What happened
Actions of Brookfield Property Partners (NASDAQ: BPY) has risen almost 19% since the start on January 4. The real estate investment fund (REIT) structured shares of the same entity, known as Brookfield Property REIT (NASDAQ: BPYU), jumped about 15%. Both movements were directly related to an announcement from Canada Brookfield Asset Management (NYSE: BAM), which effectively manages the partnership and REIT.
And
Brookfield Asset Management offered the private capital of Brookfield, buying the shares it did not yet own for a total value of US $ 5.9 billion. Unit holders can choose to receive a combination of Brookfield Asset Management shares (0.4 shares), cash or preferred shares. The total value per share of the deal is $ 16.50.
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Brookfield Property Partners’ units fell by about 20% in 2020, thanks to large concentrations in the shopping and office sectors (combined around 85% of rentals). Both were hit hard by the coronavirus pandemic, so the fall in prices last year makes perfect sense. That said, Brookfield Asset Management has a long history of opportunistic investments in disadvantaged sectors and persistence in its acquisitions until things get better. With Brookfield Property Partners devalued in 2020, it is likely that Brookfield Asset Management is looking to eliminate the hassle of dealing with public markets while waiting for a turnaround or perhaps trying to buy assets it considers cheap. It would not be shocking if it were a combination of these two factors.
What now
Obviously, it is still at the beginning of the acquisition process and the relationship between Brookfield Property and Brookfield Asset Management increases the complexity here. That said, it would be difficult to suggest that investors sitting at a huge loss in 2020 should not at least welcome the offer. On the other hand, after today’s price gain, there are probably not many additional advantages at Brookfield Property, but some notable disadvantages if the business fails. It is worth keeping that in mind when considering Brookfield Asset Management’s proposal.