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Analysts “Disappointed” on BPY and GGP Pricing


As The REIT Wire posted, BPY and GGP Inc. entered into a definitive agreement for BPY to acquire all of the outstanding shares of common stock of GGP other than those shares currently held by BPY and its affiliates. And according to multiple analysts looking at the deal, pricing is disappointing.

In looking at the transaction details, GGP shareholders will be entitled to elect to receive, for each GGP common share, either $23.50 in cash or either one BPY unit or one BPR share.  Elections are subject to proration which will be based on aggregate consideration in the transaction of (1) a fixed amount of $9.25 billion in cash and (2) approximately 254 million BPY units / BPR shares, which represents aggregate consideration of approximately 61% cash and approximately 39% of BPY or BPR equity.

The cash portion of the consideration will be funded by a combination of approximately $4 billion from joint venture equity partners, and financings from a syndicate of lenders led by Deutsche Bank, Morgan Stanley, RBC Capital Markets and Wells Fargo Bank, National Association, with additional commitments from Bank of America Merrill Lynch, Barclays, HSBC, SMBC, and The Toronto-Dominion Bank.

In conjunction with and in support of the proposed transaction, BAM has stated in a prepared statement, its intention to convert $500 million currently held in BPY Class C Junior Preferred Shares into BPY units at a price of $23.50 per unit, resulting in BAM’s acquisition of approximately 21.3 million BPY units.

Analyst RBC Capital markets says that the pricing is below their expectation. “We think it’s a positive that BPY was willing to increase the cash consideration and the agreement represents a premium to yesterday’s close.  However, the terms of the agreement are below our target price and the average sell-side target, which suggests to us a reset lower for pricing of high-quality mall portfolios.”

Mizuho Securities said in their report that “While the offer is neither exciting for GGP shareholders nor a good read-through for mall asset values, we think it has a better than not shot of getting approved given the significant turnover in GGP’s shareholder base over the past year (lower cost base), negative industry / asset value trends and lack of a competing bid. Net-net, we don’t expect this deal to provide much of a boost to Mall REITs once the initial buzz wears off and investors better understand the deal’s moving parts and implications.”

And according to BMO Capital Markets, BPY first made an offer for GGP in November but BPY sweetened its bid a bit, including a modest price bump (+2%) and higher cash component (~61%, from 50%). “We expect final pricing could disappoint (we estimate a 5.8% implied cap rate). However, given current market conditions, and lack of competing bid, it shouldn’t necessarily be too surprising either. We ultimately think the revised bid will be enough to get the deal done based on numerous prior conversations with shareholders.”

BMO continues that pricing is “a little disappointing,” noting that BPY raised its offer a modest 2% to $23.50, an 11% premium. “At the deal price, this represents a 7% discount to our NAV, and 16% discount to consensus NAV. Furthermore, we estimate a 5.8% implied cap rate. While we expected a deal to be reached, including a higher price and cash component, we expect final pricing is likely to disappoint. However, given current market conditions, and lack of competing bid, it shouldn’t necessarily be too surprising either.”

But some firms are investigating the pricing offer on behalf of investors in GGP. Wolf Popper LLP and another firm, Rowley Law PLLC, for example, are two companies who have said they are investigating a “breach of fiduciary duty concerning the proposed acquisition.”

The REIT Wire will follow and update readers as we learn more.