Archive | Equity Office Properties Trust

Published 3 February 2007

Equity Office Properties Trust said on Friday its board of trustees had unanimously reaffirmed recommendation of the proposed US54/share all-cash takeover by affiliates of the Blackstone Group, in preference to a new $US56 cash & scrip bid from Vornado Realty Trust.

The Blackstone bid started at $US48.50 and Vornado initially came in at $US52/share. Vornado made its latest offer on Thursday, the day after Equity Office reported substantially better quarter & annual earnings than those for its 2005 downturn.

US sources price the current bids at $US38.3 billion (Blackstone), $US41 billion (Vornado). Vornado’s offer is $US31 cash & the balance in Vornado shares. The Equity Office board said it could take 4-6 months to close the Vornado transaction because it would require a Vornado shareholder vote and might be reviewed by the Securities & Exchange Commission. Given this time delay, the board had been told the net present value of the Vornado offer was between $US54.28-54.88/share, even after taking into account the receipt of dividends in the interim.

A special meeting of Equity Office shareholders to vote on the Blackstone proposal remains scheduled for Monday 5 February but will probably be adjourned to Wednesday 7 February (11am Chicago time). If the Blackstone bid’s approved it would close on Friday 9 February.

For the fourth quarter 2006, Equity Office reported net income available to common shareholders of $US313 million ($US19 million in 2005) & diluted earnings of US87c/share (US5c). For the full year, the company reported net income of $US307 million ($US8.1 million) & diluted earnings of US86c (US2c).

Equity Office has about 585 properties containing 10.1 million m² in 16 states & Washington.

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Attribution: Company release, story written by Bob Dey for this website.

Published 18 January 2007

The world’s biggest listed real estate investment trust, Equity Office Properties Trust, said today it had received a $US52/share ($US39.2 billion) counter offer to the $US48.50/share ($US36 billion) privatisation proposal due to go to shareholders on Monday 5 February Chicago time.

The new offer would be 60% cash, 40% Vornado Realty Trust shares and would result in Equity Office’s portfolio being broken up.

Vornado, Starwood Capital Group Global LLC & Walton Street Capital LLC, through bid vehicle Dove Parent LLC, put an unsolicited non-binding proposal letter to Equity Office. Equity Office said its board of trustees would consider the proposal as soon as practicable. If the board decides not to accept last November’s bid from Blackstone Group it will cost Equity Office a $US200 million break fee.

Blackstone had to lift its offer to Equity Office bondholders last week before they accepted a buyout, necessary to avoid covenants which would have stopped Blackstone borrowing as much as it needs to for the main bid. But it may have to raise its $US48.50 offer as well – apart from the $US52/share counter-offer, Equity Office shares finished Wednesday at $US50.94.

The Vornado offer will allow unitholders in the Equity Office operating partnership to take Vornado Realty LP units instead of the cash they would get from Blackstone.

New York-based Blackstone offered about $US19 billion equity, the rest in assumption of debt.

Vornado, Starwood & Walton Street propose paying $US13.4 billion in equity & $25.8 billion in debt. Vornado would retain half of Equity Office’s assets located in the major markets on the east & west coasts and Starwood & Walton Street would take the rest.

Equity Office has about 585 properties containing 10.1 million m² in 16 states & Washington.

Earlier stories:

29 December 2006: Equity Office vote on 5 February

23 November 2006: Biggest reit – Equity Office – going private

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Attribution: Equity Office releases, story written by Bob Dey for this website.

Published 29 December 2006

Equity Office Properties Trust, biggest reit in the US, has called a special meeting in Chicago on Monday 5 February to decide the trust’s fate.

Private equity investor Blackstone Group has proposed a $US48.50/share offer for 100% of Equity Office after more than a year of behind-the-scenes proposals which the reit’s board rejected.

The $US48.50/share offer price represents an 8.5% premium over the price on 17 November, the day before the deal was announced, a 20.5% premium over the average closing price for the previous quarter and a 37.7% premium over the average close for the previous year.

