Brookfield’s GGP bid bolstered by extra $3.9bn capital raise

Fairholme Capital and Pershing Square have pledged $3.9bn of fresh capital to support a recapitalisation of bankrupt REIT General Growth Property. It follows Brookfield’s equity pledge of $2.63bn last month.

Brookfield Asset Management’s bid to take a 30 percent stake in General Growth Properties was boosted today after two other investors agreed to inject an additional $3.93 billion into the mall REIT.

Mutual fund manager Fairholme Capital Management and hedge fund Pershing Square Capital Management are committing the equivalent of $15 a share into GGP in an effort to help the company emerge from bankruptcy as a stand-alone entity.

GGP said it also expected to issue $1.5 billion of new debt, or reinstate a comparable amount of existing debt, to provide the capital needed to remain a stand-alone corporation. GGP has come under intense pressure from rival REIT Simon Property Group, which bid $10 billion, or $9 a share, for the mall operator in February. The Blackstone Group was reportedly in talks with Simon over its offer.

The proposal from Fairholme and Pershing Square builds on the significant momentum we have created to return GGP to a strong financial foundation for the future.

GGP chief executive officer
Adam Metz

Today’s deal marks will come as a blow to Simon after garnering the support of Fairholme, GGP’s largest unsecured creditor. Simon had won the backing of GGP’s official committee of unsecured creditors with its offer.

GGP chief executive officer Adam Metz said the Fairholme, Pershing offer “builds on the significant momentum we have created to return GGP to a strong financial foundation for the future. Our goal is to raise capital in the most cost-efficient way to maximise value for all of our stakeholders.”

Under the terms of the deal, Fairholme and Pershing would have the right to reduce their equity infusion to $1.9 billion if other equity is available on better terms. Otherwise, the two investors would use $3.8 billion to purchase shares of GGP stock at $10 a share and pump $125 million into a rights offering by General Growth Opportunities (GGO).

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.

The recapitalisation has to be approved by bankruptcy court. Last week, the court granted GGP a four-month extension of its reorganisation exclusivity period, which prevents any other party filing a competing plan. Following the court decision, Simon Property said it had been allowed to start its due diligence of GGP and would “determine our best course of action as we move forward”.