Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



EOP Fuels the REIT Fire

On Monday, Equity Office Properties Trust (NYSE: EOP  ) announced that it had agreed to be acquired by The Blackstone Group in a transaction valued at approximately $36 billion. The terms of the agreement call for Blackstone to acquire all of the outstanding common stock of Equity Office at an 8.5% premium over its closing price on November 17, 2006.

The final completion of the transaction is expected to take place in the first quarter of 2007. Equity Office's president and CEO said the following of the transaction, "Our ultimate goal has always been to maximize shareholder value, and we believe we have done that through the Blackstone Group, one of the world's premier private equity firms."

News of the transaction sent Equity Office shares soaring. The stock hit a new 52-week high and closed 7.7% higher than its opening price. The transaction also had a ripple effect throughout the commercial REIT sector. Other REITs seeing new 52-week highs on Monday included SL Green Realty (NYSE: SLG  ) , Boston Properties (NYSE: BXP  ) , and VornadoRealty Trust (NYSE: VNO  ) . Also standing to gain from the run-up the sector experienced on Monday: funds that invest heavily in office-space REITs, such as the CGMRealty Fund (FUND: CGMRX  ) and the ProFundsReal Estate UltraSector Investor Shares (FUND: REPIX  ) . These two funds were up 3% and 4.6%, respectively, on Monday.

While office-space REITs largely turned in strong earnings in their recent third quarters, I was expecting future stock price appreciation to be tempered in the sector, given that most of these REITs were already operating near maximum capacity and had realized huge run-ups in their stock prices in the past 12 months. While I am expecting most of these REITs to turn in strong fourth-quarter and full-year results, I would no longer be surprised to see the office-space REITs continue their run into 2007. Monday's transaction is a clear indication of the overwhelming demand for prime commercial real estate.

On the subject of the Equity Office transaction, JPMorgan analyst Anthony Paolone noted, "It demonstrates that the pool of capital available to purchase commercial real estate is enormous, and valuations, while historically quite high, are still acceptable to major institutions."

I'm inclined to agree with Mr. Paolone. For those Fools looking to jump into REITs, it still might not be too late, despite the high valuations. For those already holding shares of the aforementioned REITs, I wouldn't transition into a profit-taking mode at this point. Monday's happenings just might be a sign of more to come for this sector in 2007.

Related REIT Foolishness:

JPMorgan Chase is a Motley Fool Income Investor pick. Find the right fit for your personal investing needs by sampling any of our Foolish newslettersfree for 30 days.

Fool contributor Billy Fisher does not own shares of any of the companies mentioned.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 517505, ~/Articles/ArticleHandler.aspx, 10/26/2016 5:28:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:02 PM
BXP $122.89 Down -2.44 -1.95%
Boston Properties CAPS Rating: **
SLG $98.83 Down -1.67 -1.66%
SL Green Realty CAPS Rating: *
VNO $93.16 Down -1.08 -1.15%
Vornado Realty Tru… CAPS Rating: **