Brookfield Asset Management (BAM) signed a definitive agreement to inject $2.625bn in equity to fund the emergence of General Growth Properties(GGP) from bankruptcy, as part of a total $6.5bn investment in the failed shopping mall real estate investment trust (REIT). The previously announced deal will result in Chicago-based GGP relaunching as a standalone company, keeping it out of the hands of rival mall REIT Simon Property Group (SPG). With its portfolio of shopping malls intact, GGP will remain the second largest mall owner in the country. Creditors will receive par plus accrued interest and the deal leaves existing shareholders with a 34% share of GGP and approximately 86% ownership stake in General Growth Opportunities (GGO), the new company that will be spun out to shareholders. “The transaction we filed today will create two unique real estate companies, each with a strong strategic focus and attractive growth opportunities,” said GGP COO Thomas Nolan. “General Growth Properties will concentrate on traditional shopping mall assets, including some of the most profitable and strongest properties in the country, and will benefit from GGP’s recognized leadership in property management, high-quality operations and innovation. GGO will consist of a diverse portfolio of real estate assets with attractive long-term value-creation prospects.” Brookfield, a Toronto-based global asset management company, focuses on property, renewable power and infrastructure assets and has more than $100bn in assets under management. GGP couldn’t refinance $27bn in debt in spring 2009 becoming the largest bankruptcy in US history. “We believe this is one of the great real estate value opportunities currently available in the capital market,” said Brookfield CEO Bruce Flatt. “GGP’s high quality assets and substantial scale as the second-largest regional mall owner presents all shareholders with a compelling long-term investment opportunity.” As HousingWire previously reported, GGP’s largest creditor, Fairholme Capital Management, and its largest shareholder, Pershing Square Capital Management, also committed $2.8bn and $1.1bn, respectively, to fund the plan. Brookfield will own a 26% stake in GGP’s equity and will hold three of the nine seats on the GGP board of directors. For its investments, Fairholme will receive a 28% stake and Pershing Capital will hold an 11% stake of GGP’s common stock, subject to reduction of up to $1.9bn in the event GGP is able to raise replacement equity capital on more favorable terms. In addition to the $2.625bn equity investment, the deal calls for Brookfield to assist GGP in finalizing a $1.5bn corporate credit facility. After GGP emerges from bankruptcy, Brookfield said it will provide office asset management services at no cost to GGP, and if GGP requests it, provide master-planned community asset management assistance, including installing a Brookfield executive as CEO of GGO. Brookfield agreed to substantially lock-up its share investment for a minimum period of 18 months and will assist GGP generally in corporate finance matters, including providing access to its global banking and capital relationships. The plan is subject to the approval of the US bankruptcy court, which Brookfield said will be presented to the court by the end of April. The deal is coming together despite an unsolicited $10bn bid from Indianapolis-based Simon, the largest mall owner in America. GGP rejected the Simon offer, resulting in a public back-and-forth between the two rivals. In announcing the GGP deal, Brookfield said selling GGP did not maximize value for the existing shareholders. Given that General Growth has been in bankruptcy and has not had time to focus on operational enhancement, its cash flows are lower than comparable portfolios and its shares trade in the stock market at a valuation substantially lower than its peers, Brookfield said. In its proposal, GGP’s share price should benefit from both multiple expansion in the short term and increased net operating income and cash flows over the longer term, as the business is refocused on operational improvements, Brookfield said. In addition, Brookfield said its proposals leaves shareholders with a 34% stake in the company, where in a buyout, shareholders would receive either cash or securities of the buying entity. “For shareholders who desire cash, there is now a highly liquid market on the NYSE for sale of their shares which can readily satisfy this requirement,” Brookfield said. “For shareholders who wish to own competitors’ securities, these shares are highly liquid and existing shareholders may own these by purchasing them in the stock market instead of trading their undervalued General Growth shares for these shares in a sale of the company.” Write to Austin Kilgore. The author held no relevant investments.

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