Brookfield Property Partners LP is offering $18.8 billion in stock and cash to buy out the shares of U.S. shopping mall owner GGP Inc. that it does not already own, doubling down on the future of brick-and-mortar retail as many merchants come under pressure from e-commerce.
The company, which is a publicly-traded real estate company and subsidiary of Toronto-based Brookfield Asset Management, already holds a 34 per cent stake in GGP.
GGP said it has formed a special committee of its non-executive, independent directors to review and consider the offer.
Brian Kingston, chief executive officer of Brookfield Property Group, said this was an opportunity to leverage its expertise to grow, transform or reposition GGP's shopping centres, "creating long-term value in a way that would not otherwise be possible."
"Brookfield's access to large-scale capital and 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," he said in a statement on Monday.
Under the bid, Brookfield is offering $29, or $23 US, in cash or 0.9656 of a Brookfield Property Partners unit in exchange for each GGP share. The amount of cash offered is capped at $9.4 billion, while the number of shares offered is limited to 309 million, worth roughly $9.4 billion.
Brookfield Property Partners said the offer is a premium of 21 per cent to where GGP shares were trading before reports of a possible offer last week.
Shares of Brookfield Property Partners slid almost 4.5 per cent on Monday to close at $28.66. Shares of GGP in New York, however, gained more than eight per cent to finish at $24.05 US.
However, GGP shares on the New York Stock Exchange are down nearly six per cent year-to-date as brick-and-mortar retailers increasingly come under pressure from competition from e-commerce, such as Amazon.
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Rising mall occupancy rate
Still, Kingston sounded bullish on American shopping malls on its third-quarter earnings call with analysts earlier this month. He said that its U.S. mall business — which consists of 126 regional malls containing roughly 11.4 million square metres, which is enough to fill more than 7,200 standard hockey rinks — in the third quarter had positive financial results and occupancy rose 80 basis points to 95.4 per cent.
"These positive results demonstrate that well located, high quality, retail real estate in the United States continues to perform well, despite negative perception in the public markets," he told analysts on Nov. 2, according to a transcript. "While many retailers continue to face significant challenges in growing their businesses, those retailers that are focused on the intersection between bricks and mortar retail and online sales channels continue to expand and grow."
The offer comes after Brookfield in 2010 invested $2.5 billion for a 27 per cent stake in the Chicago-based mall owner as part of a deal for GGP to emerge from bankruptcy. As part of the restructuring agreement, Brookfield agreed to not increase its ownership beyond 45 per cent. Brookfield has since moved to increase its stake within those boundaries, and in November 2013 Brookfield Property Partners invested another $1.4 billion US to increase its stake.