CHICAGO-Sam Zell’s Equity Residential reported a strong fourth quarter Thursday in a conference call, though it lost about $5 million in a failed bid for a 26.5% interest in Denver-based Archstone. The trust still may try to put in another $1.3 billion offer, though Lehman Bros. still has the right of first refusal, but Equity may gain up to $80 million in the deal if the second bid also fails.
The locally based multifamily REIT reported a gain in funds from operations in the fourth quarter 2011 to 64 cents per share, about $201 million, from 45 cents per share, about $136 million, in fourth quarter 2010. David Neithercut, CEO and president, said during the call that the performance was a result of continued strength in fundamentals, driven by a population that’s shunning home ownership and embracing the flexibility of rental housing. He said severely limited supply, causing high occupancy and raised rental rates, will create a good 2012 rental year for the company.
The firm has spent about $5 million total on the bid to acquire the Archstone shares from the owners, a partnership of Bank of America and Barclays Bank, though Lehman ultimately bought those shares to boost its ownership of Archstone to 73.5% of the company. Lehman has said it doesn’t want competitor Equity to own any part of Archstone, though a bidding war for the remaining shares could set up a bidding war that Lehman, just emerging from bankruptcy, may not be able to afford.
Equity has until Feb. 19 to put in a second offer of $1.3 billion, raised from a $500 million expansion of the firm’s existing unsecured line of credit and a new $500 million delayed draw term loan. “We’ve not yet made any such offer, although I expect that we certainly would,” Neithercut said. “But we’re not obligated to do so. And any offer that we do make will again be subject to Lehman’s right to match it. And if they do, we’ll receive a break-up fee that’s a function of the size of our bid, and that break-up fee could be as little as nothing or as much as $80 million.”
Mark Parnell, CFO and EVP, said that the $5 million in costs involved in making the first bid will pretty much cover the second bid as well, though that figure would go up considerably if the Equity bid was accepted. Neithercut wouldn’t comment on whether the firm will make a bid or not. “I think there’s an $80 million sort of payment sitting there on the table, and I’m not quite sure how we’d go forward without taking it,” Neithercut said.
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