The swift gain followed news that parent Brookfield Asset Management (NYSE:BAM), a Canada-based asset management shop with a historical focus on infrastructure, was offering to buy up to roughly 74 million Brookfield Property Partners units at $12 per unit. That's about a 17% premium to the price prior to the offer.
Logically, Brookfield Property Partners units rose on the news. Note that Brookfield Property Partners has a share class that is structured as a real estate investment trust (REIT), trading as Brookfield Property REIT (NASDAQ:BPYU). The REIT shares also rose sharply on the news.
Brookfield Property Partners is a diversified landlord. It directly owns malls and office buildings, and indirectly owns apartments and a host of other property types.
However, it is usually compared to mall focused REITs. Malls have been among the hardest hit real estate niches during the COVID-19 pandemic. That said, there are also material questions about how office properties will have to change because of the coronavirus. In other words, Brookfield Property Partners' portfolio is very near the center of the storm today.
This offer, according to the release, is meant to provide investors with liquidity. However, it's worth stepping back and looking at the deal from Brookfield Asset Management's perspective before you do anything here.
Historically speaking, Brookfield has used an opportunistic approach when making investments. It prefers to buy when others are afraid, essentially taking a long-term view while investors are focused on the short term. If the offer is accepted in full, Brookfield Asset Management will increase its stake in Brookfield Property Partners from 55% to 63%. The cash is coming from Brookfield's own pocketbook and accounts that it manages on behalf of others.
Even if management viewed this investment as a waste of money (which is highly unlikely), it has a fiduciary duty to the private accounts it runs. In other words, Brookfield Asset Management probably thinks buying Brookfield Property Partners units at $12 per unit is a bargain price. When you consider it from Brookfield Asset Management's perspective, this looks more like a vote of confidence than an offer to bail investors out.
Brookfield Property Partners has a unique structure in that parent Brookfield Asset Management is both a large investor and the entity that effectively runs the partnership. The offer to buy units is interesting, but more because it suggests that Brookfield Asset Management thinks it is taking advantage of a good investment opportunity.
There's no way to tell what the future holds for malls or office buildings, but it looks like Brookfield Asset Management thinks it will be much brighter than what investors are pricing into the units today.