Jones Lang LaSalle
CARRIED AWAY WITH CARR
Peter Slatin
Taking a break from its hotel-company acquisition binge, the Blackstone Group is buying CarrAmerica Realty Corp. (nyse: CRE) for $44.75/share, or some $5.6 billion. That's an 18.49% premium over CRE's closing price on Feb. 16, the date when news of takeover discussions became public, and an 8.9% premium over the stock's close last Friday.
The deal is the largest of a growing string of REIT privatizations by institutional investors and private euiity groups; buyouts in the past three months have included deals for CenterPoint, Meristar, Town & Country, Arden and Bedford.
By late afternoon on Monday, the day of the annoucnement, CRE shares had risen more than 8.5%, to $44.52, well above their 52-week high of $41.83. The broader MSCI REIT index also took off, rising almost 2% for the day, while the S&P 500 and Dow Jones each slid.
At the same time, long-term interest rates also rose, to their highest level in some 20 months. The twinned jump in rates and REITs was a knock on conventional wisdom, which typically believes that not only will REITs fall as rates rise, but that the major indices will rise as investors turn to traditional equities.
That didn't happen. Robert F. Dall, a longtime bond investor and a progenitor of mortgage-backed securities at Salomon Brothers and other investment banks, says there is no reason it should. "The world is beginning to realize that at these levels of interest rates, it ain't gonna matter if rates go up 25 basis points." With the 10-year interest rates under 5%, says Dall, "So what if rates go up a little bit? REIT stocks went up because somebody bought a REIT, and there will be more REITs that get bought."
Unlike some office REITs, such as SL Green, which focuses on Manhattan, or Southern California's Maguire Properties, CarrAmerica has diversified its holdings from its Washington, D.C. base to San Francisco and other cities it views as growth markets around the country.
Investors saw the Blackstone deal as a signal that the office market has significant punch left in it. Shares of SL Green, already considered an expensive stock, jumped 4.3%; shares of Equity Office Properties (nyse: EOP), which slashed its dividend last December to appease investors distressed with its overwrought payout ratio, climbed 3.8%. SNL Financial's index of office stocks rose 2.2 on the day; its equity REIT index climbed 1.78%.
The acquisition signals Blackstone's confidence in CRE's core office markets of Washington, D.C., where 36% of its holdings are concentrated; San Francisco (32%); and Southern California (15%).
New Jersey REIT Mack-Cali (nyse: CLI) announced Tuesday that it had liquidated its holdings of CarrAmerica stock for a gain of $16 million in stock appreciation and dividend payments.
Bear Stearns REIT analyst Ross Smotrich said in a report on the deal that he didn't expect rival offers to surface, and said the announcement marked "a good deal for CRE investors." The deal is expected to close by the end of the second quarter.
Blackstone recently announced a buyout of hotel REIT MeriStar, and also recently acquired La Quinta Corp., another holel owner. The fund giant has spent a total of $13 billion in equity and debt on six hotel company acquisitions in the past two years, but now has signaled its appetite for office properties in key markets in a major way.
The news came as REIT chieftains gathered at Citigroup analyst Jonathan Litt's annual CEO conference at the Breakers resort in Palm Beach, Fla.
CARRIED AWAY WITH CARR
Peter Slatin
Taking a break from its hotel-company acquisition binge, the Blackstone Group is buying CarrAmerica Realty Corp. (nyse: CRE) for $44.75/share, or some $5.6 billion. That's an 18.49% premium over CRE's closing price on Feb. 16, the date when news of takeover discussions became public, and an 8.9% premium over the stock's close last Friday.
The deal is the largest of a growing string of REIT privatizations by institutional investors and private euiity groups; buyouts in the past three months have included deals for CenterPoint, Meristar, Town & Country, Arden and Bedford.
By late afternoon on Monday, the day of the annoucnement, CRE shares had risen more than 8.5%, to $44.52, well above their 52-week high of $41.83. The broader MSCI REIT index also took off, rising almost 2% for the day, while the S&P 500 and Dow Jones each slid.
At the same time, long-term interest rates also rose, to their highest level in some 20 months. The twinned jump in rates and REITs was a knock on conventional wisdom, which typically believes that not only will REITs fall as rates rise, but that the major indices will rise as investors turn to traditional equities.
That didn't happen. Robert F. Dall, a longtime bond investor and a progenitor of mortgage-backed securities at Salomon Brothers and other investment banks, says there is no reason it should. "The world is beginning to realize that at these levels of interest rates, it ain't gonna matter if rates go up 25 basis points." With the 10-year interest rates under 5%, says Dall, "So what if rates go up a little bit? REIT stocks went up because somebody bought a REIT, and there will be more REITs that get bought."
Unlike some office REITs, such as SL Green, which focuses on Manhattan, or Southern California's Maguire Properties, CarrAmerica has diversified its holdings from its Washington, D.C. base to San Francisco and other cities it views as growth markets around the country.
Investors saw the Blackstone deal as a signal that the office market has significant punch left in it. Shares of SL Green, already considered an expensive stock, jumped 4.3%; shares of Equity Office Properties (nyse: EOP), which slashed its dividend last December to appease investors distressed with its overwrought payout ratio, climbed 3.8%. SNL Financial's index of office stocks rose 2.2 on the day; its equity REIT index climbed 1.78%.
The acquisition signals Blackstone's confidence in CRE's core office markets of Washington, D.C., where 36% of its holdings are concentrated; San Francisco (32%); and Southern California (15%).
New Jersey REIT Mack-Cali (nyse: CLI) announced Tuesday that it had liquidated its holdings of CarrAmerica stock for a gain of $16 million in stock appreciation and dividend payments.
Bear Stearns REIT analyst Ross Smotrich said in a report on the deal that he didn't expect rival offers to surface, and said the announcement marked "a good deal for CRE investors." The deal is expected to close by the end of the second quarter.
Blackstone recently announced a buyout of hotel REIT MeriStar, and also recently acquired La Quinta Corp., another holel owner. The fund giant has spent a total of $13 billion in equity and debt on six hotel company acquisitions in the past two years, but now has signaled its appetite for office properties in key markets in a major way.
The news came as REIT chieftains gathered at Citigroup analyst Jonathan Litt's annual CEO conference at the Breakers resort in Palm Beach, Fla.
posted by Jones Lang LaSalle NJ News Blog at 10:03 AM
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