Commercial real estate firm Brookfield Property Partners L.P. on Monday said that it has made a non-binding proposal to acquire GGP Inc., formerly known as General Growth Properties, for roughly $14.8 billion, according to press releases from both companies.
Brookfield Property Partners already owns approximately 34% of GGP, according to its press release.
GGP’s board of directors has formed a special committee of its non-executive, independent directors which, in consultation with its financial and legal advisors, will review and consider the proposal, the company said.
Major shifts in retail and a series of high-profile retail bankruptcies are contributing to a generally downbeat buzz about shopping malls, but that belies the reality that many shopping centers are thriving, GGP executives have said. The real estate company’s retail portfolio includes mostly top malls like Chicago's Water Tower Place, where it has established a "living lab" dubbed "In Real Life," in partnership with retail pop-up architecture company The Lionesque Group.
"[T]here is strong demand for our real estate from a wide and growing area of tenants," GGP CEO Sandeep Lakhmi Mathrani told analysts in August, according to a transcript from Seeking Alpha. In fact, the company will welcome over 100 new tenants this year. "[I]n addition, there are numerous e-commerce retailers planning to open stores. These are companies that have been operating for five to seven years on the internet and have sales of $25 million to $100 million. They are established brands seeking profitability and planning to achieve it with a brick-and-mortar presence.”
The relative strength of GGP's portfolio could raise Brookfield's bid. In fact, Boenning & Scattergood analyst Floris van Dijkum, who called the offer "too low," said that it's likely a floor considering Brookfield's history of low-balling initial bids, and he told CNBC he expects something closer to $30 per share.
GGP in August reported second quarter net income of $126 million, down from $186 million in the prior-year period. On a conference call with analysts following the report, Mathrani said the company will stay the course when it comes to leases, but plans to add more non-retail tenants and to "prune the lower quality assets."
Many shopping centers and malls are increasingly looking to diversify their portfolios as longstanding anchors like Macy’s, J.C. Penney and Sears close stores and leave gaping holes at their properties. Those closures are exacerbated by specialty retailers like The Limited, Wet Seal, Payless, Rue21, Bebe and Payless reducing their footprints or shuttering altogether. Some property executives see opportunity in those empty spaces, but many have taken pay cuts in the interim as their holdings falter. About a year ago, GGP acquired five anchor boxes from Macy’s for approximately $48 million, part of the department store chain's previously-announced plan to unload 100 stores by early next year.
The actual retail in malls is in need of attention, too. Earlier this year Simon Property Group CEO David Simon urged retailers to invest in their stores, insisting that e-commerce isn’t the sole reason for their plight. "I'm hopeful that they're going to reinvest in their stores, improve their inventory mix and service their customer better," he said. "And, by the way, we've got to have the same pressure on us to do that. So, it's a two-way street. We are up for the challenge. We have the conviction in our business to do that as you know if you go through our properties by and large, they look, they feel great. We're going to redevelop a lot of opportunities."