Cash-strapped Powerwave Technol-ogies Inc., a maker of cellular base station gear for wireless networks, is selling its Santa Ana headquarters in one of the larger office deals of the year.
The company last week announced it was selling the building to AG Net Lease Acquisition Corp., a unit of New York-based private equity company Angelo Gordon & Co.
The 367,045-square-foot property, located at 1801 E. St. Andrew Place, is slated to sell for about $49.6 million, or about $135 per square foot.
It’s an all-cash deal that’s expected to close by the end of the month.
Powerwave, which is estimated to employ about 250 people in Santa Ana, isn’t planning to leave the two-story building. It expects to lease back the property from the new owners under a long-term lease.
The deal calls for Powerwave to pay a little under $4 million a year in rent at the start of the lease, which runs for 15 years and has two 10-year extension options, according to regulatory filings.
The lease works out to an initial monthly rent of about 90 cents per square foot for the 22-year-old building, which is located just off Edinger Avenue, a few blocks from the Costa Mesa (55) Freeway.
The transaction appears to be the largest sale-leaseback deal—where an owner sells its building and then leases that space back from the buyer—that Orange County’s commercial real estate market has seen in several years.
Private capital and institutional investors such as Angelo Gordon & Co. tend to view sale-leaseback deals as stable sources of cash flow. The deals also allow companies that don’t think owning property is a productive use of their capital a chance to raise money and shed real estate.
Some business owners also might be looking at sales-leaseback deals as a way to pay down debt or as a quick way to raise cash during a tough market.
· Headquarters: Santa Ana
· Business: cellular base station equipment for wireless networkswireless networks
· Founded: 1985
· Ticker symbol: PWAV (Nasdaq)
· Market value: about $125 million
· Notable: $49.6 million sale-leaseback deal for HQ preceded big cut in Q3 outlook, drastic decline in share price
Tough Week
Powerwave, which had a brutal last week on Wall Street, could use the proceeds from the sale.
The company had more than $200 million of outstanding debt at the start of July, when it completed a $100 million private placement. It used about $50 million from the private placement to pay off existing debt, and another $25 million to repurchase stock, according to filings with the Securities and Exchange Commission.
In the company’s last quarterly report, filed in August, Powerwave warned that unless it was able to improve its ability to generate cash, it “may not have sufficient funds available to pay our maturing debt.”
The company’s sale plans for its headquarters were overshadowed last week by actions on Wall Street.
Powerwave’s stock plummeted after it made a drastic cut on its revenue expectations for the recently ended quarter.
The company said it will likely have revenue between $75 million to $79 million for its third quarter, which ended Oct. 2. Wall Street analysts on average had expected revenue between $162 million and $175 million.
Powerwave makes antennas, filters and other equipment for cell phone towers.
Its devices capture and boost radio signals between cell phones and base stations inside towers.
Spending Slowdown
The company cited a “significant” slowdown in spending by North American network operators and the stalled merger between AT&T Inc. in Dallas and Bellevue, Wash.-based T-Mobile USA Inc., the U.S. wireless operation of Deutsche Telekom AG for the revenue drop.
It also said it’s seeing less demand from its manufacturing customers, along with weakness in international markets.
Investors last week sent Powerwave shares down nearly 50% on the pessimistic earnings news. As of Friday, the company counted a market value of about $125 million, down about 50% for the week.
Powerwave is scheduled to report earnings for its third quarter on Nov. 1.
Earlier Talks
The sales-leaseback transaction had been proposed by Powerwave well before last week’s stock meltdown—the company’s headquarters had been on the market since last year, according to brokerage data.
The property was previously listed for sale at about $54.5 million, or about $5 million more than what the building ended up selling for, according to data from market tracker LoopNet Inc.
The building’s replacement cost was estimated to be about $89.5 million, according to brokerage data. Along with the existing building, the property includes about 2.9 acres of land that could be used for parking or another development.
Powerwave paid about $35.3 million for the property in 2000, buying the building from Boeing Realty Corp. and moving its headquarters to the new location from Irvine.
Biggest Lately
The Powerwave deal is one of the largest local property acquisitions that affiliates of Angelo Gordon & Co. are believed to have made in recent years.
Last year the private equity fund partnered with Dallas-based Lincoln Property Co. to buy Griffin Towers, an office complex in Santa Ana’s South Coast Metro area.
The two 14-story buildings at Griffin Towers sold for a combined $90 million, or about $167 per square foot.
Among local non-real estate investments, Angelo Gordon & Co. is a shareholder in Irvine-based Freedom Communications Inc., publisher of the Orange County Register.
