LOS ANGELES — In a massive deal, Hudson Pacific Properties Inc. (NYSE: HPP) has entered into a definitive asset purchase agreement to acquire the Equity Office Properties San Francisco Peninsula and Silicon Valley office portfolio from Blackstone Real Estate Partners V and VI. The stock and cash transaction is valued at $3.5 billion.
The Equity Office Properties portfolio includes more than two dozen properties located in cities such as San Jose, Palo Alto, Burlingame and Redwood City, and totals approximately 8.2 million square feet.
The portfolio’s occupancy and rents are approximately 10 percent and 15 percent below market, respectively, with approximately 60 percent of the leased square footage expiring by the end of 2017. The expiration of the leased properties will afford Hudson the opportunity to gain “substantial embedded net operating income growth,” according to the company.
Los Angeles-based Hudson believes the deal will help position it as a leading West Coast office REIT. Following the deal’s closing, Hudson, which will effectively double in size, is expected to have an equity market capitalization of $3.7 billion and total enterprise value of approximately $6.5 billion.
The purchase brings together two office portfolios with a combined asset base of 53 properties totaling approximately 14.6 million square feet across Northern and Southern California and the Pacific Northwest.
Under the terms of the agreement, Hudson will fund the acquisition with $1.75 billion in cash and approximately 63.5 million Hudson common shares and operating partnership units issued to Blackstone.
Following the acquisition, which is expected to close during the first half of 2015, pre-transaction Hudson equity holders will own approximately 52 percent of Hudson’s common equity on a fully diluted basis, and Blackstone funds will own approximately 48 percent of Hudson’s common equity on a fully diluted basis.
Hudson expects Blackstone’s common stock ownership at closing will be 9.8 percent with the right to convert operating partnership units for up to 20 percent of total outstanding common shares.
In 2007, Blackstone took the portfolio private in a $39 billion transaction and then sold many of the assets for a large profit. At the time it was the largest leveraged buyout in U.S. history.
The Eastdil Secured group of Wells Fargo Securities LLC is acting as Hudson’s lead financial advisor on the transaction, with BofA Merrill Lynch and Houlihan Lokey also acting as financial advisors in connection with the acquisition. Latham & Watkins LLP and Gibson, Dunn & Crutcher LLP are acting as Hudson’s legal counsel.
Goldman, Sachs & Co. is acting as Blackstone’s financial advisor and Simpson Thacher & Bartlett LLP and Pircher, Nichols & Meeks are acting as its legal counsel for the transaction.
Hudson Pacific Properties owns, operates and acquires high-quality office properties and media and entertainment properties in select markets, primarily in Northern and Southern California and the Pacific Northwest.
Hudson’s stock price closed at $28.80 per share on Monday, Dec. 8, up from $20.71 a year ago.
Blackstone’s (NYSE: BX) real estate business was founded in 1991 and has more than $80 billion in investor capital under management. Blackstone’s real estate portfolio includes hotel, office, retail, industrial and residential properties in the U.S., Europe, Asia and Latin America. Major holdings include Hilton Worldwide, Invitation Homes, Logicor, SCP and prime office buildings in major cities worldwide.
Blackstone’s stock price closed at $33.94 per share on Monday, Dec. 8, up from $28.24 a year ago.
— Scott Reid