The Real Deal New York

Brookfield’s deal for GGP is a cloud hanging over the mall sector: analysts

Agreement shows less confidence in large retail portfolios compared to Westfield/Unibail merger
By Rich Bockmann | March 27, 2018 01:20PM

Ric Clark, Sandeep Mathrani and the Staten Island Mall (Credit: Brookfield, Getty Images and GGP)

What a difference 104 days make.

When Europe’s largest publicly traded mall landlord agreed to pay $15.7 billion in December to acquire Westfield Corp., many industry observers heralded the deal as reason to think brighter days were ahead for the struggling retail sector.

Unibail-Rodamco’s offer to buy the Australian real estate investment trust implied a rose-colored capitalization rate in the high 4s. What’s more, it stoked speculation that the pricing would move Brookfield Property Partners to increase the lowball bid it had made in November to buy the remaining 66 percent of shares it didn’t already own in General Growth Properties.

But Brookfield’s offer Monday, which valued GGP at $15.3 billion, was only 2 percent higher than the $23 per share it offered in November. And the implied cap rate in the high 5s once again transmits a dour look on the mall sector.

“There’s been analyst outcry that it’s such a lowball offer. It raises the question of whether shareholders will approve the vote,” said Matt Kopsky, a real estate investment trust analyst at Edward Jones who covers neither Brookfield nor GGP.

Publicly traded mall landlords awoke to a sell-off Tuesday after Brookfield and GGP announced their agreement.

Simon Property Group, the country’s largest mall-focused real estate investment trust, opened at $151.51 per share Tuesday morning, down 1.18 percent from the previous day’s closing. By early morning, the stock price had fallen as far as $6 per share – or nearly 4 percent – from Monday’s close.

Shopping center-focused REIT Macerich had fallen as far as 6 percent Tuesday morning and Taubman Centers was down about 4 percent at its lowest point in the morning.

Compare that to Westfield Corp.’s stock price, which rose as much as 15 percent in December the day after Unibail agreed to acquire the company.

GGP started trading Tuesday morning at $21.15 per share – down just a few cents from Monday’s close of $21.21 per share – but by mid-morning had plunged nearly 4.5 percent to a low of $20.28 per share.

Kopsky noted that part of that drop had to do with the fact that Brookfield’s offer gave GGP shareholders the option to accept cash or new shares of Brookfield Property Partners, which themselves are trading down.

Haendel St. Juste, an analyst at Mizuho, said Brookfield’s offer “[fell] short of what many investors we spoke with were hoping for.”

“While the offer is neither exciting for GGP shareholders nor a good read-through for mall asset values, we think it has a better than not shot of getting approved,” given the lack of a competing bid and significant turnover in GGP’s shareholder base over the past year, he wrote.