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Farallon Capital Management Acquires Catellus Non-Core Assets
Catellus to Act as Development Manager
SAN FRANCISCO, Nov. 23 /PRNewswire-FirstCall/ -- Catellus Development
Corporation (NYSE:CDX) announced today that an affiliate of San Francisco-based
Farallon Capital Management, L.L.C. ("Farallon") has acquired a significant
portion of Catellus' remaining urban and residential development assets. The
$343 million purchase price consists of $69 million in cash and approximately
$274 million in debt financed by Catellus subsidiaries that is secured by the
assets sold. Catellus expects to generate approximately $36 million of
additional revenue from the debt financing. Farallon has engaged a Catellus
subsidiary to act as Development Manager for the assets. According to the
terms of the Development Agreement, Catellus has the potential to earn
approximately $78 million in development and incentive fees. In total, the
projected revenues from the transaction -- including interest, and development
and incentive fees -- could exceed $450 million.
Non-Core Assets Included in the Sale
-- All of the remaining undeveloped land, infrastructure obligations, and
outstanding infrastructure reimbursements receivables at Mission Bay,
including parcels under contract for sale that have not yet closed, but
excluding the 9.65-acre land parcel that Catellus recently announced it
is negotiating to ground lease to University of California, and
excluding all previously developed parcels (Avalon Bay I and II land
leases, Mission Place land lease, GAP office building, and Glassworks
commercial space);
-- The last remaining undeveloped parcel and infrastructure obligations at
Santa Fe Depot in San Diego;
-- West Bluffs, a 114-unit single-family home development in the
Westchester-Playa del Rey area of Los Angeles; and
-- All of Catellus' interest in the residential project at Bayport, a
485-unit single-family home development in Alameda, including its joint
venture interest and rights under the development agreement. The
commercial development component in Alameda, on a site adjacent to
Bayport, is not included in the sale.
Farallon's purchase includes certain land parcels subject to existing third
party purchase and sale agreements totaling over $200 million. Catellus
expects Farallon to close these transactions according to the terms of the
existing purchase and sale agreements.
"When we announced our decision to convert to a REIT in March 2003, we stated
our intent to monetize our historic urban and residential assets and reinvest
the capital into our core business," said Nelson C. Rising, chairman and CEO of
Catellus. "With the completion of this transaction, we have accelerated
significantly the progress we've been making toward reaching that goal. The
transaction substantially reduces our risk exposure to these assets, achieves
values in excess of book value, provides a near-term use of capital through our
role as lender, and allows for potentially significant financial remuneration
through our role as a fee developer. We think Farallon is the ideal party to
be acquiring these assets; they bring experience, creativity, and flexible
capital, allowing the development projects to proceed as originally planned and
us to meet our stated goal."
As a condition of this transaction, Catellus is subject to limited and defined
ongoing financial obligations for the assets sold. Catellus reserved for these
financial obligations as part of the closing. In general, Catellus will
continue to provide warranties for all prior development improvements, and
Farallon will take responsibility for all future development obligations. It is
anticipated that Farallon will contribute an additional $60 million of equity
capital to the projects over the first six months for infrastructure costs and
other obligations. As a result of this transaction, Catellus projects a gain
for tax purposes of approximately $50 million.
Rocky Fried, managing member of Farallon Capital Management, L.L.C. states,
"Farallon has been engaged in residential, commercial, and leisure property
transactions since 1994. Our years of experience and flexible capital give us
the unique ability to do large-scale transactions in relatively short periods
of time. We are pleased to be working with Catellus in this transaction and to
help them reach their goal."
Debt Financing Terms
The debt financing has a six-year term, includes annual amortization
requirements, and has release price mechanisms requiring the loan be paid down
as Farallon sells the assets. The assets involved in the transaction secure
the debt financing. Catellus expects the debt financing to be fully repaid in
less than three years. The interest rate accrues quarterly, at annual rates
starting at 12 percent and declining to 10 percent over time, but requires
mandatory interest payments of 6 percent per annum. The financing also
includes upfront fees and prepayment penalties, and is expected to generate
approximately $36 million in revenues over its life.
As part of preexisting purchase and sale agreements with third parties for
approximately $200 million of potential sales (mentioned above), Catellus
remains committed to providing debt financing to certain buyers at loan to
value ratios of 60 percent to 80 percent, with terms ranging from one to two
years, following the execution of those sales transactions by Farallon.
Development Agreement Terms
Catellus will act as Development Manager for Farallon under a Development
Agreement. Under the agreement, Catellus is entitled to approximately $37
million in base development management fees over a ten-year period, with timing
based on revenues generated and expenses incurred. Also, under the agreement,
Catellus has the potential to earn incentive fees of up to $28 million, based
on the amount and timing of certain land sales at Mission Bay and West Bluffs,
and a promoted interest of approximately $13 million in the event Farallon
achieves returns in excess of 18 percent.
Impact on FFO
Catellus expects that the transaction will result in a slight increase in Core
Segment FFO for 2004 due to development agreement fees and interest income from
the debt financing, offset by less capitalized interest and general and
administrative costs. The impact on Core Segment FFO for 2005 is not certain,
at this time, due to the timing of principal payments and the effects of less
capitalized interest and expenses.
Projected uses for the initial cash proceeds from the sale include taxes, a
special dividend, and general business purposes. As a result of the sale and
other taxable REIT subsidiary activities, Catellus anticipates declaring a
special dividend in December 2004 of approximately $0.30-$0.45 per share that
would be paid in January 2005. The actual amount is subject to Catellus Board
of Directors approval, the financial condition and earnings of the company, and
other factors, many of which are beyond the company's control.
