Jones Lang LaSalle
FINANCE LA 12 22 05
ARDENT FOR ARDEN
Peter Slatin
Long-time investors in lackluster REIT performers are being rewarded as a mini-privatization boom continues. Just as shrewd real estate companies like Vornado (VNO) are mining retailers like Toys 'R' Us to relieve them of non-performing real estate assets, private equity and institutional players are mining poorly performing real estate companies whose managements have been unable to unlock the value in their own property holdings.
The latest example, still an uncertain deal, lies in acquisition talks between Arden Realty Trust (be at a NYSE: ARI) and GE Real Estate, which appears headed for a $3.1 billion buyout of the Southern California office REIT. GE reportedly has partners lined up for the takedown, rumored to have a share value of around $46.
Although those partners were not disclosed, one likely suspect is Los Angeles REIT Maguire Properties (NYSe: MGP), which could help ease the GE's burden by taking ownership of some properties. Numerous private and public players with the wherewithal to participate are active in the Southern California office market, including Tishman Speyer Properties, Trizec (NYSE: TRZ) and Equity Office Properties (NYSE: EOP).
ARI has struggled for years to bring its share price in line with its asset base, which, at roughly 18 million square feet, makes it the largest office owner in California. When takeover rumors for the stock began circulating several months ago, Arden Chairman Richard Ziman was considered a prime candidate in the effort to take the company private.
One potential snag is that the deal being negotiated is an all-cash transaction, which could trigger significant tax liabilities for prime shareholders, including Ziman. And ARI closed at just under $47/sh. Wednesday, giving it a market cap that flirted with the $3.1 billion GE offer.
Two analyst reports – one released Wednesday by Banc of America Securities, the other published Tuesday by Green Street Advisors – paint a complex picture of the Southern California office market. The BofA report, which followed published news of the deal rumors, suggests that Southern California office REITs MPG and Kilroy Realty Trust (KRC) could experience enhanced valuations as a result of an Arden sale. In addition, shareholders who cash out of ARI but want to stay in the region's office market will find a higher concentration of better quality assets in both Maguire and Kilroy's portfolios.
In contrast, Green Street notes that the strong Orange County office economy could be adversely impacted by the slowdown in mortgage lending and home building, since "four of the top ten companies in the business are headquartered there."
One of those companies, Ameriquest Mortgage, has announced it intends to lay off 10% of its work force. Along with Maguire and Kilroy, Green Street also mentions CarrAmerica (CRE) and Equity Office Properties (EOP) as having particular exposure to the area. MGP leases space to New Century Finance (NEW), a residential mortgage REIT that has also agreed to occupy a 600,000-square-foot property that Maguire will develop in the O.C. NEW's share price has dropped at least 50% since its high earlier this year, hard hit along with many mortgage REITs.
The GE-Arden talks come in the wake of a $1.3 billion deal announced Tuesday by Morgan Stanley Real Estate Funds and Canadian opportunity fund Onex Real Estate to acquire Baltimore-based multifamily REIT Town and Country Trust (NYSE: TCT).
And why would they want this longtime laggard? Perhaps because, like Arden, it's a long-time laggard. The deal – at $33.90 a share – is a good one for shareholders, who have seen their stock jump 13% since the sale was announced after Monday's close. In addition, Morgan Stanley is also acquiring another multifamily REIT, AMLI Residential, for $2 billion, and may see significant upside in pooling these assets.
In all, more than $15 billion in M&A activity involving REITs has been announced to date in 2005, according to SNL Financial.
FINANCE LA 12 22 05
ARDENT FOR ARDEN
Peter Slatin
Long-time investors in lackluster REIT performers are being rewarded as a mini-privatization boom continues. Just as shrewd real estate companies like Vornado (VNO) are mining retailers like Toys 'R' Us to relieve them of non-performing real estate assets, private equity and institutional players are mining poorly performing real estate companies whose managements have been unable to unlock the value in their own property holdings.
The latest example, still an uncertain deal, lies in acquisition talks between Arden Realty Trust (be at a NYSE: ARI) and GE Real Estate, which appears headed for a $3.1 billion buyout of the Southern California office REIT. GE reportedly has partners lined up for the takedown, rumored to have a share value of around $46.
Although those partners were not disclosed, one likely suspect is Los Angeles REIT Maguire Properties (NYSe: MGP), which could help ease the GE's burden by taking ownership of some properties. Numerous private and public players with the wherewithal to participate are active in the Southern California office market, including Tishman Speyer Properties, Trizec (NYSE: TRZ) and Equity Office Properties (NYSE: EOP).
ARI has struggled for years to bring its share price in line with its asset base, which, at roughly 18 million square feet, makes it the largest office owner in California. When takeover rumors for the stock began circulating several months ago, Arden Chairman Richard Ziman was considered a prime candidate in the effort to take the company private.
One potential snag is that the deal being negotiated is an all-cash transaction, which could trigger significant tax liabilities for prime shareholders, including Ziman. And ARI closed at just under $47/sh. Wednesday, giving it a market cap that flirted with the $3.1 billion GE offer.
Two analyst reports – one released Wednesday by Banc of America Securities, the other published Tuesday by Green Street Advisors – paint a complex picture of the Southern California office market. The BofA report, which followed published news of the deal rumors, suggests that Southern California office REITs MPG and Kilroy Realty Trust (KRC) could experience enhanced valuations as a result of an Arden sale. In addition, shareholders who cash out of ARI but want to stay in the region's office market will find a higher concentration of better quality assets in both Maguire and Kilroy's portfolios.
In contrast, Green Street notes that the strong Orange County office economy could be adversely impacted by the slowdown in mortgage lending and home building, since "four of the top ten companies in the business are headquartered there."
One of those companies, Ameriquest Mortgage, has announced it intends to lay off 10% of its work force. Along with Maguire and Kilroy, Green Street also mentions CarrAmerica (CRE) and Equity Office Properties (EOP) as having particular exposure to the area. MGP leases space to New Century Finance (NEW), a residential mortgage REIT that has also agreed to occupy a 600,000-square-foot property that Maguire will develop in the O.C. NEW's share price has dropped at least 50% since its high earlier this year, hard hit along with many mortgage REITs.
The GE-Arden talks come in the wake of a $1.3 billion deal announced Tuesday by Morgan Stanley Real Estate Funds and Canadian opportunity fund Onex Real Estate to acquire Baltimore-based multifamily REIT Town and Country Trust (NYSE: TCT).
And why would they want this longtime laggard? Perhaps because, like Arden, it's a long-time laggard. The deal – at $33.90 a share – is a good one for shareholders, who have seen their stock jump 13% since the sale was announced after Monday's close. In addition, Morgan Stanley is also acquiring another multifamily REIT, AMLI Residential, for $2 billion, and may see significant upside in pooling these assets.
In all, more than $15 billion in M&A activity involving REITs has been announced to date in 2005, according to SNL Financial.
posted by Jones Lang LaSalle NJ News Blog at 3:25 PM
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