WASHINGTON, DC—Private equity fund Lone Star is acquiring the multifamily REIT Home Properties for $7.6 billion, including its debt. The deal has ramifications for the industry beyond just its size: a REIT is being taken private -- a once popular transaction type not seen recently. It also illustrates Lone Star's mammoth purchasing power as it is an all cash transaction. The deal is discussed in greater detail here.
On a local level the deal has ramifications as well, as it is giving Denver-based UDR a greater presence in the DC market.
This is a separate but related transaction in which UDR will acquire up to six communities valued at $908 million in exchange for a combination of common units of the newly formed operating partnership of the company, as well as cash and the assumption of debt. The estimated year-one cap rate on the transaction is approximately 5.2%.
The properties are Eleven55 Ripley and 1200 East West in Silver Spring, MD; Courts at Huntington Station, Arbor Park of Alexandria and Newport Village in Alexandria, VA; and The Courts at Dulles in Herndon, VA.
It also should be noted that there are a number of issues to be navigated before UDR will be able to claim all six assets.
Nevertheless, assuming the deal goes through as planned, UDR is looking forward to its enhanced footprint in the area.
"This accretive transaction is consistent with our strategic plan, as we are able to acquire the communities at favorable market pricing, fund the transaction with equity capital issued in line with NAV and improve our balance sheet metrics," said Tom Toomey, president and chief executive officer of UDR in a prepared statement.
The average occupancy of the properties is 90%, with an average monthly revenue per occupied home of $1,873.
UDR is funding the transaction by issuing up to $753 million of UDR OP Units issued at $35 per unit. It is also assuming $90 million of debt and $65 million in cash.
Each Home Properties unitholder will be able to elect to receive cash from Lone Star or the UDR OP Units. This mix will be determined at the closing of the consent solicitation of the Home OP unitholders, expected around mid-August, 2015.
UDR's acquisition, in short, will depend on how many Home OP unitholders elect to receive UDR OP units. Therefor it is possible the REIT will wind up acquiring less than six properties or possibly will acquire some of the properties through a 1031 exchange.
In addition, the entire transaction is contingent on Lone Star closing the acquisition of Home Properties in the first place.
If the deal does go through, it will be accretive to UDR's 2016 FFO, FFO as Adjusted and AFFO by approximately $0.015 per share.
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