This excerpt taken from the EQR 8-K filed Jun 29, 2006.
CHICAGO, IL JUNE 28, 2006 - Equity Residential (NYSE: EQR), today announced that the company has agreed to sell its Lexford Housing Division to affiliates of Empire Group Holdings LLC, a privately held company based in Montvale, New Jersey, for a cash purchase price of $1.086 billion. The companys Board of Trustees has approved the sale, which is expected to close in the fourth quarter of 2006. While the closing is subject to the satisfaction of certain customary closing conditions, the transaction is not contingent on receipt of financing by the buyer or subject to any due diligence contingencies. The buyer has deposited in escrow a nonrefundable earnest money cash deposit of $40 million.
The Lexford Housing Division is comprised of 289 properties, built between 1976 and 1989, consisting of 27,115 apartment units located in ten states and a property management business, consisting of approximately 800 employees, headquartered in Columbus, Ohio.
Our Lexford Division played an important part in the growth of Equity Residential and performed very well for us, generating an unlevered internal rate of return of 15 percent, said David J. Neithercut, Equity Residentials President and CEO. We will use the proceeds of this transaction to continue transforming our portfolio by reducing the number of markets in which we operate and focusing on markets that we believe will provide better growth prospects and higher total returns.
The purchase price is equivalent to $40,052 per apartment unit. The capitalization rate, after capital replacements of $400 per apartment unit, on 2006 net operating income is 7.4 percent. Equity Residential purchased Lexford Residential Trust, then consisting of 36,609 apartment units, in 1999 for approximately $738 million, or $20,155 per unit. Including previous asset sales, with this anticipated closing the
company will have received total gross sales proceeds of approximately $1.35 billion from the disposition of its Lexford assets. A summary of the companys Lexford ownership from the 1999 acquisition through this sale is attached.
The company expects to record a total book gain of approximately $430 million. The company will receive approximately $850 million of net sale proceeds after closing expenses and repayment of approximately $210 million of secured debt.
This sale will result in Funds from Operations (FFO) dilution of approximately $0.05 per share in 2006, comprised of approximately $0.02 per share in the second quarter from non-recurring items related to early debt extinguishment and approximately $0.03 per share in the fourth quarter from recurring operations.
On an annualized basis, FFO dilution will be approximately $0.10 per share. However, this dilution will be partially offset by a reduction in capital expenditures of approximately $18 million or $0.06 per share because the proceeds from this transaction will likely be invested in significantly fewer apartment units.
As a result, the company is revising its second quarter FFO guidance range to $0.56 to $0.58 per share from $0.55 to $0.60 per share and its EPS guidance range to $0.62 to $0.64 per share from $0.61 to $0.66 per share and believes that for the full year 2006, FFO will be in the middle of the $2.30 to $2.50 per share range provided in its first quarter earnings release on May 2, 2006. The company is also revising its annual EPS guidance due primarily to the increased anticipated gain on sale. See the attached schedule for this revised guidance.
The company will release its second quarter 2006 results on Tuesday, August 1 and host a conference call to discuss those results on Wednesday, August 2 at 10 am CT.
Equity Residential was advised by JPMorgan on this transaction.