Apartment REIT Privatization Delayed

Apartment owner and operator Archstone-Smith (NYSE: ASN) today announced it has pushed its expected acquisition by Tishman Speyer and Lehman Brothers back by a month.

On May 28, Denver-based Archstone-Smith agreed to be acquired by affiliates of Tishman Speyer Real Estate Venture VII L.P. and Lehman Brothers Holdings Inc. The closing was set to occur after Aug. 31 this year, pending shareholder approval and a governmental compliance review.

But in its second-quarter earnings report published today, Archstone-Smith moved the closing date on the proposal back until Oct. 5 or later. While the company’s discussion of the extension doesn’t make a direct cause-and-effect link, the earnings report states that the Aug. 5 amendment also removes a requirement that investors in Archstone-Smith Operating Trust release Archstone-Smith and the acquiring companies from any claims under previously existing tax protection agreements in order to receive the cash merger consideration for their shares.

Some investors in Archstone-Smith Operating Trust alleged, “among other things,” that requiring them to release the companies from claims under previous tax protection agreements wasn’t permissible, the report states. Further, those investors threatened to seek an injunction and monetary damages.

“Under the amendment to the merger agreement, Archstone-Smith and the buyer parties have agreed that such release would no longer be required for unit holders to elect to receive the cash merger consideration,” the earnings report states.

Holders of Archstone-Smith's common shares still will be entitled to receive $60.75 in cash, without interest and less applicable withholding taxes, for each common share that they hold immediately prior to the effective time of the merger. Holders of Archstone-Smith Operating Trust's Class A-1 common units will still receive, for each such unit, one newly issued Series O preferred unit of Archstone-Smith Operating Trust or a cash payment equal to $60.75, without interest and less applicable withholding taxes.

Archstone-Smith reported second-quarter funds from operations (FFO) of 45 cents per share, which was below an expected 57 cents to 58 cents projected by Goldman Sachs & Co.

“We attribute the 13 cent shortfall to weaker operating performance (-7 cents), merger-related costs (-3 cents) and lower Ameriton gains (-3 cents),” writes Goldman Sachs analyst Jonathan Habermann. Ameriton Properties Inc. is a private real estate investment company wholly owned by Archstone-Smith.

Lackluster quarterly results may raise concerns among investors that the merger won’t go through, resulting in shares trading at a lower price. Habermann suggests there could be a risk to closing the deal if credit conditions continue to deteriorate, but for now the second quarter results don’t pose much of a threat to the acquisition.

Archstone-Smith's common shareholders are slated to vote on the merger on Aug. 21 at a special meeting in Denver. Archstone-Smith shares were hovering around $56.51 during late afternoon trading today.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.