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Lehman Brothers Chapter 11 Examiner’s Report 2 of 9

Lehman Brothers Chapter 11 Examiner’s Report 2 of 9

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Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner’s Report, Volume 2 - Section III.A.2: Valuation; Section III.A.3: Survival. The Examiner in this matter was Anton R. Valukas, Chairman of Jenner & Block.
Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner’s Report, Volume 2 - Section III.A.2: Valuation; Section III.A.3: Survival. The Examiner in this matter was Anton R. Valukas, Chairman of Jenner & Block.

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Published by: Cervino Institute on Mar 13, 2010
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The Sum of the Parts analysis performed by the Examiner’s financial advisor for

the second quarter of 2008 is similar to the analysis performed for the first quarter.  This

analysis was updated to reflect the additional write‐downs that Lehman took during

the second quarter.  As a result of the write‐downs taken during the second quarter,

and assuming the platform continued to be valued at $1 billion, Lehman’s valuation as

of the second quarter implied a going‐in capitalization rate on the core portfolio that

was closer to 4.5% than 4.25%, as shown in the table below.

1765 Id.; Lehman, Discussion / Valuation Materials (May 21, 2007), at p. 8 [LBEX DOCID 1695375].

1766 Memorandum from David Augarten, Tishman Speyer, et al., to R. Scot Sellers, Archstone, et al.,
Archstone Update (Mar. 24, 2008), at p. 1 [LBEX‐DOCID 2932586].

1767 Id.

477

Going‐In Capitalization Rate Sensitivity Analysis (Q2 2008)

Core Portfolio Cap Rate

4.11% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%

Reduction in Total Equity Value

0 596 1,551 2,406 3,175 3,871 4,504 5,081 5,611

Reduction in Lehmanʹs Equity (46.8%)

0 279 726 1,126 1,486 1,812 2,108 2,378 2,626

Write‐Downs Taken by Lehman as of Q2 2008 637 637 637 637 637 637 637 637 637

Incremental Write‐Downs

(637) (358) 89 489 849 1,175 1,471 1,741 1,989

As discussed above, the average going‐in capitalization rate for Archstone assets

that were sold, under contract, or in negotiation during 2008 was approximately 5.00%.

As illustrated in the table above, a going‐in capitalization rate of 4.75% results in a $489

million incremental write‐down, and a 5.0% going‐in capitalization rate results in an

$849 million incremental write‐down.

A Lehman research report dated May 2008 published for publicly traded

apartment REITs (which was circulated to Jonathan Cohen) noted an average going‐in

capitalization rate of 6.1% for the industry.  AvalonBay had the lowest capitalization

rate at 5.5%.1768  Applying this 5.5% going‐in capitalization to Archstone would support

a $1.471 billion write‐down.

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