Brookfield Asset Management Offers All Cash for Rouse Properties -- Update

By Ben Dummett 

Canada's Brookfield Asset Management Inc. said Tuesday it made an all-cash unsolicited offer to buy the majority stake of Rouse Properties Inc. that it doesn't already own for about $657 million, taking advantage of the U.S. mall operator's depressed valuation.

New York-based Rouse, which operates 35 malls across the U.S., said it received the offer from the Canadian asset manager on Saturday and formed a special committee to consider it.

Brookfield oversees $123 billion in commercial and residential real estate, spread across North America, parts of Europe, Asia and South America. Its bid for Rouse underscores the Toronto-based company's focus on using its financial muscle and scale to acquire out-of-favor real-estate assets.

The offer comes at a time when the stocks of Rouse and many other U.S. shopping-mall rivals are under pressure amid concerns their earnings are at risk due to overbuilding and the rise of e-commerce.

The amount of retail space in the U.S. peaked at 50 square feet per person before the financial crisis, but has been falling since then because while malls are closing, excess supply is preventing developers from building new ones, said Suzanne Mulvee, a director of research at CoStar Group Inc., a real-estate consultant.

Still, Rouse has fared reasonably well even as its stock price has slumped, benefiting from moves to redevelop some of its malls to boost sales and giving up on some money-losing operations.

For the first nine-months of 2015, Rouse generated operating income of $38.2 million, surpassing the $31.4 million it produced in all of the prior year. Even so, its stock price, before a surge Tuesday, is down about 30% over the past year.

"Brookfield could use Rouse as a platform to consolidate the sector, providing capital to acquire and redevelop assets and portfolios," said Floris van Dijkum, an analyst at Boenning & Scattergood, said.

A Brookfield spokesman declined to comment.

Rouse was created in 2012 from a spinoff of a portfolio of 30 malls by General Growth Properties Inc., of which Brookfield owns a 33% stake. It acquired that stake by leading a $30 billion restructuring of the mall owner to help it emerge from bankruptcy protection in 2010. General Growth currently has a market value of about $23.9 billion.

Brookfield already owns about 33% of Rouse's shares outstanding. It is offering $17 a share for the stake it doesn't own, which represented a 26% premium to Rouse's closing price Friday.

The bid values Rouse at about $1 billion.

Rouse closed up almost 30% in U.S. trading on Tuesday at $17.50, indicating that investors expect Brookfield to raise its offer.

The "proposal may be a starting point for negotiations," KeyBanc Capital Markets said in a report.

Write to Ben Dummett at [e-mail]

(END) Dow Jones Newswires

January 19, 2016 18:35 ET (23:35 GMT)

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