The other major strategic point is that the Brookfield universe of companies is well-capitalized and could fund all GGP's redevelopment projects at a cheap cost of capital.
However, the primary reason that Brookfield wanted to acquire GGP was price. The following slide is from Brookfield's analyst day and shows how the company was able to acquire GGP after the industry as a whole saw stock prices decline in reaction to the troubles in the retail industry.
Brookfield's decision to acquire GGP was clearly a contrarian one given the state of the industry and where stock prices traded. This past year has continued to be a difficult time for the shopping mall industry. Several more high-profile retailers have filed for bankruptcy, including Sears Holdings and Bon-Ton. Other retailers, including Ascena Retail Group and Gap , have announced more store closures at an aggressive rate.
As a result, the shopping center stocks have continued to trade lower, and Brookfield Property REIT has not been an exception to this trend. BPR data by YCharts. These metrics show that Brookfield's shopping centers are still quite healthy and are continuing to experience rental revenue growth. Brookfield's healthy metrics can largely be explained by the types of malls it operates.
The company focuses on luxury malls , which are generally located in dense urban areas with high foot traffic and in close proximity to high-income households.
Luxury malls have outperformed suburban malls because sales per square foot have continued to grow, attracting tenants willing to pay higher rents. The Bucksbaum brothers ran their businesses from offices located in Des Moines. REITs were a relatively new creation, established by Congress in as a way for small investors to become involved in real estate in a manner similar to mutual funds. REITs could be taken public and their shares traded just like stock. They were also subject to regulation by the Securities and Exchange Commission.
Unlike companies issuing stock, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year. Because REITs were allowed only to own real estate, third parties, such as General Growth Companies, had to be contracted to manage the properties. Because of a number of factors, REITs at this stage in their history did not gain much favor with the investment community.
Starting in the Bucksbaums began to believe that the market was not fairly recognizing the true value of GGP. When the prices for retail properties improved significantly in the early s they decided to sell GGP's portfolio of 19 shopping centers. Three years later the company acquired the assets of The Center Companies, a deal that in turn made General Growth Management the second largest manager of regional shopping malls and the leading manager for institutional owners.
Tax shelter schemes that had drained potential investments were shut down. Interest and depreciation deductions were greatly reduced so that taxpayers could not generate paper losses in order to lower their tax liabilities. The act also permitted REITs to provide customary services for properties, in effect allowing the trusts to operate and manage the properties they owned.
Despite these major changes in law, REITs were still not fully utilized. In the latter half of the s banks, insurance companies, pension funds, and foreign investors in particular, the Japanese provided the lion's share of real estate investment funds. That period also witnessed overbuilding, leading to a shakeout in the marketplace.
With real estate available at distressed prices in the early s, REITs finally became an attractive mainstream investment option. In the Bucksbaums packaged 55 percent of General Growth Partners' assets into a new REIT using the old GGP name in order to take the business public and look for acquisition opportunities--in particular poorly run malls whose management could be improved and facilities updated.
The Bucksbaum family retained the remaining 45 percent of the General Growth Partners' holdings. The real estate investment trust may be acquired by Brookfield Property Partners. Latest Business. Former suburban tech CEO sentenced to 30 days behind bars for role in U.
Capitol breach. Rivers Casino at The 78 would include observation tower and boat docking for proposed South Loop casino. Most Read. Rex Huppke Column: Kyle Rittenhouse, found guilty or not, should disgust us all. Brookfield plans to create a new real estate investment trust under the ticker "BPR," which will qualify as a REIT for tax purposes and issue shares in this transaction. Like its peers in the industry, GGP has been increasingly pressured by investors as retailers shutter stores in malls and landlords are forced to act quickly, filling the gaps.
There is little appetite for a portfolio of malls in this environment.
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