Big apartment REIT nears Sale of more than 12 Billion

Tishman Speyer Properties and Lehman Brothers Holdings Inc. yesterday were near a deal to purchase Archstone-Smith Trust, one of the nation's leading apartment real-estate trusts, for more than $12 billion, according to people familiar with the matter.

A deal could be announced as early as today, these people said. Exact terms of the transaction couldn't be learned, but Archstone-Smith's market capitalization is $12.3 billion and an agreement would likely involve a premium. The buyers also would assume $6.3 billion in debt.

That would make the deal one of the largest privatizations of a public REIT. It comes on the heels of Blackstone Group's $23 billion buyout of Equity Office Properties Trust in February. Shares of Archstone-Smith rose sharply Friday following reports that Tishman and Archstone were in discussions about a transaction. By the end of trading, shares were at $55.23 each, up $4.10, or 8%.

Under the terms of the deal, Lehman will join closely held Tishman in owning Archstone, a significant move for the Wall Street investment bank. Details of Lehman's involvement in the deal couldn't be learned.

Archstone-Smith, Englewood, Colo., is the second-largest public apartment company in terms of real-estate value and market capitalization, after Equity Residential Property Trust. It owns 86,000 apartments in 344 complexes concentrated in dense urban areas such as Washington, New York, Boston, Los Angeles and San Francisco. Charles Mueller, Archstone's chief financial officer, declined to comment yesterday.

The apartment company has a pipeline of $1.8 billion worth of new apartments under construction, with an additional $2.6 billion worth in the planning stages. It recently has begun to operate abroad, something that could appeal to Tishman Speyer, which is active internationally. Last year Archstone acquired German apartment owner DeWAG, enlarging Archstone's German portfolio to more than 7,600 units.

Most privatizations have gone after weak performers. Archstone, however, has been a top company in the apartment world. As a class, the apartment industry has lagged behind this year as doubts about the overall economy lowered expectations for landlords to raise rents significantly. Mr. Leupold estimates that before talk of the bid and an account of the talks were reported in trade publication REIT Wrap, its stock traded at a 13% discount to its net asset value, a measure of the company's underlying real-estate assets. Archstone's stock had dropped 20% from its high of $64.77 a share in January to around $51 a share last week.

Tishman Speyer, based in New York, is one of the country's largest real-estate development companies, with office buildings and apartment properties on four continents. Materials provided by the company say Tishman Speyer has managed more than 14,000 apartment units. In October, the firm teamed up with BlackRock Inc. to acquire Stuyvesant Town and Peter Cooper Village, two apartment complexes on New York City's east side, from MetLife Inc. for $5.4 billion, making it one of the largest single real-estate transactions in U.S. history and in many ways a symbol of the recent commercial-real-estate boom.


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