Home Properties Inc. , a multifamily real estate investment trust (REIT), has recently acquired ‘Howard Crossing’ – a 1,350-unit garden-style apartment community in Ellicott City, Maryland, for $186 million in cash. The company expects to incur an additional acquisition cost of approximately $2.2 million, which would be included as ‘other expenses’ in the operating results of the second quarter of 2012.
The purchase price equates to approximately $138,000 per apartment unit. The acquisition was partially funded by utilizing the proceeds from the issuance of $50 million worth of unsecured Senior Guaranteed Notes scheduled to mature on June 27, 2019. The remainder of the purchase price was funded through a combination of debt under the line of credit and a $100 million unsecured bank demand loan.
The apartment community has 680 one-bedroom units and 670 two-bedroom units, with the average unit size being 854 square feet. The property offers amenities such as two swimming pools, a business center, a fitness center, basketball courts and tennis courts.
The property is strategically located in close proximity to major employment centers and corporate campuses in the region. At the close of the transaction, the property was 92.6% occupied at monthly rents averaging $1,111 per unit. Home Properties further intends to spend approximately $12 million during the first three years of its ownership, in addition to normal capital expenditures, to upgrade the property.
Home Properties primarily operates along the East Coast of the U.S. The key target markets of the company include New York-Long Island/New Jersey, Boston, Washington D.C./Northern Virginia, Baltimore, Philadelphia and Chicago. The company typically invests $200 million - $300 million annually to acquire multifamily communities to fuel its growth engine.
Home Properties largely focuses on the relatively stable markets in the suburban region of major metropolitan areas that have significant barriers to new construction, a favorable supply/demand relationship, high single-family home prices, stable job growth, and reduced vulnerability to economic downturns.
We presently have a Neutral recommendation on Home Properties, which has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #4 Rank (short-term Sell rating) for BRE Properties Inc. , one of the peers of Home Properties.