December 19, 2013 / 2:10 PM / in 4 years

UPDATE 2-Essex seeks top spot in West Coast apartment REITs with BRE buy

By Mridhula Raghavan

Dec 19 (Reuters) - Essex Property Trust Inc said it would buy BRE Properties Inc for about $4.34 billion to become the largest publicly-traded apartment REIT in the U.S. West Coast.

The combined company will own about 56,000 apartment units in 239 properties in southern and northern California and Seattle.

BRE’s greater exposure to southern California could be one of the reasons for Essex’s interest, Cowen & Co analyst James Sullivan wrote in a note to clients.

The housing market recovery in the region has been slower than that in the other areas of the West Coast. Southern California offers an opportunity for real estate companies as a slowdown is expected in northern California and Seattle, he said.

Housing companies have been investing in land in California this year because the state has been at the forefront of the U.S. housing recovery.

Luxury homebuilder Toll Brothers Inc said in November that it would buy the homebuilding business of Shapell Industries Inc for access to about 5,200 sites in California.

Tri Pointe Homes Inc also said it would buy Weyerhaeuser Co’s homebuilding division to get access to developed land in key markets such as California and Texas.

Having over half of BRE’s properties within two miles of an Essex property would help Essex with marketing and procurement, Essex Chief Executive Michael Schall said on a conference call on Thursday.

Schall will head the combined company and three directors from BRE’s board will join Essex.

Essex will pay BRE shareholders $12.33 per share in cash and offer 0.2971 newly issued Essex shares for each BRE share held, valuing BRE at $56.21 per share.

Real estate investment trusts, which must pay out at least 90 percent of their taxable income to shareholders as dividends, are subject to lower taxes and pay higher dividends than other companies.

Essex said it would maintain its annual dividend at $4.84 per share.

BRE had rejected in July a $60 per share offer from Land and Buildings, saying that the investment firm “neither (had) the capital capacity or demonstrated transaction experience to execute an acquisition of BRE.”

Palo Alto-based Essex said it received committed financing of $1 billion to fund the cash portion of the deal.

The company said the deal is expected to add 5-8 cents per share to its core funds from operations annually. The deal is expected to close in the first quarter of 2014.

UBS Investment Bank acted as lead financial adviser to Essex and provided 50 percent of the committed bridge financing. Wells Fargo Securities advised BRE.

Goodwin Procter LLP was Essex’s legal adviser and Latham & Watkins LLP advised BRE.

BRE shares were down 2 percent at $54.87 on Thursday afternoon on the New York Stock Exchange. Essex shares were down 2 percent at $144.66.

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