Deal for Ala Moana Center’s majority owner seen as underpriced, bad for malls

Brookfield Property Partners LP’s deal to take over retail landlord GGP Inc., the majority owner of Ala Moana Center, is “wholly inadequate,” “a negative for the sector” and “neither exciting for GGP shareholders nor a good read-through for mall asset values.” In fact, “investors should vote against the transaction as it does not offer sufficient value.”

Those are the initial conclusions of Wall Street analysts examining Brookfield’s agreement to buy the 66 percent of GGP that it doesn’t already own. Shareholders of GGP, the second-largest U.S. mall owner formerly known as General Growth Properties, will receive $23.50 in cash, one Brookfield unit or a share of a new real estate investment trust for each share they own, according to a statement Monday. The cash consideration is $9.25 billion with 61 percent of the deal in cash and 39 percent in equity, the companies said, and the total value of the acquisition is almost $15 billion, according to data compiled by Bloomberg.

Mall owners are trying to stay relevant as brick-and-mortar retailers shut down stores at a record pace, hammered by the rise of Amazon.com Inc. and other online retailers. Brookfield’s deal for GGP, which owns 63 percent of Ala Moana Center, follows an agreement in December for Australia’s Westfield Corp., which has malls across the U.S., to be acquired by Unibail-Rodamco SE. Meanwhile, Macerich Co. and Taubman Centers Inc. have faced pressure from activist investors.

The bid is dragging down the stock price of retail REITs across the board.

For GGP stockholders, the question is whether Brookfield Property, a unit of Brookfield Asset Management Inc., is underpaying them for their shares. In a note to investors late Monday, BTIG LLC analysts James Sullivan and Ami Probandt estimated the value of the new offer at $21.90 a share, below estimates of $28.06 to $32.93 a share for the net asset value of GGP’s holdings. The offer is “wholly inadequate,” they wrote.

“GGP management has clearly stated on numerous occasions to shareholders that its assets are worth substantially more than where its shares are currently trading,” Sullivan and Probandt said. The mall owner’s shares closed at $21.21 on Monday, before the agreement was announced. “We recommend that GGP’s independent shareholders reject the new offer.”

GGP’s stock fell 5.3 percent, or $1.13, today to $20.08. Brookfield’s shares slipped 20 cents, or 1 percent, to $19.19.

Despite the disappointing price, shareholders will probably accept the offer, according to Green Street Advisors LLC. The real estate research firm puts the odds of a deal being completed at 90 percent.

“Though the ultimate outcome of the long-awaited BAM (via BPY)/GGP marriage leaves much to be desired, it is difficult to conclude that shareholders are better off rejecting and waiting for a better offer down the line,” Green Street analysts led by DJ Busch said in a report today.

Brookfield’s proposed takeover is subject to the approval of GGP shareholders representing at least two-thirds of the company’s outstanding stock and shareholders representing a majority of the GGP stock not owned by Brookfield and its affiliates. The deal is scheduled to close early in the third quarter.