An analyst picked up on that line and asked what they meant about strategic options, and the CEO responded pretty forcefully,
“we felt there was a tremendous disconnect between public and private markets. We felt it was good for us to go out and do a strategic analysis with the board. We did the analysis and we came to the conclusion of, where the stock price is trading today, the best course of action for us is to stay the course. We've also determined that the inherent embedded value in the real estate is so high that you actually do the best for the shareholders. This is not the right time.”
Finally, we come to their Q3’17 earnings call at the end of October, just two weeks before BPY launches their first bid at $23/share. Here’s some select quotes from GGP’s CEO,
- If both BPY and GGP agreed that GGP was worth more than the BPY bid, why would GGP’s special committee agree to vote for the BPY “$23.50” offer? In BAM, GGP’s special committee is against some of the sharpest negotiators in the world who also control the company. The industry is flooded with “death of retail” articles, and every day it seems another GGP tenant goes bankrupt. The special committee has almost no financial incentive to push for a higher price (two of the five committee members own less than $75k worth of stock, and the five of them combined own $3m of stock), but if they walk away from the offer and the stock collapses they could be facing a string of fiduciary lawsuits. Yikes. With all of that going on, can you blame the special committee for “settling” for a small bump?
- While I focused on Class A Malls and GGP in this write up, I think the whole “publicly traded real estate” space is interesting right now. The market seems to be pricing most publicly traded real estate companies / REITs at a discount to their NAV. I’ve got some examples of this below, but in general I think this is a pretty interesting opportunity for activists to step in and force companies to realize NAV (either through liquidating or selling) and for buyers to pick off companies at a discount.
- In my April links, I mentioned VNO’s shareholder letter that they thought their shares were “stupid, stupid cheap” trading at a 29% discount to NAV
- Over on Twitter I highlighted SL Green’s (SLG) Q2 call and how they thought they were buying their shares at a large discount it NAV
- BXP included the slide below in their Q1 earnings call while noting that repurchasing shares was among the best uses of their capital given “their material discount to NAV” (they also highlighted buildings in the core markets were trading with cap rates “generally in the 4s” to give you an idea of where they think they should trade).