UPDATED: Nation's Largest Apartment Owners Snap Up Lehman Assets And Nearly $10B In Debt
Equity Residential (NYSE: EQR
) and AvalonBay Communities, Inc. (NYSE: AVB
) have agreed to buy Archstone Enterprise LP from Lehman Brothers Holdings Inc. for $6.5 billion in cash and stock.
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EQR will acquire about 60% and AvalonBay will acquire about 40% of the assets and liabilities Archstone, Lehman's single largest asset, under the terms of the transaction expected to close during the first quarter of 2013.
The surprise announcement renders moot Englewood, CO-based Archstone's previously announced plans to raise $3.45 billion through an initial public offering, trading on the New York Stock Exchange under the symbol ASN. The offering would have been the largest real estate IPO in history.
The combined price for the assets includes $2.7 billion cash, a fixed number of shares of Equity Residential and AvalonBay’s common shares valued at $3.8 billion as of Friday's Nov. 23 market close and the assumption of about $9.5 billion in debt and $330 million in preferred equity.
Of the assumed debt, about $8.6 billion is held by Fannie Mae and Freddie Mac, which have each agreed to the deal.
Equity Residential will acquire 78 apartment properties consisting of 23,110 units with an average monthly rent of $2,492 per unit. The deal values the residential portion of these stabilized operating properties at $367,003 per apartment unit at a 5% capitalization rate. Adjusted for transaction costs and the debt mark-to-market, the cap rate would be about 4.7%.
The transaction includes 24 properties totaling 7,578 units in Washington, D.C.; 14 properties and 4,827 units in San Francisco; 12 properties/3,374 units in Southern California, 10 properties/2,638 properties in New York; 8 properties/1,984 units in Seattle; one 196-unit property in South Florida, and two other properties totaling 672 apartments.
In addition, Equity will acquire four properties under development, including one each in the D.C. metro area, San Francisco, Phoenix and South Florida, and 15 land sites mostly in its core markets to be held for future development. The company will also acquire a 60% interest in a joint venture with AvalonBay
"Archstone's assets will fit perfectly into the Equity Residential portfolio, further improve the overall quality of our assets and add scale to our operating platform in our core markets," said David J. Neithercut, Equity Residential’s President and CEO. "Furthermore, by funding much of this acquisition with proceeds from the sale of assets in our non-core, exit markets, we are accelerating the completion of the total transformation of our portfolio.
"As a result, Equity Residential's future earnings and shareholder return will be derived from the highest quality assets in the nation's high-barrier, high-growth coastal markets," Neithercut said.