Archstone to Acquire Rival for $2.2 Billion

Archstone Communities Trust said Friday that it agreed to buy rival Charles E. Smith Residential Realty Inc. for $2.2 billion in stock in a deal that would make it the No. 2 apartment real estate investment trust and ramp up its presence in higher-growth urban markets.

Sales at Archstone, an Englewood, Colo., owner and operator of garden-style apartments in U.S. suburban markets including Southern California, would be second only to Equity Residential Properties Trust upon completion of the acquisition.

The deal calls for the exchange of 1.975 shares of the combined company, Archstone-Smith Trust, for each Smith Residential share, the companies said. Archstone said it also would assume $1.4 billion in Smith Residential debt.

The deal values Arlington, Va.-based Smith Residential, which focuses on urban high-rise apartments, at $49.73 per share, a 9.2% premium on Thursday’s closing price of $45.56.

“It looks like they’re paying the full price,” said Lehman Bros. analyst David Shulman, who valued Smith Residential’s net assets at $49.80 a share.

More than 70% of Archstone-Smith’s investments would be in the Washington metropolitan area, Boston, Chicago, the San Francisco Bay Area, Southern California, southeast Florida and Seattle.

The new company would operate out of corporate headquarters in the Denver area.

As investors reacted to the short-term aspects of the dilution figures, Archstone shares were down $1.28, or 5%, at $23.90 on the New York Stock Exchange. In the last year, the stock has ranged from $21.06 to $26.56.

Smith Residential was up 44 cents at $46 on the NYSE, the high end of a 52-week range of $37.13 to $48.25.