Brookfield seeks to take real estate arm private in $5.9bn deal

Investment group offers near 15% premium to December share price of US mall operator

Brookfield Asset Management has made an offer to take private its real estate arm Brookfield Property Partners, one of America’s biggest mall operators, in a $5.9bn deal.

The Canadian investment group has offered $16.50 in cash for every share in the property arm it does not own, indicating a near 15 per cent premium on its trading price as of December 31. Investors in the group can also opt to receive 0.4 of Brookfield Asset Management’s stock or 0.66 of Brookfield Property Partners’ preferred units per share in lieu of cash.

“The privatisation will allow us to have greater flexibility in operating the portfolio and realising the intrinsic value of BPY’s high-quality assets,” said Nick Goodman, chief financial officer at Brookfield Asset Management.

Brookfield’s decision to de-list its property business comes as US real estate companies have taken a huge hit during the coronavirus pandemic, with government-imposed lockdowns and the shift to working from home dramatically reducing occupancy in offices, as well as footfall across brick and mortar retailers.

Since governments issued restrictions to curb the spread of coronavirus in March 2020, there have been mass defaults on property leases as some tenants stopped paying rent in a desperate effort to shore up cash.

The property crisis has had ripple effects throughout global markets. Brookfield Property Partners’ share price dropped more than 50 per cent in April and has only recently started to recover as restrictions on businesses such as malls and restaurants were partially lifted.

Brookfield said in September that it planned to sell an undisclosed number of properties as part of a drastic overhaul. It disclosed in June that it had only collected 35 per cent of the rent due on its retail properties in the second quarter.

The Canadian asset manager was forced to renegotiate a $6.4bn credit facility with lenders in July and offer sweeping concessions to banks that had made loans to its property arm, which included revised terms that imposed restrictions on its dividend payments.

The group, which is best known for investments in office properties such as Canary Wharf in London and Lever House in New York, added more than 100 malls to its portfolio following its 2018 merger with Growth Property Partners.

Brookfield Properties chief executive Brian Kingston told investors later that year that about 100 of the malls would be “future-proof[ed] . . . [by] introducing other uses and effectively turning them into mini-cities”.