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Brookfield Proposes to Acquire GGP for $14.8 Billion

Brookfield Property Partners LP (NYSE:BPY) (TSX:BPY.UN) has made a non-binding proposal to acquire GGP Inc. (NYSE:GGP) beyond the 34% it already owns.

Brookfield would pay $23/share payable in cash and stock at a total value of $14.8 billion.

The proposal represents a premium of 21% to the unaffected closing share price of GGP’s common stock of $19.01 on Nov. 6, 2017, prior to when rumors of such a deal began circulating.

As of Sept. 30, GGP owns full or partial interest in 126 retail properties totaling about 125 million square feet.

Looking only at the highest-quality assets in its retail portfolio, Brookfield Property reported that if thinks that 75 of the 126 properties are of the “highest quality.” Same-store NOI at those 75 was up 4% in the third quarter.

Occupancy across the entire portfolio increased 80 basis points year over year to 95.4%.

“These positive results demonstrate that well-located, high-quality retail real estate in the U.S. continues to perform well, despite negative perception in the public markets,” Brookfield reported to shareholders last week. “While some retailers continue to face significant challenges in growing their businesses, those retailers focused on the intersection of bricks and mortar retail with online sales channels continue to expand and grow. This growth is evident from the nearly 10 million square feet of leasing we have completed so far in 2017, which is up from 9.5 million square feet for all of 2016.”

GGP has continued this year to acquire big-box anchor spaces in its malls and reposition them.

“We can earn excellent returns doing this and it is one of the best opportunities in U.S. retail today,” Brookfield reported. “In this regard, we recently acquired, either directly or via lease termination, 21 Sears locations attached to GGP and Rouse malls for $314 million. As Sears continues to rationalize its real estate assets, we are able to further invest in our malls and convert these spaces into higher-paying junior box uses and inline tenants. On many of these projects we are projecting levered returns of more than 20% on our invested capital.”

If approved, the GGP transaction would create in Brookfield Property one of the largest listed property companies in the world, with an ownership interest in almost $100 billion of real estate assets globally and annual net operating income of approximately $5 billion.

“Brookfield’s access to large-scale capital and deep operating expertise across multiple real estate sectors combined with GGP’s high-quality retail asset base will allow us to maximize the value of these irreplaceable assets,” said Brian Kingston, CEO of Brookfield Property Group.

GGP has formed a special committee of its non-executive, independent directors to review the proposal.

Goldman Sachs & Co. is serving as financial advisor and Simpson Thacher & Bartlett LLP is serving as legal counsel to the special committee. Citigroup Global Markets Inc. is serving as financial advisor and Sullivan & Cromwell LLP is serving as legal counsel to GGP.

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