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Blackstone Buying CarrAmerica for $5.6 Billion

Latest In Wave of REIT Consolidation is a Big One, More May Head Back To Private Sector
March 6, 2006
CarrAmerica Realty Corp. (NYSE: CRE) has agreed to be acquired by an affiliate of The Blackstone Group, marking the departure of another major REIT from the publicly traded sector.

In a statement issued today, CarrAmerica said Blackstone will acquire all of its outstanding common stock for $44.75 per share in cash in a $5.6 billion transaction. The purchase price per share represents an 18.4% premium over CarrAmerica's closing stock price on February 16, 2006 when news reports began circulating that the Washington DC-based office REIT was in play but just under 9% over CarrAmerica's closing stock price of $41.08 on Friday.

CarrAmerica's Board of Directors unanimously approved the merger agreement with Blackstone. Pending approval by CarrAmerica's common stockholders, the transaction is expected to close in the second quarter of 2006.

CarrAmerica Chairman and CEO Thomas A. Carr echoed the sentiments shared by a growing number of publicly traded REIT executives when he stated he believed his firm could not achieve the value offered by the private buy-out from Blackstone by continuing to operate as a REIT given current market valuations.

“Over the past few years, CarrAmerica has emerged as a leader in its markets with growing occupancy, a markedly upgraded portfolio of office properties and a very dedicated and talented organization. And yet, with our most aggressive performance assumptions, we don't believe we could match the value being offered to our shareholders today by this offer,” Carr said in a statement announcing the agreement.

"We feel extremely fortunate to have the opportunity to acquire CarrAmerica," added Jonathan D. Gray, senior managing director of The Blackstone Group. "The company represents one of the premier collections of people and properties in the country and will provide us with a valuable platform for future investments in the office sector."

Blackstone plans to liquidate the surviving corporation following the acquisition, paying each shareholder of the firm's 7.50% Series E Cumulative Redeemable Preferred Stock $25 per share in cash plus any accrued but unpaid dividends. The common limited partnership interests in two of CarrAmerica's operating partnerships will be acquired for $44.75 per unit in cash. Some qualified holders of common limited partnership interests will be given the option to receive preferred units of limited partnership interest in the partnerships instead of cash following the merger.

CarrAmerica has one of the largest office portfolios in the nation consisting of 285 office properties totaling approximately 26.3 million square feet in the following markets: Austin, Chicago, Dallas, Denver, Los Angeles, Orange County, Portland, Salt Lake City, San Diego, San Francisco Bay Area, Seattle and metropolitan Washington, D.C.

Goldman, Sachs & Co. acted as financial advisor to CarrAmerica. Citigroup, Bank of America and Deutsche Bank acted as financial advisors to Blackstone. Deutsche Bank, Bank of America and Citigroup are providing acquisition financing to Blackstone. Hogan & Hartson L.L.P. acted as legal advisor to CarrAmerica. Simpson Thacher & Bartlett LLP acted as legal advisor to Blackstone.

CarrAmerica is the second publicly traded REIT Blackstone has acquired in as many weeks. But until now, the New York-based investment firm has focused largely on acquiring hotel owners and operators.

Last week, Blackstone agreed to buy hotel REIT MeriStar Hospitality Corp. (NYSE:MHX) for about $2.6 billion. That followed Blackstone's purchase of Wyndham International for $1.44 billion last June and its $2.28 billion acquisition of La Quinta Properties in November. And back in 2004, Blackstone bought New Jersey-based Prime Hospitality Corp. (NYSE:PDQ) for $790 million.

Once dubbed the World's biggest buy-out group by Bloomberg News, The Blackstone Group has offices in New York, Atlanta, Boston, Los Angeles, London, Hamburg, Mumbai and Paris. It was founded in 1985 by chairman Peter Peterson and CEO Stephen Schwarzman, starting out focusing on mergers and acquisitions before raising several investment funds in the late 1980s. Blackstone's major holdings include Allied Waste, Graham Packaging, Celanese, Nalco, Houghton Mifflin, American Axle, Prime Hospitality, Universal Studios Florida, Wyndham International, and La Quinta.

The company also owns more than 13 million square feet of real estate in Boston, New York, San Francisco, and Washington, DC. Blackstone's real estate group has raised approximately $10 billion for real estate investing and has a long track record of investing in hotels and other commercial properties.

The Blackstone-CarrAmerica deal follows several other high-profile acquisitions of REITs over the past 18 months, either by private investors or other REITs.

GE Real Estate agreed to buy Southern California-based office powerhouse Arden Realty Inc. (NYSE:ARI) for approximately $3.2 billion in cash, bringing in Chicago-based Trizec Properties Inc. (NYSE:TRZ) to take some of Arden's assets as part of the deal.

And Chicago-based CenterPoint Properties Trust (NYSE: CNT) accepted a $50-per-share offer from CalEast Industrial Investors LLC, the large industrial real estate investment joint venture between the California Public Employees' Retirement System (CalPERS) and LaSalle Investment Management, in a $3.4 billion sale.

Meanwhile Brandywine Realty Trust (NYSE:BDN) completed its acquisition of Texas-based Prentiss Properties Trust (NYSE:PP) earlier this year and The Mills Corp. (NYSE:MLS), the owner and manager of the "Mills" portfolio of discount retail centers, has hired Goldman, Sachs and J.P. Morgan Securities to explore its strategic alternatives, indicating a sale may be likely in the near future.

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