Lehman Selling Shares of Equity Residential, AvalonBay

Lehman Brothers Holdings Inc. is selling about half the shares it owns in Equity Residential and AvalonBay Communities Inc., the two largest U.S. apartment companies, removing a weight on multifamily stocks.

Lehman’s Jupiter Enterprise LP affiliate is offering 15.1 million shares in Equity Residential, the largest U.S. real estate investment trust focused on apartments, and 7.87 million shares in AvalonBay, the second-biggest, the REITs said yesterday in separate statements. Jupiter had been barred from selling the stock under a lock-up period that ended last month.

Lehman acquired the shares when it sold its biggest property holding, apartment owner Archstone Inc., to Equity Residential and AvalonBay earlier this year in a deal valued at $6.5 billion in cash and stock. The share sale eliminates an “overhang” from multifamily stocks, whose performance had been lagging behind other commercial property types because of concern that Lehman would liquidate its stakes, Richard Anderson, a REIT analyst from BMO Capital Markets in New York, said in a report today.

“The smoother the shares are released into the market, the smoother the runway will be for the sector to make up lost ground,” Anderson wrote. “We can envision a positive reaction in multifamily stocks -– on the view that the end would then be in sight.”

Share Performance

A Bloomberg index of 16 multifamily REITs gained 2.3 percent in the past 12 months, compared with an average of 20 percent for the entire REIT sector. Offices, the second-worst performer after apartments, rose 16 percent in the same time period.

The shares of AvalonBay are being offered for $137 each, the Arlington, Virginia-based company said today in a statement. The shares of Chicago-based Equity Residential were priced at $58.40, according to data compiled by Bloomberg.

AvalonBay climbed 0.3 percent to $138.99 today in New York trading. Equity Residential rose 1.8 percent to $60.18.

Lehman is the second-largest shareholder of both apartment REITs, with 34.5 million Equity Residential shares and 14.9 million shares of AvalonBay as of March 31, Bloomberg data show. The sale reduces its holdings to about 5 percent of each company, Anderson estimated.

“Our guess is that Lehman thinks it is selling enough to relieve the burden of the overhang, while providing it a still sizable opportunity to sell the rest at a higher level,” Anderson wrote. “We believe Lehman may be committed to holding the remaining shares for an extended period.”

Goldman Sachs Group Inc. is the underwriter for both share offerings.

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