Brookfield Makes a Move for Rouse

Brookfield made an unsolicited $657 million takeover bid for Rouse Properties, hoping to boost its one-third ownership of the retail REIT.
mlagazo digital headshot

Michael Lagazo, Senior Retail Advisor, SVN

U.S. mall operator Rouse Properties is considering an unsolicited $657 million takeover bid from Brookfield Asset Management Inc., as the Canadian company and its affiliates look to boost its one-third ownership of the retail REIT.

The global alternative asset manager made the all-cash offer to purchase Rouse’s outstanding company stock for $17 per share—a 26-percent premium to the closing price of Rouse shares on Jan. 15 and a 19-percent premium to the 30-day, volume-weighted average trading price.

“Our offer provides an attractive opportunity for Rouse shareholders to realize a significant premium to recent public market pricing,” said Brian Kingston, CEO of Brookfield Property Group.

The offer was made Saturday on behalf of a real estate fund managed by Brookfield. The firm and its affiliates own 34 percent of Rouse. Rouse immediately established a special committee consisting of board members Christopher Haley, Michael Hegarty, David Kruth, Michael Mullen and President & CEO Andrew Silberfein. By Monday, the special committee had selected Sidley Austin LLP as its independent legal counsel and BofA Merrill Lynch as its independent financial advisor to assist the committee as it reviews the Brookfield proposal and any other alternatives.

Rouse, a New York City-based REIT, owns 35 malls and retail centers in 21 states, encompassing about 24.1 million square feet. It was spun off with 30 assets from General Growth Properties in 2012 after GGP had emerged from bankruptcy. Brookfield and its affiliates acquired 33 percent of GGP as part of the restructuring deal for the bankruptcy.

Since it was created, Rouse has acquired five more properties and undertaken a multi-million repositioning and redeveloping of many of its properties like NewPark Mall, a 1.1 million-square-foot property with about 150 retailers in Newark, Calif., where it added a 12-screen AMC Theaters and a new restaurant promenade, boosting leasing in 2014 by about 140,000 square feet with the dining and entertainment tenants.

Rouse’s properties are mostly Class B malls located in secondary and tertiary markets, but they are often the only mall in their trade areas and quite successful, said Michael Lagzo, a senior retail advisor with SVN

NewPark Mall in Newark, Calif.

NewPark Mall in Newark, Calif.

“Acquiring Rouse Properties provides Brookfield with synergy, diversification, growth and eliminates competition. Brookfield has four businesses: property, power, infrastructure and private equity,” Lagazo told CPE. “Rouse Properties complements Brookfield’s strengths and business activities. The acquisition sharpens focus and market penetration in retail. New or replacement cost of the Rouse portfolio is likely built into the offer.”

Lagazo said he was surprised about the Brookfield bid when he first heard about it because there had been no signs it was coming. But he said it made sense, noting that Brookfield Asset Management invests about $225 billion in real estate in 30 countries, with the United States being its largest market.

“They are very proficient in identifying operating fundamentals and potential for profit,” he said. “You notice none of the analysts out there are criticizing the acquisition at all.”

He described Brookfield as a “contrarian investor literate in valuing the fundamentals of real assets moving capital where there is opportunity.”

Lagazo said the firm may be “looking across the middle of the category and seeing there is opportunity.”