Government Properties may sell notes for $1.4 billion purchase of First Potomac

By Devika Patel

Knoxville, Tenn., June 27 – Government Properties Income Trust plans to use funds from a stock sale, additional debt, including senior notes, mortgage financing and perhaps bank debt or proceeds from the sale of properties to fund its $1.4 billion acquisition of First Potomac Realty Trust.

Government Properties announced Wednesday that it will acquire First Potomac for $11.15 per share in cash plus the repayment or assumption of First Potomac debt, according to a press release.

The cash consideration amounts to approximately $683 million.

Government Properties also expects to repay approximately $418 million of First Potomac debt and assume about $232 million of First Potomac mortgage debt.

Government Properties may use borrowings under its existing revolving credit facility and a new 364 day, fully committed bridge loan facility for up to $750 million of the financing for the transaction.

The new, $750 million 364-day senior unsecured bridge loan facility was negotiated with Citigroup Global Markets Inc., Bank of America, NA, Morgan Stanley Bank, NA and UBS AG, Stamford Branch, on June 27

Interest will accrue on the bridge loan at Libor plus 140 basis points per year.

The existing unsecured revolving credit facility is also for $750 million.

Government Properties also announced Wednesday morning an offering of 25 million shares via bookrunners Citigroup BofA Merrill Lynch, Morgan Stanley and UBS Investment Bank.

The company’s stock closed at $21.90 per share on Tuesday afternoon.

A greenshoe could increase the stock sale by up to 3.75 million shares.

“The acquisition of [First Potomac] enables [Government Properties] to expand its business strategy to include the acquisition, ownership and operation of office properties leased to both government and private sector tenants in the metropolitan Washington, D.C. market area,” president and chief operating officer David Blackman said in a press release.

“The metropolitan Washington, D.C. market area is one of the largest office markets in the U.S. and the nation’s largest beneficiary of spending by the U.S. government.

“In addition to this transaction providing [Government Properties] with new potential growth opportunities, we expect to realize approximately $11 million of annual general and administrative expense savings compared to [First Potomac] on a stand-alone basis.

“We are also pleased that we were able to achieve an attractive per-share purchase price,” he stated.

The transaction is expected to close before year-end 2017.

Government Properties is a Newton, Mass.-based real estate investment trust. First Potomac is a Bethesda, Md.-based real estate investment trust that focuses on industrial properties and business parks in the Washington, D.C., metropolitan area.

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