Equity Office got an unsolicited inquiry in early November 2005 and the board spurned the proposal on 15 November, deciding to focus on its own strategic initiatives. That proposal, which resurfaced a few times in early 2006, was for a takeover in the range of $US37-40/share, when the market price was about $US31-32.

A number of US reits merged in 2006 and, in July, one of them raised various proposals with Equity Office, including asset swaps to enhance value, or a full merger. Blackstone made its first proposal in August at $US40-42/share, which would involve another reit acquiring a third of Equity Office’s portfolio.

Equity Office stuck with its “no sale” line, but did want to continue restructuring, with $US3 billion of assets to go on the market in the second half of the year. Then, in the space of one week in November, Blackstone came up with its own buyout proposal, raised the offer by a dollar and cut the proposed termination fee from $US275 million to $US200 million. Blackstone expected transaction costs to exceed $US2 billion.

Among the Equity Office board’s considerations were:

the high multiples of funds from operations (FFO) at which reit shares had been trading and the risk these multiples mightn’t be sustained, so the share price could fall despite performance
sale conditions were favourable in the real estate markets generally, and the office market in particular, with prices extremely high & cap rates extremely low.

Merrill Lynch calculated Equity Office’s value on estimated 2007 FFO multiples of 18-20 to get a price range of $US41.04-45.60/diluted share. Using ebitda multiples of 17.5-18.5, it got a price range of $US44.56-48.40/diluted share.

In an analysis of net asset value, Merrill Lynch estimated the gross portfolio value, plus other assets net of liabilities, at $US45.63-49.06/diluted share, based on 2007 nominal cap rates of 5.4-5.7% and property values of $US349-367/ft². After an estimated $US940 million of transaction costs, the value came down to a range of $US43.75-47.21/diluted share.

Using a discounted cashflow analysis and discount rates of 7.25-7.75%, Merrill Lynch priced the shares at $US41.34-46.11.

Equity Office has about 585 properties containing 10.1 million m² in 16 states & Washington.

Website: Equity Office

Earlier story:

23 November 2006: Biggest reit – Equity Office – going private

Want to comment? Click on The new BD Central Forum or email [email protected].

Attribution: Company releases, website, story written by Bob Dey for this website.

Published 22 November 2006

The world’s biggest listed real estate investment trust, the Chicago-based Equity Office Properties Trust, will be privatised in a $US36 billion deal with The Blackstone Group.

An affiliate of The Blackstone Group, Blackstone Real Estate Partners, has signed a definitive merger agreement to acquire Equity Office for $US48.50/share in cash. That represents an 8.5% premium over the closing share price last Friday and a 20.5% premium over the 3-month average closing price.

Equity Office’s board of trustees unanimously approved the deal and it should be completed in the first quarter of 2007, assuming shareholder approval at a meeting on a date not yet announced.

Blackstone said it would submerge the trust into one of its affiliates. Equity Office president & chief executive Richard Kincaid said: “Our ultimate goal has always been to maximise shareholder value, and we believe we have done that through this transaction with The Blackstone Group, one of the world’s premier private equity firms. The value created by this transaction reflects the hard work & dedication of our employees, who have driven our success over the past 10 years.”

Blackstone senior managing director Jonathan Gray said the transaction would be the largest private equity deal in history. It follows Blackstone’s recent acquisition of 2 other major listed real estate trusts, CarrAmerica & Trizec.

Equity Office owns 580 buildings either wholly or partially. Blackstone is a global private investment & advisory firm, founded in 1985. It’s raised more than $US67 billion for alternative asset investing, including $US13 billion for real estate.

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Attribution: Company release, story written by Bob Dey for this website.

Equity Office Properties Trust, biggest office building owner in the US, has sold 29 California industrial buildings to RREEF, a division of Deutsche Bank Group’s DB Real Estate, for $US210.3 million in cash & some building swaps.

