Brookfield Property Partners LP is making a bid to absorb Brookfield Office Properties Inc. in a deal that's not likely to face competition and would form one of the world's biggest commercial real estate companies.
A merged Brookfield Property entity would boast $45-billion (U.S.) worth of office, retail and apartment properties if it succeeds in buying the 49 per cent of Brookfield Office it does not own. Holdings include the eight-million-square-foot Brookfield Place New York complex next to Manhattan's World Trade Center and other well-known towers in Toronto, Calgary and London.
Both companies own and manage real estate, but have different focuses. Brookfield Property owns industrial, multifamily and – through its purchase of General Growth Properties in 2011 – retail assets. Brookfield Office's name indicates the company's sole focus.
Ric Clark, who is chief executive officer of Brookfield Property Partners and chairman of Brookfield Office Properties, said the deal creates a company that offers investors a "best-in-class" portfolio of real estate and will help the company to build and acquire new properties more easily.
Brookfield Office shareholders would receive $19.34 a share or one unit in Brookfield Property, which values the transaction at $5-billion. Brookfield Property expects to spend $1.7-billion to buy all of the shares, including those not tendered, through compulsory acquisition.
Shares in Brookfield Office rose 14 per cent on the New York Stock Exchange, closing at $19.07. Brookfield Property closed at $19.38, up 4 cents.
Macquarie Group analyst Rob Stevenson called Brookfield Property's offer too low, "especially given [Brookfield Property's] ownership interest, as well as the fact that 33 per cent of the total consideration will be paid in cash." He said Brookfield Property's 51-per-cent stake in the target could block an approach by another bidder.
"A perceived 'low-ball' offer by [Brookfield Property] or the parent entity, Brookfield Asset Management, has long been a fear of U.S. real estate investors when it comes to [Brookfield Office Properties]," Mr. Stevenson wrote in a research note on Monday.
Combining Brookfield's two real estate companies simplifies the structure of the parent company, Brookfield Asset Management Inc., another Macquarie analyst, Michael Smith wrote in a note to clients.
Mr. Smith agrees the offer is too low but said there is a chance Brookfield Property could raise it to $20.53 to reflect Brookfield Office's net asset value.
The purchase will let Brookfield Property tap Brookfield Office's cash flow, and make up for a shortfall in its cash-versus-distribution ratio that has existed since its spinoff this year from Brookfield Asset Management, Desjardins analyst Michael Goldberg said.
Brookfield Office dates back to the early 1920s, when under a former name it owned the Montreal Canadiens professional hockey team and built the Montreal Forum.
It now owns several prestigious office properties in Canada, Europe and the United States, including Canada Square in London's Canary Wharf, Toronto's First Canadian Place, Calgary's Suncor Energy Centre and 10 properties in Manhattan.
Brookfield Office has been busy in the hot Calgary market, where demand for office space far exceeds supply. The company's two-tower project, 225 Sixth, could include the city's tallest building at 56 storeys and is expected to be ready for tenants by next year.
The company last year made a big push into London, buying three office towers in the city's financial district for $830-million (U.S.). Last week, the company reportedly made its first purchase in San Francisco, with the purchase of a historic office building for $82-million.
Editor's note: Ric Clark's role with Brookfield Office Properties has been corrected in the online version of this story.