Peppertree Farm (881 units) was purchased for $103.9 million, including closing costs, which equates to approximately $118,000 per unit. Consideration included $50.1 million of Operating Partnership (OP) units in Home Properties, L.P. The OP units are exchangeable for shares of HME common stock on a one-for-one basis after a one-year holding period. For purposes of determining the number of OP units issued, a value of $48.50 per unit was set.
"The $48.50 per unit value, a premium of more than 16% over the closing price of Home Properties' stock on the closing date of the acquisition, affirms both parties' confidence in the future appreciation of Home Properties' common shares," said Edward J. Pettinella, Home Properties President and CEO. "We believe the value also reflects anticipated future results from current business plans and operating strategies."
The $53.8 million balance of the purchase price, as well as $26.7 million used to pay down the Company's line of credit, was funded with mortgage debt of $80.5 million fixed for a 10-year term at an interest rate of 5.25% with Freddie Mac through M & T Realty Capital Corp. The property is currently 92.6% occupied with monthly rents averaging $1,081.
Peppertree Farm was built in two phases in 1972 and 1978, the first two of the five phases that make up the entire Peppertree Farm and Cinnamon Run sites. Peppertree Farm has 62 three- and four-story buildings. The property has convenient access to the Washington, D.C. metropolitan area via Interstate 495 and the Metro. Buildings are of wood frame construction on concrete block foundations with brick exteriors. The unit mix consists of 285 one-bedroom, 475 two-bedroom and 121 three-bedroom apartments. The average apartment size is 1,051 square feet. Dens are available in both the one- and two-bedroom floor plans. Peppertree uses a ratio utility billing system (RUBS) to bill residents for water and sewer as well as natural gas costs. Each apartment has a washer and dryer. Amenities include a large community center with fitness center, tennis courts and pool, all of which are shared with Cinnamon Run.
During the first few years of ownership, the Company expects to spend a total of approximately $6.2 million in improvements to correct deferred maintenance and upgrade the property. Management anticipates a 6.1% weighted average first year capitalization rate on this acquisition. (The return is calculated after allocating 3.0% of rental revenues for management and overhead expenses and before normalized capital expenditures of approximately $525 per unit annually.)
Cinnamon Run (511 units) is located adjacent to Peppertree Farm. The total purchase price of $67.7 million, including closing costs, equates to approximately $132,500 per apartment unit. Consideration included $52.3 million in 10-year fixed mortgage debt at an interest rate of 5.25% with Freddie Mac through M & T Realty Capital Corp. The balance was funded through the Company's line of credit. The property is currently 96.9% occupied with monthly rents averaging $1,086.
Built in 1979 and 1982, Cinnamon Run consists of 32 four-story buildings. Buildings are of wood frame construction on concrete block foundations with exteriors predominantly brick with vinyl and wood accents. Roofs are pitched with asphalt shingles. The property uses a RUBS program for all water and sewer costs and for gas heating costs at 175 units. The balance of units' gas costs are individually metered by the utility. The unit mix consists of 180 one-bedroom units, 280 two-bedroom and 51 three-bedroom units. Dens are available in both the one- and two-bedroom floor plans. Each apartment has a stackable washer and dryer. The average apartment size is 1,006 square feet. Amenities include a playground area and shared use of Peppertree Farm's pool, community center and tennis courts.
During the first few years of ownership, the Company expects to spend a total of approximately $1.9 million in improvements to correct deferred maintenance, upgrade the property's curb appeal and install new kitchens and baths. Management anticipates a 6.2% weighted average first year capitalization rate on this acquisition. (The return is calculated after allocating 3.0% of rental revenues for management and overhead expenses and before normalized capital expenditures of approximately $525 per unit annually.)
Stock Repurchase Update
Previously, the Company indicated that the level of stock it repurchased in the fourth quarter of 2005 would vary depending upon the level of acquisitions completed. Since it last reported on repurchased shares in November, the Company bought back an additional 802,800 shares in the fourth quarter for approximately $32.9 million, or a weighted average price of $41.03 per share. During 2005, Home Properties repurchased a total of 2,887,605 common shares for approximately $116.2 million at a weighted average price of $40.24 per share.
This release contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, weather, other conditions that might affect operating expenses, the timely completion of repositioning activities within anticipated budgets, the actual pace of future acquisitions and sales, and continued access to capital to fund growth.
Home Properties is the sixth largest publicly traded apartment company in the United States. A real estate investment trust with operations in selected Northeast, Midwest, Mid-Atlantic and Southeast Florida markets, the Company owns, operates, acquires and rehabilitates apartment communities. Currently, Home Properties operates 158 communities containing 47,001 apartment units. Of these, 43,432 units in 153 communities are owned directly by the Company; 868 units are partially owned and managed by the Company as general partner, and 2,701 units are managed for other owners. For more information, visit Home Properties' Web site at www.homeproperties.com.