Brookfield Property Partners Make 'Low-Ball Offer' to Take Full Control of Mall Owner GGP

Brookfield Property Partners have bid $19.4 billion to acquire the stake it doesn’t already hold in US mall owner GGP as it looks to repurpose the traditional bricks-and-mortar shopping centres.

In a move that could "completely reset the valuation of what high-end malls are worth" the bid has been viewed as a low-ball offer that threatens property values across an industry already struggling in the age of e-commerce.

Brookfield Property Partners, who already own a 34 per cent stake in GGP, have offered to purchase the remaining portion of GGP for US$23 a share, valuing the retail real estate company at US$21.8 billion.

According to Wall Street Analysts this is a large discount to what the GGP’s portfolio of high-end malls in worth.

In contrast to this "low-ball" offer as of 30 September, Brookfield maintained that its stake in GGP implied a valuation of US$26.5 billion.

Brookfield’s chief financial officer, Bryan Davis, said the shares were worth around US$30.

According to Alexander Goldfarb, an analyst at Sandler O’Neil & Partners LP, no one ever accepts the first offer and this offer may be just the first step in a protracted process that could draw additional bidders, and a substantially higher price.

“Brookfield needs to show that this is really a fair value for the company,” Goldfarb said in an interview.

“They have to figure out a reason why $23 is fair. That bar is pretty high when you’re carrying it at $30."The US$23 per share bid is about 21 per cent higher than GGP’s closing price on 6 November, the day before reports began to appear that Brookfield had held discussions to acquire the private company.

GGP shares have since climbed above the offer price gaining 7.1 per cent to reach US$23.77.

Under the offer, GGP shareholders can choose either cash or Brookfield Property limited-partnership units in exchange for their shares, with Brookfield ultimately paying half its total purchase price in cash and half in units.

If the offer made by Brookfield Property Partners were accepted by GGP it would signal that values for even the best malls have fallen significantly in the past 18 months. GGP's properties include Honolulu’s Ala Moana Centre and the Fashion Show in Las Vegas.

[Related reading: Brookfield Commits to $1.1bn Elizabeth Quay Development]According to Jeff Langbaum, an analyst at Bloomberg Intelligence, this offer could trigger a repricing for the entire segment, including other high-end mall operators such as Simon Property Group Inc. and Macerich Co.

“If a deal happens at a price in this neighbourhood, it completely resets the valuation of what high-end malls are worth,” Langbaum said.