Brookfield Property Partners (BPY) – Tender Offer – 9% Upside

Current Price: $10.97

Offer Price: $12.00

Upside: 9%

Expiration Date: 28th of August

Offer Document

 

In parallel to the BPYU, BPY has also launched a similar tender offer (17% of outstanding units at $12/unit) but without odd-lot provision. Given the much larger size of the company (compared to BPYU) and the results of the last year's tender offer (significantly undersubscribed), it seems like the chances of BPY offer ending up undersubscribed again are quite high. At current prices, the situation offers a 9% upside if all tendered shares are accepted in the offer.

In their Q1 letter to shareholders (8th of May) BPY states that it expects the impact on the office portfolio to be temporary, while retail assets will have "the greatest impact from the COVID crisis, with the majority of our retail properties having been closed for over a month now". Despite that, the company claims to be well-positioned to withstand any short term downfalls in cash flow due to its strong liquidity position and high-quality assets and overall states that its share price is "disconnected from the performance of our underlying assets". The current buyback (and its size) seems to firmly back up this statement.

However, the risk of not getting all of the tendered shares accepted still remains and in light of the COVID-19 situation and its impact on the retail & office real estate industry, more investors might be incentivized to cash out compared to the last year. After all, the current offer comes at 35% discount to BPY pre-COVID trading price, while the Dow Jones US Retail REIT index is currently down 44%. Meanwhile, the largest office REIT Boston Properties (ticker: BPX) is down 41%.

BPY business:

  • 85% of the balance sheet are premium retail and office portfolios (60%/40% FFO split).
  • 15% - investments in various real estate funds (office, retail, hospitality, and manufactured housing).

BAM has a 55% economic interest in BPY and will not participate in the transaction. If the tender is fully subscribed, BAM ownership will increase to 63%. The only other major shareholders besides BAM is Qatar Investment Authority, which holds 7% stake.

8 COMMENTS

  1. Terence

    BPY and BPYU: thanks for posting, Llja.

    BPY’s last tender price was a range of $19 to 21, and it was trading around $19.50 to $20, days before the deadline of 3-25-2019. So not a sure gain, and this might explain why it was undersubscribed. Compare with current offer of $12 when stock is trading at $11, a sure gain if no proration.

    https://www.sec.gov/Archives/edgar/data/1545772/000110465919007111/a19-4058_7ex99da1a.htm

    BPY market cap is $10b, with a dividend yield of 12%. There are preferreds (BPYPP, BPYUP, BPYPO, etc) which are yielding 8.5-10%, not much lower, and presumably they are much safer since the common stock has to get wiped out first before the preferreds are impaired.

    Wonder if anyone is interested in this area?

  2. DavidW

    Please correct me if I’m wrong. But as I understand it BAM owns 55% of 510.8M shares outstanding (https://www.bamsec.com/filing/154577220000011/3?cik=1545772&table=35). So that means BPY is buying ~74M on a total of ~230M shares. For this deal to be attractive at current price you can get away with about 30% of your shares not getting accepted. That means you need <50% of shareholders to tender.

    How do you go about estimating this? As Terence mentioned this tender is not at all comparable to the previous one. For me to buy this I need a convincing argument <50% shareholders will tender.

  3. g4734g

    David, when you say you can get away with 30 percent of shares not accepted and still be attractive, what assumption are you making on the post tender price of BPY? I’m having a bit of trouble following your train of thought.
    50% proration would not be out of the ordinary for a 7-8% gain, ( again depending what “the market” believes the post tender pricing will be) ……..I concur with previous post, can’t really compare this deal to their previous offer which looks like it was a modified dutch….thank you

  4. Ilja

    With shares now trading above the offer price, the idea is closed with a 10% return in 1 month.

    1. Zulu Investor

      Hi Ilja, I participated in the odd lot tendering for BPYU, but for general tendering, could one attempt to estimate the amount of possible proration in order to hedge/protect themselves by selling short a certain percentage of their shares that they feel will not be prorated? Either that or buying put options if available.

      1. dt

        My 2 cents:
        By selling short, you risk that the shares you borrowed will be submitted for the tender and in that case part/all of your short will be closed out at the tender price (i.e. at a loss for you).
        Hedging with put options always possible, but usually expensive as put price reflects the expected drop in share price after the tender.
        And in terms of proportion, we outline our thoughts for every case, but these are just educated guesses with mixed bag of eventual accuracy.

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