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GGP Investors Rejoice as Buyout Speculations Hit Headlines

Following a Bloomberg report that outlined a potential buyout of GGP Inc. GGP, shares of the retail real estate investment trust (REIT) ascended more than 16% to $22.10 on Tuesday. 

Per the report that cited a person familiar with the matter, asset manager Brookfield Asset Management Inc. has held preliminary talks with GGP Inc. to increase its ownership stake in the shopping mall investor and take the company private. Both companies have discussed a possible premium of around 10-15% above GGP Inc.’s share price as of the start of the week.

Although the takeover deliberations are in the nascent stage, there is a possibility that the pricing may change or the deal might be called off.

Currently, Brookfield owns 35% stake in the U.S. domiciled company. Brookfield first acquired interest in GGP Inc. to back the company during its troubling bankruptcy times in 2010. In January 2013, it acquired additional GGP warrants and agreed to limit ownership in the company to 45% for four years. In third-quarter 2017, Brookfield’s real estate unit exercised the outstanding GGP warrants, purchasing 68 million shares for a total consideration of $462 million.

The agreement that restricted the asset manager to increase its stake above the threshold limit expired in January 2017. Hence now, the company has complete flexibility to increase its ownership in GGP Inc. and bid for a takeover. 

Interestingly, a report had earlier surfaced in January 2016, according to which Brookfield was considering taking the retail REIT private. Notably, GGP Inc. has a portfolio of high-quality retail properties across prospective locations in the United States and a well capitalized tenant roster as well.

Following the buyout news, other mall REITs like Simon Property Group SPG, The Macerich Company MAC and Taubman Centers, Inc. TCO rejoiced as these companies’ shares also traded higher on the news.

Shares of Simon climbed 2.6% to $159.1 during regular trading session on Nov 7, while shares of Macerichwere up 8.43% to $58.76. Taubman stock also rallied4.97% to $48.6 during yesterday’s trading session. 

The U.S. retail real estate market has been plagued with issues like downsizing and bankruptcies of retailers in recent times. This is because mall traffic has been shrinking considerably amid rapid shift in consumers’ shopping patterns, with e-retail taking center stage. This has emerged as a key concern for retail REITs, like GGP, as the trend is curtailing demand for the retail real estate space significantly, and limiting landlords’ pricing power and occupancy level of properties.

Shares of GGP Inc. have underperformed the industry it belongs to, year to date. The company’s shares have lost 11.1% as against the industry’s growth of 6.8% during the period.

 

Further, GGP Inc. currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Simon Property Group, Inc. (SPG): Free Stock Analysis Report
 
Macerich Company (The) (MAC): Free Stock Analysis Report
 
Taubman Centers, Inc. (TCO): Free Stock Analysis Report
 
General Growth Properties, Inc. (GGP): Free Stock Analysis Report
 
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