Real Estate Giant to Go Private in $36 Billion Deal

By Dana Cimilluca and Brian Louis
Bloomberg News
Monday, November 20, 2006

Blackstone Group L.P., manager of the world's largest buyout fund, has agreed to purchase Equity Office Properties Trust, the largest U.S. office landlord, for about $36 billion in stock and debt, Equity Office said late last night.

The leveraged buyout of Equity Office would be the largest ever in the real estate industry. It comes amid a dealmaking bonanza for private equity firms, flush with cash from record fundraising, and office REITs, which are benefiting from surging demand in major markets such as New York.

Equity Office shareholders would receive $48.50 a share, an 8.5 percent premium to Friday's closing price of $44.72, the companies said in a statement. The Equity Office board unanimously approved the offer for the Chicago-based real estate investment trust last night. Including the assumption of Equity Office debt, the total value of the transaction is $36 billion, making it the biggest leveraged buyout in history. The deal still has to be approved by Equity Office shareholders.

"I think it's a deal that's pretty attractive to shareholders," said Srikanth Nagarajan, an analyst with RBC Capital Markets in New York. "Office properties are increasing in value in the eyes of private equity investors."

Blackstone had previously acquired 10 publicly traded real estate companies in the past two years, including CarrAmerica Realty Corp.

Buyout firms have raised a record $170 billion this year through mid-October, up from $134 billion in 2005, according to London-based consultant Private Equity Intelligence Ltd.

The buyout talks were reported earlier by the Wall Street Journal. Terry Holt, a spokeswoman for Equity Office, declined to comment late last night. John Ford, a spokesman for New York-based Blackstone, also declined to comment.

Blackstone in July raised a $15.6 billion fund, to which it is adding. In June, it raised $5.25 billion for the largest-ever fund for high-return real estate investments, the majority of which has been spent already.

The company and other private equity firms, which finance the bulk of their takeovers using the target company's cash flow, have announced $600 billion of acquisitions so far this year, compared with $241 billion in 2005, according to data compiled by Bloomberg News.

Equity Office and Blackstone said in the statement that they expect the deal to close in the first quarter of 2007.

The biggest acquisition of a real estate investment trust to date is General Growth Properties Inc.'s purchase of Rouse Co. for $11.3 billion in 2004.

Equity Office shares have gained 47 percent this year. Over the past three years, the shares have increased 60 percent.

But Equity Office's share price hasn't appreciated as much as those of other REITs since it went public in July 1997 at $21 a share. Shares of New York-based SL Green Realty Corp., for example, closed Friday at $126.30 in New York Stock Exchange composite trading. Boston Properties Inc. went public at $25 a share in June 1997 and it closed Friday at $108.62 in New York Stock Exchange composite trading.

Bloomberg News staff writers Daniel Taub and Hui-yong Yu contributed to this report.

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