After Morgan Stanley's letter of interest in late September, AMLI Residential directors hired J.P. Morgan as the company's financial adviser, chairman and chief executive officer Gregory T. Mutz reports in what could be his company's last earnings conference call Wednesday. J.P. Morgan solicited 10 prospective buyers, narrowed the field to three, two and finally last weekend, Morgan Stanley, Mutz adds. "We touched all the key bases," he says.

Directors concluded the time was right to capitalize on high values for class A multifamily properties, and there was more risk continuing as a public company, Mutz says. The 22,492-unit portfolio is being valued in the neighborhood of a 5% to 6% capitalization rate, he adds, comparable to most class A assets in high barrier to entry markets. At its most recent stock price, AMLI Residential has a market capitalization of $970 million, less than half the price Morgan Stanley has agreed to pay.

AMLI Residential's co-investment strategy may have been too confusing to Wall Street, Mutz suggests, but is understood by Morgan Stanley. While AMLI Residential owns five local apartment complexes outright, it has partnered on six others, including a 20% share of the relatively new AMLI at Seven Bridges in Woodridge and a 25% stake in AMLI at Museum Gardens in Vernon Hills. "Morgan Stanley viewed our co-investment business quite favorably," Mutz says.

Complying with reporting requirements by the Sarbenes-Oxley Act "is more difficult and more costly" for a small-capitalization company such as AMLI Residential, Mutz claims. "From my perspective, this is an outstanding transaction for our shareholders, employees and co-investment partners," he says.

Instant Insights /

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