TORONTO – Brookfield Property Partners LP (TSX:BPY.UN) plans to buy Brookfield Office Properties Inc. (TSX:BPO) in deal that will turn it into one of the world’s largest commercial property companies.
Brookfield Property Partners, which already owns a 51 per cent stake in Brookfield Office Properties, has offered one unit of Brookfield Property Partners or US$19.34 in cash for each BPO share, in a deal that values that company at US$5 billion.
It’s a combination Brookfield Property Group chief executive Ric Clark said would create “a diversified portfolio of best-in-class real estate for investors seeking attractive risk-adjusted returns, through income and capital appreciation.”
“We believe this transaction will consolidate our global office properties under one platform and substantially increase Brookfield Property Partners’ public float, which should help accelerate our growth strategy,” said Clark.
The amount of cash offered under the deal is limited to US$1.7 billion or roughly one-third of the offer, while the number of units is capped at 174 million.
For shareholders of Brookfield Property Partners, the commercial real estate unit that Brookfield Asset Management Inc. (TSX:BAM) spun off earlier this year, the deal will mean increased trading liquidity, more exposure to office properties and reduced costs.
Desjardins Securities analyst Michael Goldberg said the deal was positive for the larger Brookfield Asset Management, noting it would make Brookfield Property Partners the “pre-eminent listed property investment vehicle” in the Brookfield Group.
“The transaction would help BPY to overcome a catch-22 predicament it has faced since being spun off by BAM,” he said in a note to clients.
“Investors have known that BPY has to acquire something in order to deliver growth, but they have also known that BPY would have to issue a significant number of units in order to do so. However, they did not know what BPY would acquire and whether it would be dilutive.”
But Rob Stevenson, an analyst with Macquarie Securities Group in New York, said he viewed the offer fro BPO as “too low,” especially given the ownership interest held in BPO by Brookfield Property Partners and the fact that 33 per cent of the total consideration will be paid in cash.
“A perceived low-ball offer by BPY or the parent entity Brookfield Asset Management has long been a fear of US real estate investors when it comes to BPO,” Stevenson said in a note to clients.
He also cautioned that Brookfield Property Partners ownership interest in BPO could “effectively block other bids.”
“While we view this proposed deal as a no-brainer for BPY (especially given its liquidity issues), we think BPO is worth considerably more than this offer,” he said.
New York-based Brookfield Office Properties said Monday its board of directors had established a special committee to “review and consider the proposal.”
“Shareholders of Brookfield Office Properties do not need to take any action with respect to the proposal at this time,” it said.
Shares in Brookfield Office Properties closed up C$2.45 at C$19.74 Monday, while units of Brookfield Property Partners finished a penny lower at $19.99.
Brookfield Office Properties owns a portfolio of office buildings in the U.S., Canada, Australia and Britain.
Bermuda-based Brookfield Property Partners has interests in more than 300 office and retail properties, 20,000 multi-family units, 62 million square feet of industrial space and a 19-million-square-foot office development pipeline. Once the deal closes, it will have $45 billion of assets.
Brookfield Property Partners named John Stinebaugh as its new chief financial officer on Friday. He was previously CFO of the Brookfield Infrastructure Group, where he was replaced by Bahir Manios.
Brookfield is one of Canada’s largest asset managers, with investments in a wide number of publicly traded entities primarily focused on real estate, power generation and natural resources, particularly in the forestry sector.