Hudson Pacific Picks Up EOP Portfolio for $3.5 Billion

Commercial real estate owner Hudson Pacific Properties Inc. said Monday it would acquire a portfolio of California office buildings from an affiliate of Blackstone Group LP (BX) in a cash and stock deal valued at $3.5 billion.

Terms of the deal call for Los Angeles-based Hudson to pay $1.75 billion in cash and issue about 63.5 million of its shares to Blackstone in return for Equity Office Properties Trust' San Francisco peninsula and Silicon Valley portfolios. The assets to be acquired include 26 office buildings with 8.2 million square feet and two development parcels in prime Bay Area locations.

Post-deal Hudson Pacific would own 53 properties totaling 14.6 million square feet spread across northern and southern California and the Pacific Northwest. The company estimated that post deal it would have an equity market capitalization of about $3.7 billion and a total enterprise value of about $6.5 billion.

Hudson Pacific chairman and CEO Victor J. Coleman in a statement said that his REIT had targeted the Bay Area for expansion.

"The acquisition of the [Equity Office Properties] northern California Portfolio perfectly aligns with our strategy to acquire high-quality office properties in West Coast markets poised for continued growth through off-market transactions," Coleman said.

Post-deal existing Hudson owners would own about 52% on a fully-diluted basis, with Blackstone funds owning the remaining 48%. The buyer said that affiliates of Farallon Capital Management LLC, current owner of about 15% of Hudson's shares, have entered into a voting agreement to support the transaction.

Blackstone global head of real estate Jonathan D. Gray in a statement said "we chose to take a major stake in Hudson given its high-quality portfolio, outstanding management team and attractive prospects for growth." The private equity giant post-deal will appoint three members to Hudson's 12-person board of directors.

Hudson said it has obtained $1.75 billion in committed bridge financing but is exploring alternatives to fund the cash portion of the deal consideration, including potential sales of existing assets and joint ventures as well as new secured or unsecured financing.

The deal is expected to close in the first half of 2015.

David Lazarus, David Schinasi and Billy Sherman of Wells Fargo Securities LLC's Eastdil Secured unit is acting as lead adviser to Hudson, with Bank of America Merrill Lynch and Houlihan Lokey Inc. also acting as financial advisers and Latham & Watkins LLP and Gibson, Dunn & Crutcher LLP providing legal advice.

Goldman, Sachs & Co. served as financial adviser to Blackstone, with Brian Stadler and Sas Mehrara of Simpson Thacher & Bartlett LLP joining with Pircher, Nichols & Meeks to provide legal counsel.

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