LAS VEGAS--(BUSINESS WIRE)--UNITE HERE released a report today questioning whether units in Brookfield Property Partners (NASDAQ: BPY) are a good trade for GGP Inc. (NYSE: GGP) shareholders or whether they would be better served not only with a higher offer, but one that is all cash. BPY’s $14.8 billion initial offer to buy out the remainder of Class A mall REIT GGP is comprised of half cash and half equity. The equity is in limited partnership units of BPY, the commercial real estate spin off of Brookfield Asset Management (NYSE: BAM).
GGP shareholders certainly should weigh whether BPY’s first offer is adequate. BPY’s initial bid is $23 per GGP share, which is a 23% discount to its own valuation of the shares. The UNITE HERE report, however, looks beyond the offer and at the BPY units themselves.
“GGP shareholders should not only scrutinize the offer, but also the equity side of the deal,” said Maya Holmes, a research director with UNITE HERE. “BPY’s value could be hindered by its externally advised structure, BAM’s control of the property company, and the myriad related party transactions and potential for conflicts of interest with BAM. To avoid any vulnerability from BPY’s structure, GGP shareholders should consider demanding an all-cash offer.”
The report raises concerns that Brookfield Asset Management will retain a significant economic interest in and control over BPY. Brookfield Asset Management is not restricted from competing with BPY.
GGP shareholders should also scrutinize the fees BAM extracts from BPY, according to the report. For fiscal years 2014-2016, Brookfield Property Partners paid BAM affiliates $365.5 million in management fees and incentive distributions. The management agreement under which BPY pays these substantial fees “continues in perpetuity” and “may not be terminated by the BPY General Partner due solely to the poor performance or the underperformance of any of our operations.”
The report asks a key question for GGP shareholders beyond the structure of BPY: Why exactly would the markets start recognizing the value of GGP’s Class A mall assets under the BPY flag if not under the GGP banner?
Click here for the report.
UNITE HERE represents 270,000 working people across North America. Our members are beneficiaries of pension funds with over $60 billion in assets. Since 2012, we have pursued a program of improving corporate governance practices at listed companies.