Archstone-Smith chairman and CEO R. Scot Sellers says his company has always been committed to maximizing value for its shareholders. Never was that more accurate than on May 29, when the Denver-based REIT announced that it had signed a definitive agreement to be acquired for $60.75 per share by a partnership sponsored by Tishman Speyer and Lehman Bros.
The upshot to investors: a promised 22.7 percent premium on their Archstone holdings as of May 24 should the Tishman deal go through. Including the assumption and refinancing of of Archstone's debt and excluding transaction costs, the $22.2 billion deal represents the largest public-to-private merger and acquisition transaction in the multifamily REIT sector.
According to analysts, the Archstone deal signals a continuation of the privatization trend among large publicly traded REITs that receive little to no valuation from Wall Street for development pipelines but are still subject to market volatility. “Obviously no one is untouchable,” says Rod Petrik, an analyst for Stifel Nicolas, who also pointed to the recent Blackstone/Equity Office Property deal as a standout privatization. “As long as there is this disconnect between public market valuations and private capital, I'd expect this thing to happen.”
Indeed, Petrik says that Wall Street speculation about additional REIT deals is “running rampant.” He notes that firms that have created strong internal standards and processes and also have large pipelines would likely be looked at with the most interest. Rumors circulating in the analyst community also say that Tishman Speyer is already actively marketing the sale of portions of Archstone's portfolio, Petrik says, including properties in New York, New Jersey, and Southern California.
“By doing that, my guess is that [they] are selling assets that would probably go for sub-4 cap rates, therefore increasing the average cap rate on the rest of the portfolio,” Petrik says. “Still, I don't think the deal overall is a chop-shop type of effort as much as it is buying a platform to grow it.”
Public statements by executives at Archstone and Tishman would seem to confirm that outlook. (Archstone officials are currently in a quiet period, and a spokesperson for Tishman did not return calls to MFE.) In addition to his comments on maximizing shareholder value, Sellers said in a statement announcing the deal that “Archstone-Smith has created a fantastic portfolio of apartment communities and has developed an industry-leading platform that includes more than 2,500 talented associates who are vital to our success. We are looking forward to continuing to provide great apartments and great service to our customers as part of the Tishman Speyer family and continuing to grow our business for many years to come.”
According to the announcement, Sellers has reached an agreement with Tishman Speyer to remain in a management position at the company. Unanimously approved by Archstone-Smith's board of trustees, the merger agreement is subject to a vote of all shareholders and other customary closing conditions. Barring any unforeseen developments—including the possibility of another party making a more lucrative offer for Archstone—the deal is expected to close in the third quarter of 2007.