Archstone-Smith estimates a portfolio acquisition yield of approximately 5.75%, based on a 12-month forward-looking estimate of net operating income, before reserves for capital expenditures. The closing of the portfolio will occur in several stages, a majority of which are expected to close late in the second quarter of 2005, subject to completion of Archstone-Smith's due diligence review and customary closing conditions.

More than 40% of the portfolio is within walking distance of current Archstone-Smith communities. The company targets submarkets with large barriers to entry. Approximately 78% of the portfolio is concentrated in Archstone-Smith's core markets, including 40%in neighborhoods in Southern California, 20% in the Washington, DCMetropolitan Area and an additional 18% in the San Francisco Bay Area, Boston, Chicago and Seattle.

"The acquisition of this exceptionally well-located portfolio is a perfect fit with our emphasis on improving the quality of our portfolio with every investment we make," says R. Scot Sellers, chairman and chief executive officer. "We believe that this transaction further solidifies our dominant ownership position in many of the most protected submarkets in the country. Our relative out-performance in same-store net operating income during the last four years clearly illustrates the long-term benefits of building a dominant position in locations characterized by expensive single-family home prices, limited land for new housing, and diverse economies with strong job growth potential."

The closing of the portfolio will increase Archstone-Smith's presence in Southern California to 22% from 19% of its total portfolio, giving the company a concentration in key submarkets including Marina del Rey,Universal/Studio City, Warner Center, Pasadena and La Jolla--all locations where it is difficult to build or acquire new housing.

Under the terms of the agreement, Archstone-Smith will manage15 of the assets under the Archstone-Smith brand name. In addition, Archstone-Smith will enter into master lease agreements through whichOakwood will lease back and continue to manage the remaining 15 Oakwood furnished apartment communities for seven years. Archstone-Smith will receive a specified contractual base rent payment fromOakwood, which will then be adjusted annually by the percentage change in the average same-store net operating income growth rate for properties owned by Archstone-Smith in the same submarket.

Archstone-Smith will use cash on hand, proceeds from the sale of non-core assets, existing debt capacity and assumption of outstanding secured debt to fund the deal. In addition, certain of the portfolio's equity owners are expected to elect to receive some or all of the consideration in new Archstone-Smith common units. Howard F. Ruby, chairman of Oakwood, says the deal will let the "investors in the property owning partnerships achieve the financial flexibility they have long desired."

Instant Insights /

Archstone-Smith, Oakwood Agree to $1B-Plus Deal

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