Brookfield Property Partners gets US$5.9b offer to go private

Vancouver

BROOKFIELD Asset Management and a group of investors have offered to acquire the stake in Brookfield Property Partners that they do not already own, in a US$5.9 billion bid to take the real estate company private.

The Canadian alternative-asset manager said it has made a proposal to acquire the outstanding units for US$16.50 each, or about a 14 per cent premium to last Thursday's closing price in New York.

Brookfield Asset Management already owns about 60 per cent of Brookfield Property Partners, which had a market value of US$13.8 billion as at last Thursday's close.

Units of Brookfield Property Partners jumped as much as 18 per cent to as high as US$17.14 apiece in New York trading on Monday, after an earlier Bloomberg News report.

Privatising Brookfield's real estate subsidiary is appealing because it has consistently traded at a discount to the underlying value of its assets, said Nick Goodman, Brookfield Asset Management's chief financial officer, in an interview.

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"We believe that it has been consistently discounted for more than just the past year," he said. "We believed it would be a premium offering to the market given it has a unique global portfolio and some of the highest quality real estate in the world. But it has consistently struggled to trade at its net asset value."

While Brookfield Property Partners traded at all-time lows in March, near the beginning of the Covid-19 pandemic, Brookfield waited until the unit price had stabilised to push ahead with the privatisation effort, Mr Goodman said.

The stock also trades at a discount because a lot of the company's value has been created through the development of long-term projects like New York's Manhattan West, part of the Hudson Yards redevelopment, he added. Such projects can take years to start generating returns for investors.

"We have just built more conviction over time that the right form for this is in the private markets," he said.

Under the proposal, investors in Brookfield Property Partners can either elect to take the US$16.50 per unit in cash, or instead choose 0.4 of Brookfield Asset Management's stock, or 0.66 of Brookfield Property's preferred units.

Holders of Class A stock in Brookfield's other publicly traded real estate entity, Brookfield Property Reit, can participate once they exchange their shares for Brookfield Property Partners units.

Brookfield Property Partners and Brookfield Property Reit acknowledged they had received the proposal in a separate statement on Monday.

Brookfield Property Partners has formed a special committee of independent directors to review the offer, and it said investors do not need to take any action at this time.

Any transaction would be subject to a vote requiring approval from the majority of minority holders, Mr Goodman said.

The proposal within the current market should be attractive to both Brookfield Property investors and Brookfield Asset Management, said Dean Wilkinson, an analyst with CIBC Capital Markets.

Brookfield Property's management has tried for years to narrow the trading discount to no avail, in part, because some of its assets in the portfolio, namely US malls, have been a roadblock in realising a higher, more appropriate valuation, he said.

Mr Wilkinson said he saw no catalyst that would improve the situation. Given the gulf between the offer price and the value of underlying assets, he said there should be room for "modest negotiations".

"Such a negotiation is in keeping with prior transactions within the Brookfield family of companies," he said in a note to clients on Monday. He raised his price target to US$17.50 accordingly.

Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world.

At the end of September 2020, it had about US$88 billion in total assets, including developments like London's Canary Wharf and Brookfield Place in New York. In 2018, Brookfield acquired GGP, the second-largest mall operator in the United States, for about US$15 billion.

The pandemic has taken its toll on the company, as widespread stay-at-home orders keep workers away from offices and shoppers away from malls. Brookfield Property Partners shares have fallen more than 20 per cent over the past year, though they have bounced back to double from their March lows.

Brian Kingston, chief executive officer of Brookfield's real estate group, said in a letter to unit holders in November that he believed the worst of the crisis is now behind the company, and that he continued to see signs of recovery from the economic shutdown. BLOOMBERG