Emaar Properties, Dubai's largest-listed developer by market capitalisation, and Emaar Malls' board of directors recommended a merger of the two companies.
"As part of the transaction, the existing business of Emaar Malls will be reconstituted in a wholly owned subsidiary of Emaar Properties," the developer said on Tuesday.
The malls unit will continue to develop a portfolio of retail assets, while Emaar Properties will remain listed on the Dubai Financial Market.
The move is expected to help Emaar "capture opportunities in the marketplace and drive shareholder value", the company said.
The proposed transaction would be a statutory merger by way of a share swap, with Emaar Malls shareholders (excluding Emaar Properties) receiving 0.51 Emaar Properties shares for every one Emaar Malls share held.
The merger is subject to approval by shareholders of the two companies.
The share price of Emaar Properties closed at Dh3.63 while Emaar Malls closed at Dh1.69 on Tuesday.
Emaar Malls, which owns and operates outlets including The Dubai Mall and Dubai Marina Mall, had its full-year profit drop to Dh703.6 million ($192m), down from Dh2.2 billion from the prior year, the company said in a statement to Dubai Financial Market.
Emaar Malls provided more than Dh1bn in support to tenants as part of its flexible rental relief policy in the early stages of the global pandemic.
It has since extended the support until at least March 31, 2021, the company said.
The retail sector was affected globally in the first half of last year when movement restrictions were introduced to contain the pandemic.
But business activity in Dubai, the Middle East's commercial centre, picked up in the second half of the year.
Emaar said its decision to merge its two businesses would boost the group's credit profile and strengthen its balance sheet.
It would also benefit the earnings profile of Emaar Malls' shareholders.