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Equity Residential, Lexford set for fall '99 marriage

Chicago - Chicago-based Equity Residential Properties Trust (EQR) and Columbus, Ohio-based Lexford Residential Trust have entered into a $733 million merger agreement. The merger, which is expected to be completed in November, was approved by EQR's and Lexford's Boards of Trustees. The merger will create the EQR Lexford division, with Leslie Fox, Lexford's CEO, joining EQR as the new division's president.

The Lexford portfolio contains 402 properties consisting of approximately 37,000 units in 16 states. EQR is buying a core portfolio of 32,898 units and interests in another 3,711 units. The Lexford purchase increases EQR's portfolio by nearly 19%.

"[EQR] shareholders will benefit from the fact that this transaction adds a new sector to our core strengths and will be immediately accretive to earnings," says Douglas Crocker, EQR president and CEO. "Lexford shareholders gain a more diversified investment with expanded resources and access to capital."

Lexford shareholders will receive .463 EQR common shares for each Lexford common share held. The tax-free merger calls for EQR to issue approximately 4.5 million new EQR common shares and assume approximately $530 million of debt.

Salomon Smith Barney, Bear Stearns and Duff & Phelps Credit Rating Co. look favorably on the merger and predict the transaction will be successful based on EQR's acquisition track record.

According to David Sherman of Salomon Smith Barney, the returns on EQR's equity over time should be "above average." However, Sherman also recommended traders wait to buy EQR "on weakness," and he did not expect EQR to do much near term.

Ross Smotrich and Mitch Rosen of Bear Stearns say they view the transaction more favorably than others on Wall Street based on their "sense of the real estate." They reiterated the buy rating on the EQR stock and raised their 1999 FFO estimate to $4.46 per share while raising the 2000 estimate from $4.80 to $4.92 per share.

Standard & Poor's, however, is viewing the marriage with some skepticism. S&P has placed EQR on CreditWatch with "negative implications." This listing affects about $2.3 billion of debt and $1.3 billion of preferred stock. The listing, S&P officials say, is driven by uncertainties related to the quality of Lexford's portfolio and the longer term implications of the transaction. S&P plans to meet with management officials to discuss the strategic implications of the merger.

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