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REITs have tumbled to tremendous discount

Brookfield Place (Credit: Brookfield)

Brookfield Asset Management has made an offer to take its commercial real estate arm Brookfield Property Partners ($BPY) private in a $5.9 billion deal, Bloomberg reported. The proposal appeared to undervalue the subsidiary, as shares soared 17.5% during trading on Monday, and closed 3% above the offer price. Analysts who cover the REIT sector say the deal could be a bellwether for more privatizations to come in the industry.

  • Why it matters: Executives of public real estate companies have griped for years that shareholders have undervalued their companies’ property holdings. The pandemic has heightened the tension by sending REIT stocks tumbling even further, especially those with portfolios like BPY’s that are concentrated in troubled segments of the property market, such as office and retail, Business Insider noted.
  • Worth remembering: In November, for instance, investment firm Bow Street LLC made a $10-per-share offer for Paramount Group, a New York City-based $2 billion REIT that owns a collection of office buildings in Manhattan and San Francisco. Paramount’s board rejected the bid as undervalued, despite the fact that its share price had dipped as low as $5.54 earlier that month. In the months before the pandemic, Paramount shares had been trading between $12 to $15 per share, BI noted.
  • Dig Deeper: The Canadian alternative-asset manager is seeking to buy the 40% it doesn’t currently own. Brookfield Property’s portfolio consists of 43% office; 42% retail; and 15% investments in Brookfield funds. The company has roughly $88 billion in assets, and $50 billion in debt.
  • Heard on the Street: Brookfield’s CFO Nick Goodman explained that privatizing its real estate subsidiary is appealing because it has consistently traded at a discount to the underlying value of its assets. [Bloomberg+CNBC+Barron’s+BusinessInsider]

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