(Bloomberg) -- Brookfield Asset Management Inc. and a group of investors have offered to acquire the stake in Brookfield Property Partners that they don’t already own, in a $5.9 billion bid to take the real estate company private.
The Canadian alternative-asset manager said it has made a proposal to acquire the outstanding units for $16.50 each, or about a 14% premium to Thursday’s closing price in New York. Brookfield Asset Management already owns about 60% of Brookfield Property Partners, which had a market value of $13.8 billion as of Thursday’s close.
Units of Brookfield Property Partners jumped as much as 18% to as high as $17.14 apiece in New York trading Monday, after an earlier Bloomberg News report.
Privatizing Brookfield’s real estate subsidiary is appealing because it has consistently traded at a discount to the underlying value of its assets, Nick Goodman, Brookfield Asset Management’s chief financial officer, said in an interview.
“We believe that it has been consistently discounted for more than just the past year,” Goodman said. “We believed it would be a premium offering to the market given it has a unique global portfolio and some of the highest quality real estate in the world. But it has consistently struggled to trade at its net asset value.”
While Brookfield Property Partners traded at all-time lows in March, near the beginning of the Covid-19 pandemic, Brookfield waited until the unit price had stabilized to push ahead with the privatization effort, Goodman said.
The stock also trades at a discount because a lot of the company’s value has been created through the development of long-term projects like New York’s Manhattan West, part of the Hudson Yards redevelopment, Goodman added. Such projects can take years to start generating returns for investors.
“We’ve just built more conviction over time that the right form for this is in the private markets,” he said.
Under the proposal, investors in Brookfield Property Partners can either elect to take the $16.50 per unit in cash, or instead choose 0.4 of Brookfield Asset Management’s stock, or 0.66 of Brookfield Property’s preferred units. Holders of Class A stock in Brookfield’s other publicly traded real estate entity, Brookfield Property REIT Inc., can participate once they exchange their shares for Brookfield Property Partners units.
Brookfield Property Partners and Brookfield Property REIT acknowledged they had received the proposal in a separate statement Monday. Brookfield Property Partners has formed a special committee of independent directors to review the offer, and it said investors don’t need to take any action at this time.
Any transaction would be subject to a vote requiring approval from the majority of minority holders, Goodman said.
The proposal within the current market should be attractive to both Brookfield Property investors and Brookfield Asset Management, according to Dean Wilkinson, an analyst with CIBC Capital Markets. Brookfield Property’s management has tried for years to narrow the trading discount to no avail, in part, because some of its assets in the portfolio, namely U.S. malls, have been a roadblock in realizing a higher, more appropriate valuation, he said.
Wilkinson said he saw no catalyst that would improve the situation. Given the gulf between the offer price and the value of underlying assets, he said there should be room for “modest negotiations.”
“Such a negotiation is in keeping with prior transactions within the Brookfield family of companies,” he said in a note to clients Monday. He raised his price target to $17.50 accordingly.
Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world. At the end of September it had about $88 billion in total assets, including developments like London’s Canary Wharf and Brookfield Place in New York. In 2018, Brookfield acquired GGP Inc., the second-largest mall operator in the U.S., for about $15 billion.
The pandemic has taken its toll on the company as widespread stay-at-home orders keep workers away from offices and shoppers away from malls. Brookfield Property Partners shares have fallen more than 20% over the past year, though they’ve bounced back to double from their March lows.
Brian Kingston, chief executive officer of Brookfield’s real estate group, said in a letter to unit holders in November that he believed the worst of the crisis is now behind the company, and that he continued to see signs of recovery from the economic shutdown.
(Updates with analyst’s comment in 12th paragraph)
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