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GGP Accepts Brookfield's Revised Buyout Offer, Stock Gains

Zacks Equity Research
Updated

GGP Inc.’s GGP shares rallied 3.3% after market close on Monday, as details of the revised deal pertaining to its acquisition by Brookfield Property Partners BPY unfolded. Amid the dull retail real estate market, this rally offers respite to investors.

Notably, both companies have entered into a definitive agreement, per which Brookfield will acquire the GGP shares it doesn’t own yet for nearly $15.3 billion, gaining complete ownership of the second-largest U.S. mall owner.

In November 2017, GGP rejected a $14.8 billion cash-and-stock acquisition offer made by Brookfield, and both the companies continued negotiating the takeover deal. Earlier this month, the asset manager revised its buyout offer, increasing the aggregate cash consideration from $7.4 billion to $9.25 billion. 

Brookfield intends to create a new real estate investment trust (REIT) under the ticker “BPR” and issue its shares in this transaction. The newly formed entity will become one of the largest commercial real estate enterprises in the world with assets worth nearly $90 million and annual net operating income of more than $4 billion.

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Transaction Details

According to the agreed proposal, GGP shareholders can choose to receive either $23.5 in cash or one BPY unit or one share of BPR. This is subject to proration based on an aggregate cash consideration of $9.25 billion.

In addition, GGP shareholders will receive dividends for second-quarter 2018 up to 22 cents per share. Further, the transaction is contingent upon the approval of GGP shareholders representing at least two-thirds of GGP’s outstanding common stock as well as a majority of its shares not owned by Brookfield and its affiliates.

Moreover, the deal is subject to other customary closing conditions and it anticipated to close in third-quarter 2018.

Brookfield Asset Management BAM will guarantee BPR’s shareholder rights to exchange their shares for a BPY unit or cash equivalent of a BPY unit. Further, Brookfield intends to fund the cash consideration through $4 billion of financing from joint venture equity partners as well as a syndicate of lenders.

Our Viewpoint

With higher cash consideration, the acquisition also offers GGP shareholders the ability to receive shares in a newly listed REIT and hence enjoy upside potential. In fact, after the transaction is completed, GGP shareholders will own nearly 26% of the new REIT.

While GGP is struggling to draw decent mall traffic amid a rapid shift in customers’ shopping preferences and patterns with online purchases growing by leaps and bound, such transactions appease investors by providing a premium value for their shares.

Additionally, after this buyout, Brookfield will have higher negotiating power with retailers, which will aid the company to revamp and draw more value to some GGP-owned malls.

Shares of GGP have outperformed its industry in the past six months. During this time, the stock has lost 0.3% compared with industry’s decline of 9.8%.


 

Zacks Rank and Stock to Consider

GGP currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Arbor Realty Trust ABR. It carries a Zacks Rank of 2 (Buy). Also, the Zacks Consensus Estimate for 2018 FFO per share has been revised 2.3% upward to 90 cents over the past month. Its share price has risen 7.9% in six months’ time.

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