Blackstone to buy Equity Office

Austin Business Journal - 9:22 AM CST Monday

In what may be the largest real estate transaction in history, an affiliate of private-equity firm Blackstone Group has reached a deal worth $36 billion to buy Equity Office Properties Trust.

Chicago-based Equity, the country's largest office building owner and manager, is also the biggest office landlord in Austin with a portfolio of 3.4 million square feet. The company owns some of the most coveted buildings downtown, including the 33-story Frost Bank Tower, which it purchased in August for a record $354 a square foot.


he Blackstone deal would take the publicly traded Equity (NYSE: EOP) private. The massive investment fund is currently taking Austin-based Freescale Semiconductor Inc. (NYSE: FSL) private via a similar buyout, and just finished a buyout of Austin-based Encore Medical Corp., which took that company's stock off the public market.

Under the proposed deal, Blackstone would pay $48.50 a share for Equity's outstanding stock. That represents an 8.5 percent premium over Friday's closing price of $44.72 a share. Adding to the $20 billion purchase price, Blackstone will also assume $16 billion in debt with the purchase.

Equity says its board has unanimously approved the merger agreement, which now goes before shareholders. The deal is expected to close in the first quarter of 2007.

This is the latest in a series of acquisitions by Blackstone Real Estate Partners, the real estate arm of the New York-based private equity firm. Earlier this year, the company purchased CarrAmerica and Trizec Properties Inc.

Equity CEO Richard Kincaid says his team has built a great company, epitomized by the caliber of its employees and the quality of its assets.

"Our ultimate goal has always been to maximize shareholder value, and we believe we have done that through this transaction with The Blackstone Group...The value created by this transaction reflects the hard work and dedication of our employees who have driven our success over the past 10 years," Kincaid says.

It's unclear at this point how the transaction might affect the company's holdings in each of its core markets. Equity has repeatedly said in recent years that it's bullish on Austin, picking up more than 1.4 million square feet of office space since 2004.

In its most recent earnings statement, Equity reported a third quarter loss of $139.4 million, compared with earnings of $93.7 million in third quarter 2005. The company attributed the loss directly to a non-cash impairment charge of $188.9 million taken in anticipation of future asset sales.

The company reported funds from operations available to common shareholders came in at a loss of $3.4 million for the quarter, or a penny a share. FFO for the same quarter in 2005 totaled $227.7 million, or 50 cents a share.