Honey, I’m comin’ home
Equity Residential and AvalonBay Communities have agreed to purchase apartment owner Archstone from Lehman Brothers Holdings in a $16 billion transaction. Equity Residential and AvalonBay will pay $6.5 billion for Archstone, and assume its $9.5 billion in debt. Equity Residential will have 60% of Archstone’s assets while AvalonBay will take the remainder, giving Archstone more exposure in the mid-Atlantic and Northeastern states while AvalonBay will beef up its presence in Southern California. Both buyers are planning to issue stock to help finance the deal. Prior to the transaction, Lehman was looking at taking Archstone public, filing for a $3.5 billion IPO last week. However, the IPO faced hurdles, particularly its high debt load relative to other public apartment companies, as well as a concentrated ownership base. Additionally, the sale will accelerate repayment to Lehman’s creditors.
AvalonBay Communities (AVB : NYSE : US$132.35), Net Change: 3.40, % Change: 2.64%, Volume: 3,339,641
Equity Residential (EQR : NYSE : US$55.25), Net Change: 0.82, % Change: 1.51%, Volume: 5,447,641
Canaccord Genuity U.S. Portfolio Strategist Tony Dwyer was recently asked why he is so positive on the U.S. equity markets given the numerous negative economic events occurring across the globe. His response? Forget about what we think, feel or fear and go with what has proven to work: 1) The driver of the equity market is the direction of earnings – POSITIVE; 2) The direction of earnings is driven by economic activity – POSITIVE; 3) Economic activity is driven by the availability of money – POSTIVE; 4) Availability of money is driven by Fed policy – POSITIVE; and 5) Fed policy is driven by core inflation – POSITIVE. Dwyer’s 2013 S&P 500 (SPX) target remains 1,650. He notes that history, global monetary policy, and the fundamental sweet spot of U.S. economic data argue strongly for better performance as we move through the end of Q4/12 and into next year. He remains optimistic due to further evidence of sustainable improvement in: 1) consumer sentiment; 2) employment; 3) credit availability; and 4) housing. Dwyer’s “Overweight” sectors remain Consumer Discretionary, Information Technology, Financials and to a lesser degree Industrials.