Brookfield to use GGP as primary mall platform

General Growth Properties would become the primary mall acquisition platform for Brookfield Asset Management, if its stalking horse bid for the bankrupt REIT is approved by bankruptcy courts.

In unveiling a revised offer from a Brookfield-led consortium of investors, GGP said the Toronto-based real estate fund manager and investment firm would use the mall REIT as its “primary platform for any regional mall opportunities it or one of its affilates pursues in North America”.

In setting out the strategic partnership agreement, Brookfield also promised to help GGP source “global opportunities through [its] institutional relationship”. GGP is eyeing a recapitalisation to help it emerge from Chapter 11 bankruptcy protection.

A “free” financing proposal would be better than one that includes the cost of the warrants. But all things are not equal here. GGP

GGP submitted a revised recapitalisation offer with US bankruptcy court on Monday, saying the slightly improved bid from Brookfield, which includes co-investment capital from Pershing Square Capital Management and Fairholme Capital Management, “outweighed” a rival bid from the US largest mall REIT Simon Property Group.

One of the main changes related to the issuance of 120 million warrants, with Brookfield agreeing to pay a slightly higher strike-rate for the seven-year warrants, and allowing them to vest over an extended period, rather than immediately following bankruptcy court approval of any deal.

Simon has argued its bid is less expensive, as it does not call for the issuance of any warrants. However, in its filing, GGP said not withstanding the cost of the warrants – which it estimates at just more than $500 million – accepting a minority investment from Simon Property would not only result in a “one-horse race” but also raised questions about the REIT's “future intentions” as regards its smaller rival.

“A “free” financing proposal would be better than one that includes the cost of the warrants. But all things are not equal here,” GGP said in its filing.

131 firms have express interest in investing in GGP, with 94 firms sending request for proposals and 18 parties eventually signing confidentiality agreements.

A hearing has been set for Wednesday that could grant plan stalking-horse status, meaning that it will set the baseline for competing bids.

Simon has been actively trying to win over the bankrupt mall REIT since first offering $10 billion to take over GGP entirely in February. That initial offer was rejected by GGP and last month, Simon offered the same recapitalisation terms as the Brookfield-led plan but without the warrants.

Simon has already attracted co-investment capital from RREEF, ING Clarion’s real estate securities arms and hedge funds Oak Hill Advisors and Taconic Capital Advisors. The Blackstone Group is also talking with Simon about joining forces with the investors.

GGP, the US’ second largest retail REIT with shopping malls in 44 states, filed for bankruptcy last April, taking down with it 166 regional shopping centre subsidiaries despite the fact the subsidiaries were structured as “bankruptcy-remote” entities.

In the court documents, GGP said 131 firms had express interest in investing in the REIT, with 94 firms sending request for proposals and 18 parties eventually signing confidentiality agreements.

In response to the revised Brookfield deal, Simon has submitted a “whole company transaction proposal” for GGP, which is being studied by General Growth's board, the court filings added.