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Associated Estates Realty Corp (AEC - Snapshot Report) inked a definitive purchase deal to buy a seven-asset portfolio of Class-A apartment communities. These properties are located in the high growth submarkets of Southeast and Mid-Atlantic regions in the U.S. The acquisition is expected to close between fourth-quarter 2013 and first-quarter 2014.

Monetary Details

The $324 million worth portfolio acquisition is expected to be funded mainly through the proceeds from divestiture of other assets, primarily those in the Southeast and Mid-Atlantic, over the next year.

Notably, among the properties to be divested, there are five assets having a secured debt to be paid off on Oct 1, 2013. Associated Estates Realty expects the proceeds from divestiture of these five assets sale, which were bought in 1998 for a total of $99 million, to be in the range of $230–$240 million. 

Portfolio Details

The seven-asset portfolio comprises 1,606 units, which include 795 units under development that will be sold to Associated Estates Realty upon completion by the current owner. Notably, the portfolio is expected to generate a blended nominal cap rate of 5.5% on stabilized net operating income in the first year.

The portfolio comprises three properties in Charlotte (The Apartments at Blakeney, Alpha Mill Phase I and Alpha Mill Phase II) and one each in Raleigh (St. Mary's Square), Cary (Lofts at Weston), Atlanta (Perimeter Town Center) and Tampa (Varela).

Conclusion

This premium portfolio acquisition depicts Associated Estates Realty's strategy of meeting the growing demand for apartments, driven by the rise in well-paying jobs. Notably, demand for apartments has been driven by ‘echo boomers’ – children of the baby boomer generation – and has induced apartment real estate investment trusts (REITs) to acquire or develop communities in vibrant markets across the U.S.

We are optimistic about this latest move of Associated Estates Realty, given the favorable economic factors and the affluent location of the acquired communities. As a matter of fact, Associated Estates Realty – which primarily owns and manages apartment communities in the Midwest, Mid-Atlantic and Southeast regions – currently, owns 51 properties containing 13,171 units located across 10 states.

Associated Estates Realty currently carries a Zacks Rank #4 (Sell). However, REITs that are performing better and deserve a look include Campus Crest Communities, Inc. (CCG - Snapshot Report), CBRE Group Inc. (CBG - Analyst Report) and Highwoods Properties Inc. (HIW - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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