Archstone Inc. (ASN:US), the U.S. apartment landlord that’s being taken public by the estate of Lehman Brothers Holdings Inc., sold or plans to sell assets worth $1.77 billion between June 30 and the end of 2013 to reduce debt as it prepares for an initial public offering.
The Englewood, Colorado-based company has sold or agreed to sell about 15 properties for $765.1 million since June, according to an amended S-11 filing yesterday. Archstone also plans to shed another 13 buildings valued at $1 billion and will secure an option to require Lehman to buy them at the end of next year if it doesn’t find another purchaser, the filing said.
Archstone has been moving to reduce indebtedness left from the October 2007 buyout of the real estate investment trust by investors including Lehman, as the defunct securities firm’s estate sells assets to repay creditors. The eighth-largest U.S. apartment-property manager has total consolidated debt of almost $9.64 billion, according to yesterday’s filing. Archstone’s total liabilities of $9.97 billion represent 60.5 percent of total assets of $16.47 billion, the filing showed.
“These transactions would drop their leverage into the mid-50 percent range, still higher than any other apartment REIT,” said Andrew McCulloch, a managing director at Green Street Advisors Inc., the Newport Beach, California-based property research firm. The average debt ratio for U.S. apartment REITs is about 35 percent, McCulloch said.
Plans for an IPO come as the Bloomberg REIT Apartment Index (BBREAPT) is down 8 percent from a July 17 high. Apartment occupancies rose in the third quarter at the slowest pace in more than two years as record low mortgage rates in the U.S. spur would-be renters to buy homes instead, according to Reis Inc. (REIS:US)
Apartment stocks had surged after REIT landlords increased rents by 19 percent between the market’s low-point at the end of 2009 through the second quarter of 2012, according to Dallas- based Axiometrics Inc. While rents are projected to keep climbing through 2017, the rate of annual growth peaked in the second quarter of 2011 at 5.1 percent. Rents are on pace to rise about 4 percent nationally this year, Axiometrics said.
Lehman filed Aug. 11 to take Archstone public after battling billionaire Sam Zell to get full control of the company, setting the stage for a multibillion-dollar IPO later this year or early next. Lehman exited bankruptcy in March.
Peter Jakel, a spokesman for Archstone, and Kimberly Macleod, a spokeswoman for Lehman, both declined to comment on the amended filing.
Since June 30, Archstone sold or placed under contract for sale properties with 4,411 units that generated $16.8 million of revenue during the quarter ended June, according to yesterday’s filing. The properties are located in Arizona, California, Washington, Colorado, Maryland and Georgia.
Archstone completed $504.6 million of sales since June 30 and has contracted to sell another $260.5 million of properties since then, for a total of $765.1 million, the filing said.
The company also said it will enter into an option on 13 other properties with 4,495 units that generated $21.7 million in revenue for the quarter ended June 30. Archstone will have the right to sell the properties to Lehman for about $1 billion on Dec. 31, 2013, if it doesn’t find another buyer before then, the filing said.
The 13 properties that are subject to the put option are located in Virginia, Maryland, California, Massachusetts, Washington and Georgia, according to the filing.
Archstone owned all or part of 174 apartment complexes in the U.S. with 56,525 units as of June 30, as well as eight properties under construction with 2,830 units, according to the filing. They are located mainly in Washington, Southern California, the San Francisco area, Boston and Seattle.
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