Brookfield to Invest $2.63bn in General Growth in Snub to Simon Properties
Bankrupt retail real estate investment trust (REIT) General Growth Properties (GGP) will get a $2.63bn infusion in cash from Toronto-based real estate firm Brookfield Asset Management (BAM), enabling the shopping mall developer to exit bankruptcy. The GGP-Brookfield alliance comes just one week after Simon Property Group (SPG), a retail REIT and the largest real estate company in the US, announced its unsolicited $10bn offer for GGP. GGP rejected the Simon offer, resulting in a public back-and-forth between the two shopping mall rivals. The deal with Brookfield will create a new company, General Growth Opportunities (GGO), which will own certain GGP non-core assets, such as all of the company's master planned communities and landmark developments like South Street Seaport and others, Chicago-based GGP said. In addition, GGP’s unsecured creditors will be paid at par — the debt’s face value — plus accrued interest. Brookfield will invest $2.5bn in cash in GGP in exchange for GGP common stock, thereby providing sufficient liquidity to fund GGP's bankruptcy emergence needs, GGP said in a release Wednesday afternoon. Under the terms of the plan, GGP shareholders will receive one share of new GGP common stock initially valued at $10 per share, and one share of General Growth Opportunities (GGO) with an initial value of $5 per share. Brookfield will invest $2.5bn at $10 per share for new GGP common stock and up to $125m at $5 per share for GGO common stock. The deal is not subject to due diligence or financing conditions “and is expected to create a floor value for the purpose of raising additional equity” for GGP. However, the deal must be approved by the bankruptcy court overseeing GGP’s restructuring. “This proposed plan offers significant value for all of our stakeholders,” said GGP CEO Adam Metz. “It is designed to allow GGP to deliver a minimum of $15 per share in value to our existing common shareholders, while providing our unsecured creditors with par plus accrued interest.” In consideration for the investment, Brookfield will be granted seven-year warrants to purchase 60m shares of existing GGP common stock at $15 per share. The warrants are intended to provide compensation to Brookfield for its financial commitment, GGP said, adding Brookfield will not receive any other consideration or bid protection, including any break-up fee, expense reimbursement, commitment fee, underwriting discount or any other fees. “The Brookfield-sponsored recapitalization — coupled with the more than $13bn of restructured debt, our compelling scale as the second-largest regional mall owner, our fortress assets and a business plan that focuses on further deleveraging the balance sheet and building liquidity — provides a strong financial foundation for the future,” Metz added. Until the court approves the warrants, Pershing Square Capital Management is providing “interim protection” to Brookfield. GGP said if the Brookfield deal doesn’t go through and it completes a transaction with another party at a per share value above $12.75, Pershing Square will be obligated to pay Brookfield 25 percent of its profits from its investment in GGP above $12.75 per share. However, GGP will not be required to reimburse Pershing Square for any amounts paid pursuant to this agreement. Write to Austin Kilgore.