Hudson Pacific To Buy California Properties From Blackstone For $3.5 Bln

(RTTNews) - Real estate investment trust Hudson Pacific Properties Inc. (HPP) said Monday that it will acquire Equity Office Properties' Northern California Portfolio from private equity firm Blackstone Group L.P.'s (BX) for $3.5 billion in stock and cash.

Hudson Pacific noted that the acquisition of Equity Office Properties' San Francisco Peninsula and Silicon Valley portfolio from Blackstone's real estate funds will strengthen its position as the leading West Coast office REIT. Meanwhile, Blackstone will retain a 48 percent equity stake in Hudson and its representatives will serve on the company's board of directors.

The EOP Northern California Portfolio consists of 26 office buildings totaling about 8.2 million square feet and two development parcels in Bay Area submarkets with a strong, diversified tenancy, including several blue chip technology companies.

The transaction will expand Hudson's portfolio to 53 properties totaling about 14.6 million square feet across Northern as well as Southern California and the Pacific Northwest. The parties currently expect the transaction to close in the first half of 2015, and to be immediately accretive to Hudson's 2015 normalized Funds From Operations or FFO.

Under the terms of the agreement, Hudson will fund the acquisition with $1.75 billion in cash and about 63.5 million Hudson common shares as well as operating partnership units issued to Blackstone. Hudson's board of directors has approved the transaction.

Hudson noted that while it has obtained $1.75 billion of committed bridge financing, it is exploring alternatives to fund the transaction's cash needs, including existing asset sales and joint ventures as well as new secured or unsecured financing.

The transaction is subject to approval by Hudson stockholders of the proposed equity issuance. Affiliates of Farallon Capital Management, L.L.C., which own about 15 percent of the Hudson's outstanding common equity, have entered into a voting agreement in favor of the transaction.

Upon closing of the transaction, Hudson is expected to have an equity market capitalization of $3.7 billion and total enterprise value of about $6.5 billion.

Victor Coleman, Hudson's Chairman and Chief Executive Officer said, "Hudson has long targeted these two Northern California regions for expansion, and while we expect the transaction to be immediately accretive to FFO, we also intend to move quickly to employ our leasing, repositioning and development expertise to extract additional value for our stockholders."

Jonathan Gray, Blackstone's Global Head of Real Estate said, "We chose to take a major stake in Hudson given its high-quality portfolio, outstanding management team and attractive prospects for growth. We believe strongly in the upside potential of the EOP Northern California Portfolio and this combination creates a market-leading West Coast office REIT."

Following the acquisition, pre-transaction equity holders of Hudson will own about 52 percent of the company's common equity, while Blackstone funds will own the remaining 48 percent. Hudson expects Blackstone's common stock ownership at closing to be 9.8 percent, with the right to convert operating partnership units for up to 20 percent of total outstanding common shares.

Blackstone will have no right to vote its operating partnership units on matters voted by the company's stockholders except with respect to change of control and related matters.

Following closing of the transaction, Hudson intends to maintain its current quarterly dividend of $0.125/share.

The Eastdil Secured group of Wells Fargo Securities, LLC is acting as Hudson's lead financial advisor, while BofA Merrill Lynch and Houlihan Lokey are acting as financial advisors in connection with the transaction. Latham & Watkins LLP and Gibson, Dunn & Crutcher LLP are acting as Hudson's legal counsel.

For Blackstone, Goldman, Sachs & Co. is acting as its financial advisor. Simpson Thacher & Bartlett LLP and Pircher, Nichols & Meeks are acting as its legal counsel in connection with the transaction.

HPP is trading at $28.36, up $0.19 or 0.69 percent on a volume of 253,993 shares.

BX is trading at $34.02, up $0.08 or 0.24 percent on a volume of 306,750 shares.