Brookfield taking pandemic-hit real estate arm private

Firm will pay $6.5B for remaining shares of Brookfield Property Partners, whose retail portfolio has been hammered

Brookfield Property Partners' Brian Kingston and Brookfield Asset Management's Bruce Flatt (Brookfield)
Brookfield Property Partners' Brian Kingston and Brookfield Asset Management's Bruce Flatt (Brookfield)

Brookfield Asset Management reached an agreement Thursday to take its Covid-dinged real estate arm private by acquiring all of Brookfield Property Partners’ outstanding shares in a deal worth $6.5 billion.

The Toronto-based asset manager already owns over 60 percent of Brookfield Property Partners shares, but in order to take the company private it had to buy out the remaining shareholders. The move takes Brookfield’s real estate wing off the public markets and away from scrutiny of analysts, investors and short sellers who have questioned its asset valuations.

Manhattan West in New York (SOM)

Manhattan West in New York (SOM)

Brookfield Property Partners owns some of the glitziest high-rise office towers in New York City, London and Los Angeles. As of October, it controlled 27 million square feet of office space in New York alone, including Manhattan West.

Rent collections at its offices have been stable, but its retail component has been hammered by the pandemic. The company controls one of the largest mall portfolios in the U.S. It has turned over some of these malls to lenders and said it is negotiating with special servicers on at least 20 of them in its fourth quarter earnings call with analysts.

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Brookfield Property Partners, which reported $2 billion in losses in 2020, was also highly leveraged. Some analysts and investors noted the privatization plan was necessary in order to prevent the company from cutting its lucrative dividend, which was a key attraction for investors buying the stock.

The deal still falls significantly below what Brookfield Property Partners values its own shares. The company has said the fair value of its stock was around $27 per share.

Brookfield Asset Managements will pay $18.17 a share for Brookfield Property Partners’ outstanding shares, above the offer it announced in January, which would have marked the deal at $17.50 a share.

Lazard Frères, acting as an independent valuator and financial adviser, valued the fair market value of Brookfield Property Partners shares at between $14 and $18.50 a share.

Brookfield Property Partners’ independent directors unanimously approved the transaction. Shareholders of the real estate arm also have the option of receiving a portion of shares in Brookfield Asset Management instead of taking the cash offer.

Brookfield Asset Management CFO Nick Goodman said the company believes the deal is “appealing to BPY unit holders in many aspects and allows for greater optionality in how we manage our portfolio of high-quality real estate assets.”