Equity Office gets $US73.3 million in cash and will take 5 RREEF office buildings in 2 Chicago & Orange County complexes for $US137 million.

The industrial portfolio contains 240,000m² and was 89% occupied at 30 June. RREEF bought another 37 industrial buildings from Equity Office for $US197 million in June and it now has only 8 industrial properties left, the remnant of its takeover of Spieker Properties in 2001.

The 5 office buildings RREEF has sold to Equity Office contain 63,000m² and are 83% leased (86% for one, 74% for the other)

Equity Office owns about 700 buildings and has market capitalisation of $US25 billion.

RREEF manages more than $US20 billion in pension fund investments.

Equity Office Properties Trust’s EOP Operating Ltd Partnership has issued $US1 billion of 4.75% senior unsecured notes due 15 March 2014. Including all offering expenses & the settlement of 2 forward-starting swaps, the all-in effective rate of the unsecured notes is 5.54%. Equity Office then entered into $US1 billion of fixed-to-floating interest rate swaps due on the same date, giving an effective rate for it on the notes of Libor plus 53 basis points.

Equity Office will use the net $US990 million to repay outstanding balances under its $US1 billion revolving credit facility and to settle 2 swaps.

These securities have been rated Baa1 by Moody’s, BBB+ by Standard & Poors and BBB+ by Fitch.

Equity Office is the biggest US real estate investment trust, with a portfolio of 11.3 million m² in 683 buildings.

Website: Equity Office Properties Trust

Occupancy slips to 90.7%, average gross rent rises to $US32.13/ft²

Equity Office Properties Trust increased first-quarter funds from operations 11.5%, from US78c to US87c/share on earnings up 50.6% to $US410.6 million.

Occupancy has slipped, but new leases were signed at $US4.30/ft² above the level of expiring leases.

Trust patriarch Sam Zell, who has just lost his president/chief executive Tim Callahan and resumed the roles himself, remained positive, affirming expectations of full-year earnings in the range of US310-330c/share.

“While we continue to see the impact of the recession in the office markets, we are also seeing signs of a pickup in office space showings. Our geographically diverse portfolio should help us offset slow-to-recover markets. In addition, we have continued to maintain a strong balance sheet, which positions us well should we uncover the right opportunities,” Chicago-based Mr Zell said.

Net income (fully diluted) rose 23% to US48c after a US1c loss from discontinued operations.

EOP announced a $US40 million lease termination fee on a previously planned office building development on 1 April, recording it in first-quarter earnings. In total, the trust recorded $US58.2 million in early lease termination fees in the first quarter.

Total revenue rose 34% to $US885.8 million, primarily due to the revenue gain associated with the Spieker Properties acquisition, which closed in July 2001.

Same-store net operating income fell 0.1% on a GAAP basis and increased 1.3% on a cash basis. Occupancy in this 383-property same-store portfolio fell from 94.7% at 1 January 2001 to 91.2% at 31 March 2002.

From the end of 2001 to March 2002, occupancy over the whole portfolio fell from 91.8% to 90.7%, primarily due to the high level of early lease terminations, which totalled 130,000m².

The trust leased 420,000m² at a weighted average gross rent of $US32.13/ft² compared to $US27.79/ft² on expiring leases ($NZ774/m², up from $NZ670/m²), a 16% increase on a GAAP basis.

Operating margins rose from 67.1% to 68.7%. Total liabilities were steady at $US12.9 billion.

In February, EOP issued $US500 million of 6.75% unsecured 10-year notes, which had a weighted average cost of 7%. About half will be used to repay debt issued at 6.376%.

The trust sold 7 office properties containing 74,746m² of space, and its 50% interest in 4 parking facilities for a total $US156.7 million.

