AvalonBay Communities, Inc. (NYSE: AVB) along with Equity Residential (NYSE: EQR) announced today that the companies entered into an agreement (“Agreement”) with Lehman Brothers Holdings, Inc. (“Lehman”) to acquire the assets and liabilities of Archstone Enterprise LP (“Archstone”), which consist principally of a portfolio of high quality apartment communities in major markets in the United States, for approximately $16 billion in the aggregate. Under the terms of the Agreement, AvalonBay will acquire approximately 40% of Archstone’s assets and liabilities and Equity Residential will acquire approximately 60% 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 stipulated fixed number of shares of AvalonBay and Equity Residential common stock valued at $3.8 billion as of the market’s close on Friday, November 23, 2012, (iii) the assumption of approximately $9.5 billion of consolidated and unconsolidated debt at Archstone’s share, and (iv) preferred equity units with a redemption value of $330 million as of September 30, 2012. Of the debt to be assumed, approximately $8.6 billion is held by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which has provided written consent to the assumption of this debt by AvalonBay and Equity Residential, subject to satisfactory documentation. The debt from Fannie Mae and Freddie Mac, as well as the other debt to be assumed, includes certain tax exempt bonds and other single asset loans for which additional consents will be needed from parties such as bond issuers, joint venture partners and debt servicers. The weighted average Capitalization Rate (as defined later in this press release) for the entire portfolio is projected to be in the high 4% range.
AvalonBay’s portion of the purchase price consists of (i) $669 million in cash, (ii) 14,889,706 shares of AvalonBay common stock, valued at $1.9 billion as of the market’s close on Friday, November 23, 2012 of $128.54 per share, (iii) the assumption of indebtedness with a face value of approximately $3.9 billion, (iv) obligations related to preferred equity units with a redemption value of $132 million as of September 30, 2012, and (v) the assumption of 40% of all other liabilities, known and unknown, of Archstone, other than certain excluded liabilities. The $3.9 billion debt assumption consists of (i) $3.7 billion in principal amount for consolidated borrowings and (ii) $238 million in principal amount for our proportionate share of debt related to unconsolidated joint ventures. Contemporaneously with entering into the Agreement with the seller, AvalonBay has also obtained a commitment from Goldman Sachs Lending Partners LLC to provide a $2.2 billion bridge loan facility, which has been sized appropriately should the additional lender consents, noted above, not be received.