CHICAGO--(BUSINESS WIRE)--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
company's 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 Residential's 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 company's 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.
Forward-Looking Statements
In addition to historical information, this press release contains
forward-looking statements and information within the meaning of the
federal securities laws. These statements are based on current
expectations, estimates, projections and assumptions made by
management. While Equity Residential's management believes the
assumptions underlying its forward-looking statements are reasonable,
such information is inherently subject to uncertainties and may
involve certain risks, including, without limitation, changes in
general market conditions, including the rate of job growth and cost
of labor and construction material, the level of new multifamily
construction and development, competition and local government
regulation. Other risks and uncertainties are described under the
heading "Risk Factors" in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission (SEC) and available on our
website, www.equityresidential.com. Many of these uncertainties and
risks are difficult to predict and beyond management's control.
Forward-looking statements are not guarantees of future performance,
results or events. Equity Residential assumes no obligation to update
or supplement forward-looking statements that become untrue because of
subsequent events.
Equity Residential, an S&P 500 company, is the largest publicly
traded apartment company in America. Nationwide, Equity Residential
owns or has investments in 896 properties in 31 states and the
District of Columbia consisting of 190,621 apartment units. For more
information on Equity Residential, please visit our website at
www.equityresidential.com.
Lexford Portfolio Rollforward Since Acquisition
Purchase/ Purchase/
Sale Price Sale Price
Properties Units ($ Per Unit
Millions)
----------- ----------- ----------- -----------
October 1, 1999 402 36,609 $737.9 $20,155
Acquisitions:
Rental Properties 11 915 29.1 31,788
Land parcels (one) - - 1.3
Dispositions:
Rental Properties (116) (10,217) (268.2) (26,253)
Land parcels (three) - - (0.6)
Configuration changes (5) (15)
Properties to be sold
separately (3) (177)
----------- -----------
As of May 31, 2006 289 27,115 (1,086.0) (40,052)
2006 Earnings Guidance (per share diluted)
Q2 2006 Q2 2006
Original Lexford Sale Revised
Guidance Adjustments Guidance
--------------- --------------- ---------------
Expected EPS (1) $0.61 to $0.66 $(0.02) $0.62 to $0.64
Add: Expected
depreciation expense 0.47 - 0.47
Less: Expected net
gain on sales (1) (0.53) - (0.53)
--------------- --------------- ---------------
Expected FFO (2) (3) $0.55 to $0.60 $(0.02) $0.56 to $0.58
=============== =============== ===============
2006 2006
Original Lexford Sale Revised
Guidance Adjustments Guidance
--------------- --------------- ---------------
Expected EPS (1) $2.73 to $2.93 $1.38 $4.16 to $4.36
Add: Expected
depreciation expense 1.71 (0.06) 1.65
Less: Expected net gain
on sales (1) (2.14) (1.37) (3.51)
--------------- --------------- ---------------
Expected FFO (2) (3) $2.30 to $2.50 $(0.05) $2.30 to $2.50
=============== =============== ===============
(1) Earnings per share ("EPS") represents net income per share
calculated in accordance with accounting principles generally
accepted in the United States. Expected EPS is calculated on a
basis consistent with actual EPS. Due to the uncertain timing and
extent of property dispositions and the resulting gains/losses on
sales, actual EPS could differ materially from expected EPS.
(2) The National Association of Real Estate Investment Trusts
("NAREIT") defines funds from operations ("FFO") (April 2002 White
Paper) as net income (computed in accordance with accounting
principles generally accepted in the United States), excluding
gains (or losses) from sales of depreciable property, plus
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated
to reflect funds from operations on the same basis. Expected FFO
is calculated on a basis consistent with actual FFO.
(3) The Company believes that FFO is helpful to investors as a
supplemental measure of the operating performance of a real estate
company, because it is a recognized measure of performance by the
real estate industry and by excluding gains or losses related to
dispositions of depreciable property and excluding real estate
depreciation (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates), FFO can help compare the operating performance of
a company's real estate between periods or as compared to
different companies. FFO in and of itself does not represent net
income or net cash flows from operating activities in accordance
with GAAP. Therefore, FFO should not be exclusively considered as
an alternative to net income or to net cash flows from operating
activities as determined by GAAP or as a measure of liquidity. The
Company's calculation of FFO may differ from other real estate
companies due to, among other items, variations in cost
capitalization policies for capital expenditures and, accordingly,
may not be comparable to such other real estate companies.
Source: Equity Residential