Blackstone’s buyout of Equity Office Properties Trust, a real game-changer

By Douglas A. McIntyre Published Nov 20, 9:57AM EST

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by Jon C. Ogg

The Blackstone private equity buyout of Equity Office Properties Trust (EOP) is a real game changer for Office REIT shares. This office property sector has been consolidating in the recent years, but this is the equivalent of China buying the State of California. the total deal is valued at a whopping $36 Billion if you includ ethe enterprise value with some $16.5 Billion in debt.

You keep hearing speculation of a private equity bubble out there, but private equity’s attempt is to make more money off of inefficiencies where public companies can either be run better as private companies or where cash flows from a certain competitive stance are worth taking a company over for its predictable cash flow to provide an equivalent investment yield for the investors. The size compared to values makes you wonder if the stated values of the properties that this holds are understated or deemed a bargain, or if this deal is meant to invest a huge chunk of cash simultaneously. So is it a bubble, or is it a lump-sum transaction with the intent of paring off properties?

Sam Zell, the well known CEO of Equity Office (EOP) is also not involved in this deal other than the fact that he’ll be cashing out and becoming worth even more gazillions riding his Harley.

What is even more substantial here is that while EOP does have many key trophy properties and while it is the largest Office Properties real estate investment trust out there, it is not at all considered a bargain on an overall comparative basis. In fact, its size and leadership actually has a premium to many other high-value office REITs. The company trades at about 2.5 times stated book value, its P/E ratio has gone way out of whack because of some balance sheet and operating changes of late, and its dividend yield is lower than many other office REITs.

This has many other office REIT stocks with market caps of $2 Billion or more trading higher right after the open. Here is a partial list:

Boston Properties (BXP) +7.6% at $116.86; $13.65 Billion market cap.

Liberty Property Trust (LRY) +2.5% at $48.37; $4.35 Billion market cap.

Mack-Cali Realty (CLI) +6% at $52.65; $3.3 Billion market cap.

Brandywine Realty (BDN) +1.1% at $33.32; $3 Billion market cap.

Alexandria Real Estate (ARE) +2.4% at $100.57; $2.9 Billion market cap.

HRPT Properties (HRP) up 1.8% at $11.93; $2.5 Billion market cap.

Corporate Office Properties (OFC) up 2.1% at $48.05; $2.05 Billion market cap.

Maguire Properties (MPG) up 4.5% at $43.76; $2.05 Billion market cap.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.