Equity Residential (NYSE: EQR) today announced that the company and AvalonBay Communities, Inc. (“AvalonBay”) (NYSE: AVB) have entered into an agreement with Lehman Brothers Holdings Inc. (“Lehman”) to acquire, for approximately $16 billion, the assets and liabilities of Archstone Enterprise LP (“Archstone”), which consists principally of a portfolio of high-quality apartment properties in major markets in the United States. Under the terms of the agreement, Equity Residential will acquire approximately 60% of Archstone’s assets and liabilities and AvalonBay will acquire approximately 40% of Archstone’s assets and liabilities. The transaction is expected to close during the first quarter of 2013.
The combined purchase price for the assets consists of (i) $2.7 billion in cash, (ii) a fixed number of shares of Equity Residential and AvalonBay’s common shares valued at $3.8 billion as of the market’s close on Friday, November 23, 2012, and (iii) the assumption of approximately $9.5 billion of debt and $330 million of preferred equity. Of the debt to be assumed, approximately $8.6 billion is held by Fannie Mae and Freddie Mac, each of which has agreed to the assumption of this debt by Equity Residential and 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."
Archstone Assets being acquired by Equity ResidentialEquity Residential will acquire 78 wholly-owned stabilized operating properties, consisting of 23,110 apartment units with an average monthly rent of $2,492 per unit. The transaction values the residential portion of these stabilized operating properties at $367,003 per apartment unit. The capitalization (cap) rate is approximately 5.0%. When adjusted for transaction costs and the debt mark-to-market, the cap rate would be approximately 4.7%.