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12/09/14
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Hudson Pacific Properties has taken a major step to boost its position as a leading owner of West Coast office properties by agreeing to purchase Equity Office Properties’ San Francisco Peninsula and Silicon Valley portfolio (the “EOP Northern California Portfolio”) from Blackstone Real Estate Partners V and VI (“Blackstone”) in a stock and cash transaction valued at $3.5 bil. The transaction consists of 26 high-quality office assets totaling approximately 8.2 msf along with two development parcels, all in the Bay Area.
One Bay Plaza, Burlingame |
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Upon closing of the transaction, Hudson is expected to have an equity market capitalization of $3.7 bil and total enterprise value of approximately $6.5 bil. The deal will increase Hudson’s portfolio to 53 properties totaling 14.6 msf across four major West Coast markets.
“The acquisition of the EOP Northern California Portfolio perfectly aligns with our strategy to acquire high-quality office properties in West Coast markets poised for continued growth through off-market transactions. 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,” said Victor J. Coleman, Hudson’s Chairman and Chief Executive Officer.
Under the terms of the agreement, the Company will fund the acquisition with $1.75 bil in cash and approximately 63.5 mil Hudson common shares and operating partnership units issued to Blackstone.
“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,” said Jonathan D. Gray, Blackstone’s Global Head of Real Estate.
Hudson has obtained $1.75 bil of committed bridge financing, but is exploring alternatives to fund the transaction’s cash needs, including existing asset sales and joint ventures and new secured or unsecured financing potentially coinciding with pursuit of an investment grade credit rating.
Affiliates of Farallon Capital Management, L.L.C., which own approximately 15% of the Company's outstanding common equity on a fully diluted basis, have entered into a voting agreement supporting the transaction.
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 (“FFO”).
Strategic and Financial Benefits
• Exclusive, direct opportunity to acquire a large portfolio complementary to existing assets. The EOP Northern California Portfolio consists of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels in irreplaceable Bay Area submarkets with a strong, diversified tenancy, including several blue chip technology companies.
• Value-add opportunities will leverage in-house leasing and repositioning expertise. The EOP Northern California Portfolio’s current occupancy and rents are approximately 10% and 15% below market, respectively, with approximately 60% of leased square footage expiring by year-end 2017, affording opportunity for substantial embedded net operating income growth.
• Strong Bay Area office market fundamentals. The Bay Area has achieved employment growth more than twice the national average since 2010, and Class A office market rents are still 42% below year 2000 levels, while the overall vacancy rate is 430 basis points above year 2000 levels.
• Flexible balance sheet and increased scale provide long-term capital advantages. Upon closing of the transaction, Hudson will effectively double in size, resulting in improved access to capital and G&A ratios, as well as a path to an investment grade credit rating.
• Blackstone relationship. Blackstone will retain a significant equity stake and its representatives will serve on Hudson’s Board of Directors, providing the Company unique access to Blackstone’s industry relationships, global capital sources and market intelligence.
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