Equity Office owns a $SUS 24.4 billion portfolio of 11.84 million m² of space in 773 buildings in 22 states plus Washington. It has equity of $US11.3 billion to debt-plus-equity of $US25.8 billion, giving a 56% debt:total assets ratio.

Comparisons show weakening US office market

Equity Office Properties Trust — owner of 731 buildings containing 11.6 million m² of office space — achieved significantly higher 4th quarter returns in 2002: funds from operations up 41% to $US365.3 million, & up 49% to US79c/fully diluted share, while fully diluted earnings/share rose 50% to US42c.

But taking out a $US124.2 million writedown in 2001, the comparison was markedly different: funds from operations would have been down US1c & earnings/share down US13c, or 23.6%.

A big earner in both years has been lease termination fees — $US24.4 million in the 4th quarter 2001, $US44.7 million this time. For the whole of 2002 those fees totalled $US152 million, but Equity Office says it expects only $US25-30 million in 2003.

For the full year, Equity Office increased funds from operations as a percentage of revenue from 38.2% ($US1.177 billion on revenue of $3.081 billion) to 42.9% ($US1.505 billion on revenue of $$$US3.506 billion). On a fully diluted share basis, funds from operations rose 12.2% to $US3.21/share, and earnings/share rose 9.7% to $US1.70/share.

Writedowns hit 2001, termination fees boost 2002

Writedowns totalling $US132.7 million cut the full-year 2001 figures by US32c (FFO) & US33c (earnings/share). The poorer 2002 operating results are illustrated in rental comparisons, in the small gains from asset sales and in the level of fees for lease termination.

Lease termination cost tenants $US41.2 million in 2001, rising to $US152 million in 2002. The 2002 figure included $US40 million received for an office development which was proposed but not built.

Equity Office said it lost 570,000m² of occupancy — roughly 5% of total portfolio space — through early lease terminations in 2002.

Average rent slips for year, slides in 4th quarter

The average rental rate (weighted average gross rents, including straight-line rent) for the whole of 2002 on expiring & terminated leases was $US28.61/ft² ($NZ562.19/m²), but on new & renewing leases was US13c lower — $US28.48/ft² ($NZ559.63/m²).

The fall was more pronounced in the 4th quarter: $US27.41/ft² ($NZ538.61/m²) on expiring/terminating leases, down $US1.42 to $US25.99/ft² ($NZ510.70/m²) on new/renewing leases, a fall of 5.2%.

Property operating margins fell from 68.6% in the 4th quarter of 2001 to 67.6% in 2002.

Office occupancy fell from 91.8% at the end of 2001 to 88.6%, and industrial occupancy from 92.8% to 89.3%.

Same-store returns fall

Same-store net operating income for the year fell 4.9% (4% excluding straight-line rents) and same-store occupancy, on 378 buildings in the portfolio, fell from 94.7% to 89.7%.

Again, the 4th quarter picture was more depressed: same-store net operating income fell 5.9% (5.2% excluding straight-line rents), and same-store occupancy (on 723 properties) fell from 93.8% to 89.2%.

Actual 4th quarter occupancy across the whole portfolio fell from 89.2% in September to 88.6%, but the industrial portfolio gained, from 88.1% in September to 89.3% occupancy.

Over the whole year, Equity Office sold 47 buildings totalling 300,000m², & 4 parking facilities for a gross $US508.3 million and net gain of $US17.9 million.

Lower 2003 earnings forecast

Equity Office management is predicting an earnings range of $US2.80-3 funds from operations in 2003, down from $US3.21. Among its assumptions is a moderate US economic recovery, 1% office job growth and lower lease termination fees.

Equity Office proclaims itself as the biggest office building owner & manager, and biggest real estate investment trust, in the US with $US24.6 billion of property. But, like many others, its share performance has not been up to the level management wants. It began a share buyback programme in mid-2002 and has bought 9.5 million shares at an average $US24.72/share. On Wednesday its shares picked up US17c to hit $US24.

Website: Equity Office Properties Trust
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