(US) Archstone-Smith buyout a gigantic gamble: Barron's

Archstone-Smith buyout a gigantic gamble: Barron's

http://www.reuters.com/article/businessNews/idUSN1044236520070610?feedType=RSS

Sun Jun 10, 2007 4:55PM EDT

NEW YORK (Reuters) - The buyout of real estate investment trust Archstone-Smith (ASN.N: Quote, Profile, Research) is a "gigantic gamble," with interest costs for financing the deal likely to exceed operating income, the financial newspaper Barron's said in its June 11 edition.

In May, Archstone-Smith, which owns a portfolio of apartments in markets like New York, Southern California and the San Francisco Bay area, agreed to be acquired by Tishman Speyer and investment bank Lehman Brothers Holdings Inc.

(LEH.N: Quote, Profile, Research).

Barron's said the buyout group is paying $60.75 a share for Archstone, or nearly $16 billion, and the company also has $6 billion of debt.

It said the buyers will borrow $17.1 billion to purchase the company and put up $5.1 billion of equity. But Barron's said the interest tab on the $17 billion of debt could top $1 billion, exceeding net operating income this year, which may total $800 million. A sale of assets might not cover the shortfall, the article said.

"Given the financial underpinnings of the Archstone buyout, investors in the company's shares may soon go from hoping for a higher bid to simply wishing the current deal gets done," Barron's said.

Barron's said Archstone shares, which traded at $51 before the deal, traded at $60.50 on Friday as investors bet there might be a higher bid.

shows how desperate private equity is spending money under huge time pressure.

dislosure: short reit index