GE to Acquire Arden Realty for $3.2 Billion

General Electric Co. agreed Thursday to pay $3.2 billion for Arden Realty Inc., ending months of speculation with a deal that would reshape the market for office space in Southern California.

GE Real Estate, the Fairfield, Conn., conglomerate’s real estate investing unit, would pay $45.25 a share in cash and assume Arden’s $1.6 billion in debt.

In turn, GE would sell a selection of Arden’s major properties in Southern California -- including the Howard Hughes Center, Westwood Center and World Savings Center in West Los Angeles, and Arden Towers in San Diego -- to Trizec Properties Inc. for $1.6 billion.

Brentwood-based Arden is Southern California’s largest office landlord. It owns 192 buildings at 116 properties covering 18.5 million square feet in Los Angeles, Orange, San Diego, Ventura and Kern counties.

The sale, expected to close by May pending approval by Arden’s shareholders, would establish a stronger Southern California foothold for GE Real Estate, which has only a few properties in the region.

And it would nearly double the presence in the region for Chicago-based Trizec, whose downtown Los Angeles holdings would be complemented by 13 properties in West L.A. and San Diego.

Arden Chairman Richard S. Ziman, who founded the real estate investment trust in 1991 with President Victor Coleman and took it public in 1996, said a strong real estate market made the sale enticing.

“The timing was there,” Ziman said, noting that rents are rising and vacancies falling in the Southland. “The perspective of this management team was that this was the appropriate time to maximize shareholder value.”

Based on their latest reported share holdings, Ziman would gross $44.3 million in the deal and Coleman would get $22.3 million.

The deal would leave Maguire Properties Inc., which had been among the bidders for Arden’s assets, and Kilroy Realty Corp. as the only major real estate investment trusts focused on Southern California’s office market, analysts said, although some expect Santa Monica-based Douglas Emmett to go public in 2006.

Maguire had been considered a contender for some of Arden’s assets, but Trizec swooped in “relatively recently” with a strong bid, Ziman said.

Talk of an Arden buyout has swirled for several years, but the rumor mill heated up in September as word of the GE negotiations leaked out. In the three months before Thursday morning’s announcement, Arden shares surged 25%.

Some who bought on the rumor sold on the news: The stock slid $1.81, or 4%, on Thursday to $45.18.

Analysts said there was no premium to Wednesday’s closing price of $46.99 -- indeed, the deal came at a discount -- because of the recent run-up.

“It’s highly unusual to see a ‘take-under,’ ” said analyst Craig Silvers of Bricks & Mortar Capital. But, he said of Arden, “the company got a fair price for shareholders.”

Arden had built a solid portfolio, but its growth prospects were hampered, he said, because its balance sheet was “close to fully levered” -- a problem GE Real Estate won’t face.

Analyst Jim Sullivan, who follows publicly traded real estate companies for Green Street Advisors in Newport Beach, said recent speculation that Arden could fetch more than $50 a share was extreme.

“This was a good job by the seller,” Sullivan said, “and now we’ll see how the buyers end up doing.”

Investors have been snapping up U.S. office properties at a brisk pace. About $55.5 billion in real estate acquisitions have been announced this year, according to Bloomberg News’ data, up 28% from 2004.

With its diverse economy and limited space to build, Southern California is an especially attractive office market, GE and Trizec said.

Trizec, whose slice of the deal includes Howard Hughes Center land that could be developed into residential projects, said the purchase fitted with its focus on higher-end properties.

“These high-quality assets, with strong embedded growth opportunities, will be a great addition to our existing portfolio,” Chief Executive Tim Callahan said in a statement. Southern California would become Trizec’s top revenue generator, the company said.

For GE, the deal ends a long quest.

Joe Parsons, president of North American equity for GE Real Estate, said he had made overtures to Ziman and Coleman for “a couple of years,” but until this summer had always been politely rebuffed.

Parsons said he expected rental revenue in the Southern California area to grow at about twice the national rate over the next several years, compounding in the 3%-to-7% range.

Although GE already has a few properties in the Southland, Parsons called Arden “our entry” into the region.

“We hope to use this platform to help us grow throughout California and the West, places like Phoenix,” he said. GE would take a more active approach to the portfolio than Arden has, Parsons said, promising plenty of buying and selling.

He said that the larger buildings appealed to Trizec, which as a public REIT desires stable cash flow, and that GE could adopt “more of a trading strategy to maximize assets” with the other properties -- for example, refurbishing and reselling them. REITs are publicly traded investment companies that manage real estate portfolios, often focusing on a segment of the market such as offices, apartments or shopping centers; for tax purposes, they pay out 95% of their profits annually to shareholders through dividends.

Parsons said GE would try to retain as many of Arden’s 300 employees as possible.

Ziman said he hadn’t thought about his own future -- other than hoping to get away to Mexico for a few days over the holidays.

“There’s always a life after,” he said.