By  on February 24, 2010

By Vicki M. Young

General Growth Properties Inc. said Wednesday that it reached a deal to emerge from bankruptcy with a $2.63 billion investment from Brookfield Asset Management Inc.

The agreement with the Canadian property management company would split General Growth into two separate divisions and give Brookfield a 30 percent stake in the number-two U.S. mall operator.

The deal comes after General Growth last week rejected an unsolicited $10 billion bid from its chief rival, Simon Property Group Inc. It is subject to bankruptcy court approval, as well as better offers in a court auction. Simon did not immediately comment.

The Chicago-based real estate investment trust said the commitment would help it recapitalize at $15 a share and give unsecured creditors par value and accrued interest on their claims. General Growth said the agreement is not subject to due diligence or any financing condition.

Under the proposed terms, shareholders would receive one share of new General Growth Properties common stock at $10 a share, plus one share of a new entity, General Growth Opportunities, at $5 a share. General Growth Properties would retain the core mall assets and General Growth Opportunities would own certain noncore assets, which the mall operator said would include its “master planned communities and landmark developments like South Street Seaport” in lower Manhattan.

General Growth said the recapitalization would give it enough flexibility to raise as much as $5.8 billion, including issuing new equity, asset sales and limited new debt issuance.

“By creating two separate companies, we enable both companies to manage their core strengths, take advantage of different market opportunities and appeal to distinct groups of investors with their own investment criteria,” said Thomas H. Nolan Jr., president and chief operating officer of General Growth.

Brookfield’s investment would consist of $2.5 billion at $10 a share for new General Growth Properties common stock, and as much as $125 million at $5 a share for General Growth Opportunities common stock. The $125 million would backstop the $250 million rights offering that General Growth Opportunities plans at $5 a share. After the recapitalization, Brookfield would have the right to nominate three directors.

Brookfield would also get warrants for acting as the “stalking horse” in helping General Growth raise capital to exit bankruptcy. Activist investor William Ackman’s Pershing Square Capital Management, one of General Growth’s major stakeholders, is providing interim protection to Brookfield. Should General Growth complete a transaction with another party at a value higher than $12.75 a share, Pershing would be obligated to pay Brookfield 25 percent of its profits from its investment in General Growth above $12.75 per share.

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