BPY Boosts General Growth Stake by $1.4B

HAMILTON, BERMUDA-Brookfield Property Partners LP is increasing its ownership of General Growth Properties to 32%, announcing Friday that it will buy additional shares and warrants for $1.4 billion. It's part of a broader reorganization of the consortium led by Brookfield Asset Management Inc. through which BPY owns its interest in Chicago-based GGP, the second largest mall owner in the US.

BPY will fund the transaction by issuing $435 million of BPY units to Investment Corp. of Dubai and other institutional investors and $995 million of redeemable-exchangeable units of a BPY subsidiary to BAM. BPY will continue to be part of a consortium of institutional investors that collectively owns about 40% of GGP. In addition, BPY will acquire 1.1 million common shares of Rouse Properties Inc.—spun off from GGP in 2012—from certain consortium members and BAM.

This transaction will afford BPY greater exposure to “one of the highest quality shopping center portfolios in the world at an attractive valuation,” says Ric Clark, CEO of Brookfield Property Group. “As a result of this and GGP's strong organic growth prospects, we believe that the investment will earn a return that exceeds our target range of 12% to 15%.”

BPY notes that GGP, which emerged from bankruptcy in November 2010, has increased same-store sales by an average of 5% per year over the past five years by improving tenant mix, rolling over leases at market prices and increasing occupancy at its 123 malls. Additionally, GGP has a redevelopment pipeline of approximately $2 billion, which is expected to earn unleveraged returns between 9% and 11%.

On Monday, GGP announced third-quarter results that bore out BPY's confidence. Funds from operations rose 25.8% year over year to 29 cents per diluted share. Same-store NOI increased 6.8% to $521 million from $488 million the year prior, while net income for Q3 was $27.5 million, compared to a $208-million loss for the same quarter last year.