(Bloomberg)—Brookfield Asset Management Inc. said it reached a $6.5 billion agreement to acquire the shares of Brookfield Property Partners LP it doesn’t already own, boosting its offer to take private its real estate arm.
The Canadian alternative-asset manager said Thursday it plans to acquire the minority stake for $18.17 per unit. That would mark a 10% increase to the $16.50 a unit Brookfield Asset offered in January, and a 26% premium over where the shares traded prior to that earlier proposal.
Brookfield Property’s board has unanimously approved the deal, according to the statement by the companies. Brookfield Property dropped 0.8% to $17.66 as of 10:44 a.m. in New York.
Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world. At the end of December it had about $88 billion in total assets, including developments such as London’s Canary Wharf and Brookfield Place in New York. In 2018, Brookfield Property acquired GGP Inc., the second-largest mall operator in the U.S., for about $15 billion.
The pandemic has taken a toll on the company as widespread stay-at-home orders kept workers from offices and shoppers from malls. Brookfield Property Partners reported a $2 billion loss and its shares fell 21% last year.
“We are pleased to have reached agreement with BPY’s independent directors on a transaction we believe is appealing to BPY unitholders in many aspects and allows for greater optionality in how we manage our portfolio of high-quality real estate assets,” Nick Goodman, Brookfield Asset Management’s chief financial officer, said in a statement, using the stock symbol for the real estate arm.
Lazard Freres advised Brookfield Property’s special committee and gave a fair market value of $14 to $18.50 per unit, the companies said.
The deal terms are “ultimately attractive” for Brookfield Property unitholders, according to Dean Wilkinson, an analyst with Canadian Imperial Bank of Commerce. It’s near high end of the fair value assessment range, 10% higher than the January proposal and is roughly a 10% discount on the consensus value of the company’s assets, Wilkinson said in a note to clients.
In the five years leading up to the pandemic, Brookfield Property units have traded at a discount ranging between 20% and 45% of its consensus net asset value, he wrote, and raised his price target to $18.17, in line with the offer price.
Brookfield already owns 60% of Brookfield Property Partners, which had a market value of about $17 billion as of Wednesday’s close. The deal is subject to a vote of public unitholders and other conditions, and is expected to close in the third quarter of 2021, the company said.
Under the terms of the deal, Brookfield Property shareholders can choose to take $18.17 per unit in cash, 0.3979 of a Brookfield Class A share or 0.7268 of a Brookfield Property Partners preferred unit, subject to a proration. The maximum cash amount is about 50%, or $3.27 billion.
Investors in Brookfield Property REIT Inc. and Brookfield Office Property Exchange LP will also participate in the transaction, the company said.
Goodman said in January that taking the real estate subsidiary private was appealing because it has consistently traded at a discount to the underlying value of its assets, even before the coronavirus pandemic. He said he believed that was because much of the company’s value was created through the development of projects like New York’s Manhattan West, which take years to generate returns for investors.
Brookfield Property Chief Executive Officer Brian Kingston said in a letter to shareholders in February that rent collection from office tenants remained at normal levels, although occupancy lagged in many markets since the pandemic began. Collections in its retail properties and foot traffic in its malls haven’t fully recovered, he added.
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