* Biggest U.S. commercial real estate IPO ever
* Has large and very attractive property portfolio
* But Lehman has huge stake which may put some investors off
* Lehman to sell stake eventually under bankruptcy exit plan
* Seen as barometer for other possible property IPOs
By Ilaina Jonas
Nov 19 Archstone Inc, the apartment building
owner and developer owned by Lehman Brothers Holdings Inc, said
on Monday it plans to raise up to $3.45 billion in its initial
public offering, making it the biggest U.S. commercial real
estate IPO ever.
If the listing, which will be in the form of a real estate
investment trust or REIT, takes place this year, it would be the
third largest U.S. IPO of 2012, behind Facebook Inc and
Banco Santander's Mexican unit.
Archstone's filing did not reveal how many shares the
company planned to sell or the expected price. Some analysts
have estimated the company's worth at about $16 billion but the
company has been selling assets, making it difficult to value.
While Archstone has a large and highly attractive portfolio
of properties, it also bears the dubious honour of being cited
as one of the primary reasons behind Lehman's collapse.
Lehman's huge stake in the company, estimated at some $6
billion to $7 billion, and the eventual sale of that stake which
must take place under the bank's bankruptcy exit plan may put
off some investors.
"There's a lot of hair on this deal any way you want to
slice it," said Andrew McCulloch, a senior analyst at Green
Archstone will be listed on the New York Stock Exchange with
the ticker "ASN". As a REIT, it can avoid paying corporate level
income taxes if it distributes at least 90 percent of its
taxable income to shareholders in the form of dividends.
The IPO will also be closely watched as a barometer of how
well other real estate companies, such as Blackstone Group LP's
Hilton Hotels, could do in a public offering.
Archstone owned or had an interest in 169 U.S. apartment
communities, or 54,442 units as of Sept. 30, nearly all of which
are located in coastal areas that command higher rents. Most
are in Southern California, the San Francisco Bay Area,
Southeast Florida, and the metropolitan areas of Washington,
D.C., New York, Boston and Seattle.
The average monthly rent for Archstone's apartments in those
areas was $2,408 in the third quarter, while for the whole
portfolio, average monthly revenue for an apartment was $2,168
and the occupancy rate was 94.2 percent.
"It's good quality stuff," Adelante Capital Management Vice
President Len Rittberg said. "It will definitely be a relevant
name for anyone that's invested in REITs."
Archstone, based in Englewood, Colorado, also has another
dozen communities, or 3,506 apartment units, under construction.
It owns land for 28 more developments and has an interest in 10
apartment properties in Germany.
Archstone, however has a higher debt load relative to its
earnings than most other apartment REITS and its past debt woes
were partly behind Lehman's collapse.
Lehman and Tishman Speyer acquired Archstone Smith, one of
the largest owners of U.S. apartments, through a $23.7 billion
leveraged buyout in 2007.
As real estate values fell and credit began to dry up,
Archstone could not sell buildings to repay some of its loans.
Its lenders ended up owning the company in 2010, with Lehman
getting 47 percent and other banks a combined 53 percent.
When apartment values rebounded, Lehman sought to spin off
Archstone in an IPO, but the banks balked. Ultimately, Lehman
bought out the other stakes in two separate transactions for
about $2.98 billion. The deals were completed in June.
As of Sept. 30, Archstone's debt adjusted for certain
transactions associated with the IPO and the sales of certain
assets, was $4.7 billion. The IPO proceeds will be used to repay
debt for other general working capital expenses.
By the end of 2013, Archstone expects to sell $1 billion of
additional properties, a substantial portion of which are
already on the market, and its debt to EBITDA (earnings before
interest, taxes, depreciation and amortization) ratio could be
7.5 or less, the company said.
The average debt to EBITDA ratio for apartment REITs is in
the mid 6s, according to Green Street.
The company said Citigroup and JP Morgan are underwriting