General Electric Co.'s real-estate unit has agreed to buy Los Angeles-based Arden Realty Inc. for about $3.2 billion in cash plus the assumption of $1.6 billion of debt, the companies announced Thursday.
Under the terms of the agreement, GE Real Estate will acquire all of the real estate investment trust's common stock for $45.25 per share in cash, a discount of 3.7 percent off the stock's closing price Wednesday of $46.99. GE's price is $2.95 lower than Arden's recent 52-week high of $48.20.
The transaction is expected to close by the end of the first quarter of 2006.
In connection with the acquisition, Chicago-based Trizec Properties Inc. will acquire a Southern California portfolio comprised of 13 Arden properties, totaling 4.1 million square feet for approximately $1.6 billion. The portfolio is concentrated in West Los Angeles and San Diego and includes the mixed-use Howard Hughes Center.
Arden has a market capitalization of about $2.4 billion and 300 employees. In its most recent third quarter, the company reported net income of $41.6 million on revenues of $114.6 million. Arden's portfolio consists mostly of Westside properties, including several trophy office buildings in Beverly Hills.
Lehman Brothers Inc, Wachovia Securities, and Secured Capital LLC served as financial advisors to Arden in the transaction.
As of late last week, Arden's investment bankers had slimmed down the list of suitors interested in acquiring the REIT to General Electric and Morgan Stanley. Morgan Stanley Real Estate Funds was informed last Thursday that its bid had been rejected. That left the General Electric Co. subsidiary as the only remaining bidder.
Arden's acquisition is not, however, conditioned upon the closing of the purchase of properties by Trizec. That transaction has already been unanimously approved by Arden's board.
Ten of the properties Trizec will acquire in West Los Angeles total 2.7 million square feet; in San Diego, three properties total 1.4 million square feet. The properties include Howard Hughes Center, Westwood Center and World Savings Center in West Los Angeles, and Arden Towers at Sorrento and 701 B Street in San Diego. The portfolio also includes land parcels at the Howard Hughes Center that can accommodate the development of up to 490,000 square feet of office space and 600 residential units.
To finance the transaction, Trizec arranged a bridge loan that could fund up to $1.48 billion of the acquisition price.
With this transaction, Trizec will nearly double its Southern California office portfolio from 4.5 million square feet to more than 8.6 million square feet. And Southern California will become Trizec's largest market, representing more than 28 percent of the company's total operating income.
As of last week, Maguire Properties Inc., the Los Angeles-based real estate investment trust that has been aggressively expanding its holdings throughout the year, had agreed to put up nearly $1.5 billion to buy the portion of the Arden portfolio that eventually went to Trizec.
Shares of Arden fell 3.9 percent to settle at $45.18 on Thursday.
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