Associated Estates Realty Corporation is to purchase a seven-asset portfolio of class A apartment communities located in the Southeast and Mid-Atlantic.
The 1,606-unit portfolio is comprised of 462 stabilised units, 349 units currently in lease-up and 795 units being constructed by the current owner that will be sold to the company upon their completion. The portfolio is located in high growth submarkets in the Raleigh-Durham, Charlotte, Atlanta and Tampa markets.
The portfolio has an aggregate purchase price of approximately USD324m, resulting in a blended nominal cap rate of 5.5 per cent on year one stabilised net operating income. Six assets will be acquired free and clear of debt, while The Apartments at Blakeney acquisition will include the assumption of a USD28m loan. The portfolio has an average year built of 2012.
The company intends to fund the purchase of the portfolio principally from the proceeds of property dispositions over the next 12 months. The contemplated dispositions are primarily located in the Southeast and Mid-Atlantic. Among the dispositions that will fund the portfolio purchase are five assets with secured debt that is being repaid on 1 October 2013. These five assets have an average age of 23 years and were purchased in 1998 for a total of USD99m. Proceeds from these asset sales are expected to be in the range of USD230m to USD240m. These sales would result in a blended, unlevered IRR in excess of 13 per cent.
"This portfolio acquisition is consistent with our plans to continue to grow younger in markets with strong household formations and high paying jobs. The expected pricing for the properties we plan to sell, once again, demonstrates our ability to create significant value from buying, developing and managing apartment communities. These new acquisitions should position Associated Estates to continue to deliver sector leading same community NOI growth over a long period of time," says Jeffrey I Friedman (pictured), president and chief executive of Associated Estates.