Brookfield to invest 50% of ‘turnaround club’ capital into GGP

Brookfield Asset Management is planning a $2.63 billion equity investment into the bankrupt REIT General Growth Properties that could see the mall operator split in two.

The deal would see Toronto-based Brookfield invest $2.5 billion for a 30 percent stake in GGP, and another $125 million into a new entity to be known as General Growth Opportunities. GGO would own non-core assets, including buildings and land with redevelopment opportunities with little or no current income, while GGP would retain core, income-producing shopping centres.

[This is a] great portfolio of assets in the [retail] industry … that are still generating enormous cash flow. Once recapitalised the assets are expected to have significant growth potential. Brookfield Asset Management spokesman

Brookfield told PERE the equity infusion was being made through its Real Estate Turnaround Consortium, which reportedly garnered commitments from the likes of China’s sovereign wealth fund, the China Investment Corporation, and Australia’s Future Fund. In a 19 February investor letter, Brookfield said it had raised $5.5 billion for the Turnaround Consortium.

Brookfield’s bid values GGP shares at $15 a share, compared to a rival $9-a-share offer from Simon Property Group.

GGP said today in a statement the Brookfield recapitalisation would “create a floor value” for the firm, allowing it to target a further $5.8 billion in capital raising. GGP said it would raise the extra cash through new rights offerings, asset sales and limited new debt issuance.

By becoming the “stalking horse” bidder, Brookfield would also be given the right to purchase 60 million shares of existing GGP common stock at $15 a share over the next seven years. However, as GGP said: “The plan is subject to definitive documentation, approval of the bankruptcy court and higher and better offers pursuant to a bidding process to be approved by the bankruptcy court.”

GGP has publicly fought against a rival $10 billion offer from Simon to take over the REIT, saying previously Simon's bid was “not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 [bankruptcy protection] and maximise value for all [GGP] stakeholders”. Simon’s bid has the backing of unsecured creditors, while the Brookfield-sponsored recapitalisation has the backing of GGP’s largest shareholder, William Ackman’s Pershing Square Capital Management.

The recapitalisation plan would see GGP split in two, with its core, income-producing assets remaining under the GGP umbrella and non-core assets coming under a new GGO group. Among the more than 40 assets that GGO would own include the South Street Seaport mall in New York, California’s Village of Redlands and the air rights of GGP’s famed Las Vegas shopping centre the Fashion Show mall.

A Brookfield spokesman said GGP had done a “phenonmenal” job of reorganising itself during the bankruptcy process adding that the deal was a good opportunity to invest in a “great portfolio of assets in the [retail] industry … that are still generating enormous cash flow. Once recapitalised the assets are expected to have significant growth potential.”

Bloomberg also reported today that Simon Property signed a non-disclosure agreement to receive information from GGP to help aid its bid. Citing a person with knowledge of the agreement, the report said Simon would be allowed to talk with potential partners about a bid, something GGP had previously barred. Simon is reportedly in talks with The Blackstone Group over a possible co-investment.