Non-Core Assets Remaining After the Sale
-- A 9.65-acre site entitled for approximately one million square feet of
commercial development at Mission Bay that Catellus recently
announced it is negotiating to ground lease to University of
California. Upon commencement of the ground lease, the rent on the
99-year lease would be included in Catellus' rental portfolio. Final
lease terms will be announced upon execution of the lease;
-- The remaining development land at Los Angeles Union Station;
-- Oceanside, a five-block land site in Oceanside, California, which is
under contract to sell for an estimated $14 million;
-- Parkway, a residential community development in Sacramento, California,
which will be substantially complete by the end of the second quarter
of 2005. Parkway has approximately $11 million of cash flow remaining;
-- Serrano, a residential community development in Sacramento, California,
which Catellus is currently negotiating to sell;
-- Mission Place at Mission Bay. As previously announced, Catellus and a
joint venture partner entered into a contract to sell the leasehold
interest in Mission Place from which Catellus expects to receive
approximately $25 million. Catellus will continue to own fee interest
in the land and include ground rent on the ground lease in its rental
portfolio;
-- Cash flow from tax increment bonds and profit participation at
Victoria-by-the-Bay, a completed residential development in Hercules,
California, that is expected to total $3.5 million annually by 2008, at
full build-out, and grow annually through 2044, as property assessments
increase;
-- The two commercial components at Glassworks: Catellus has placed one
component under contract to sell to one party and is negotiating the
sale of the second component to another party for a total of
approximately $8.6 million; and
-- The Prop 10 building, an office building currently under construction
at Los Angeles Union Station with a total projected cost of
approximately $10 million, $7.1 million of which has been spent as
"Urban, Residential, and Other Segment, Work-in-Progress", as of
September 30, 2004.
About Catellus Development Corporation
Catellus Development Corporation is a publicly traded real estate development
company that began operating as a real estate investment trust effective
January 1, 2004. The company owns and operates approximately 40.7 million
square feet of predominantly industrial property in many of the country's major
distribution centers and transportation corridors. Catellus' principal
objective is sustainable, long-term growth in earnings, which it seeks to
achieve by applying its strategic resources: a lower-risk/higher- return
rental portfolio, a focus on expanding that portfolio through development, and
the deployment of its proven land development skills to select opportunities
where it can generate profits to recycle back into its core business. More
information on the company is available at http://www.catellus.com/.
About Farallon(R)
Farallon Capital Management, L.L.C.(R) was founded in March 1986 by Thomas F.
Steyer. Farallon(R) is based in San Francisco, California, and is a registered
investment adviser with the U.S. Securities and Exchange Commission. The firm
manages equity capital for institutions and high net worth individuals. More
information regarding Farallon(R) may be found at
http://www.faralloncapital.com/.
Except for historical matters, the matters discussed in this release are
forward-looking statements that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements about
plans, opportunities, and development. We caution you not to place undue
reliance on these forward-looking statements, which reflect our current beliefs
and are based on information currently available to us. We do not undertake any
obligation to publicly revise these forward-looking statements to reflect
future events or changes in circumstances, except as may be required by law.
These forward-looking statements are subject to risks and uncertainties that
could cause our actual results, performance, or achievements to differ
materially from those expressed in or implied by these statements. In
particular, among the factors that could cause actual results to differ
materially are: changes in the real estate market or in general economic
conditions, including a worsening economic slowdown or recession; non-renewal
of leases by tenants or renewal at lower than expected rates; difficulties in
identifying properties to acquire and in effecting acquisitions on advantageous
terms and the failure of acquisitions to perform as we expect; our failure to
divest of properties on advantageous terms or to timely reinvest proceeds from
any such divestitures; our failure to qualify and maintain our status as a real
estate investment trust under the Internal Revenue Code; product and
geographical concentration; industry competition; availability of financing and
changes in interest rates and capital markets; changes in insurance markets;
losses in excess of our insurance coverage; discretionary government decisions
affecting the use of land, including the issuance of permits and acceptance of
the design and construction of infrastructure improvements, and delays
resulting therefrom; disputes related to and delays in the payment of bond
reimbursements for infrastructure costs; changes in the management team;
weather conditions and other natural occurrences that may affect construction
or cause damage to assets; changes in income taxes or tax laws; environmental
uncertainties, including liability for environmental remediation and changes in
environmental laws and regulations; failure or inability of parties or third
parties to fulfill their commitments or to perform their obligations under
agreements; failure of parties to reach agreement on definitive terms or to
close transactions; increases in the cost of land and construction materials
and availability of properties for future development; limitations on, or
challenges to, title to our properties; risks related to the financial strength
of joint venture projects, co-owners, and owners for whom we provide
development services; changes in policies and practices of organized labor
groups; shortages or increased costs of electrical power; risks and
uncertainties affecting property development and renovation (including
construction delays and cost overruns); other risks inherent in the real estate
business; and acts of war, other geopolitical events and terrorists activities
that could adversely affect any of the above factors. For further information,
including more detailed risk factors, you should refer to Catellus Development
Corporation's annual report on Form 10-K for the fiscal year ended December 31,
2003, and its report on Form 10-Q for the quarter ended September 30, 2004,
filed with the Securities and Exchange Commission.
Contacts:
Margan Mitchell
VP Corporate Communications
Catellus Development Corporation
415-974-4616
Media Contact for Farallon(R):
The Abernathy MacGregor Group
Steven Bruce / Kathleen Merrigan
212-371-5999
DATASOURCE: Catellus Development Corporation
CONTACT: Margan Mitchell, VP Corporate Communications of Catellus
Development Corporation, +1-415-974-4616; or Steven Bruce and Kathleen
Merrigan, both of The Abernathy MacGregor Group, +1-212-371-5999, for Farallon
Capital Management, L.L.C.
Web site: http://www.faralloncapital.com/
Web site: http://www.catellus.com/