that has a real estate portfolio consisting mainly of “Class A” malls, or those that will draw the most sales per square foot. To be sure, like its REIT rivals, GGP has still struggled with retail bankruptcies, store closures along that has a shift in spending to online platforms.
“We believe GGP is actually negotiating a privatization transaction through a position of weakness,” Wells Fargo analyst Jeff Donnelly wrote in a note to clients.
Brookfield has offered to pay $23 per share for the remaining 66 percent of GGP — split between cash along with equity. The Wall Street Journal first reported on the proposal Sunday evening.
“Brookfield’s access to large-scale capital along with deep operating expertise across multiple real estate sectors combined with GGP’s high-quality retail asset base will allow us to maximize the value of these irreplaceable assets,” Brookfield CEO Brian Kingston said in a statement.
GGP said the item formed a special committee of independent directors to review the bid, bringing on Goldman Sachs as a financial advisor.
GGP shares surged 6.7 percent Monday to $23.69 — above the offer cost, implying the pot could get even sweeter. According to analysts, a $14.8 billion cost tag likely won’t be enough for GGP.
“The $23 cost should set a floor for GGP shares,” Boenning & Scattergood analyst Floris van Dijkum said. “We believe This specific initial offer is actually too low while [Brookfield] incorporates a history of raising its offer for takeover candidates.”
Dijkum said he’s expects an offer closer to $30 per share.
“While the offer is actually encouraging, cementing BPY’s rumored interest along with the recent M&A euphoria, the item falls short of GGP private market value estimates along with investor expectations,” Mizuho analyst Haendel St. Juste said. “This specific is actually just ’round one’ of a fluid situation.”
Brookfield’s 34 percent stake in GGP incorporates a market value of roughly $21 billion.
GGP shares were down more than 25 percent for the year before surging last week on buyout chatter. right now, Wall Street is actually rallying behind a potential take private, along with short sellers are seen fleeing.
Brookfield took its first stake in GGP as part of an agreement to bring the REIT out of bankruptcy in 2010. the item acquired more GGP warrants in early 2013, filings show, along with agreed to maintain its stake from the company below a 45 percent threshold through last January.
A year earlier, Brookfield reportedly was considering acquiring the REIT, which at the time had a market value of $24 billion. The two were also in talks prior to GGP seeking bankruptcy protection in 2009, as the item prepared to restructure its $27 billion debt load.
This specific year, GGP has focused efforts around renovating locations along with filling vacated spaces within its malls. The REIT has reduced its exposure to apparel tenants, for example, along with added more food options.
“One of the key tenets of our business plan is actually capitalizing on the embedded opportunity with our portfolio to redevelop anchor boxes,” CEO Sandeep Mathrani said on a recent conference call with analysts along with investors.
In October alone, GGP acquired two Sears locations — in Pennsylvania along with Louisiana. To date, GGP has invested more than $2 billion in redeveloping 115 of its properties, reaping “very attractive returns,” Mathrani said.
A tie-up with Brookfield could give GGP the opportunity to pursue a more mixed-use strategy, incorporating apartments along with office buildings into its properties, something Mathrani has expressed interest in doing.
Brookfield incorporates a much more diversified real estate portfolio that will includes office properties, retail boxes, multifamily housing units, student housing along with self-storage centers. The proposed transaction with GGP would likely allot Brookfield ownership interest in roughly $100 billion of real estate assets globally.
As retailers face more challenges through online competitors like Amazon, their landlords are increasingly of interest. some other retail REITs are being targeted by activist investors who demand change at a more rapid clip.
Just last week, Dan Loeb’s Third Point hedge fund revealed the item had built a position in mall owner Macerich. Loeb could push for a potential sale of the company over time, according to reports.
One of the biggest activists from the real estate industry is actually Jonathan Litt, a former managing director at Citigroup. He founded the hedge fund Land along with Buildings in 2008 along with has recently pressured Taubman Centers to explore strategic options.
Taubman’s portfolio consists mainly of U.S. shopping centers, although the REIT also incorporates a smaller presence in China along with South Korea.
In a separate attack, Litt is actually urging Hudson’s Bay — the parent company to Lord & Taylor along with Saks Fifth Avenue — to consider being taken private by management or consider some other uses for its real estate.
Mall owners including GGP, Taubman, Macerich, Simon Property Group, CBL Properties, Washington Prime Group, Seritage, along with Pennsylvania REIT have seen their stocks fall in 2017, some by more than 40 percent.