A Lone Star Funds affiliate agreed to buy U.S. apartment landlord Home Properties Inc. in a transaction valued at about $7.6 billion, including debt.
Lone Star will pay $75.23 a share in cash for the Rochester, New York-based company, giving the deal an equity value of about $4.36 billion. The price is 9.2 percent more than Home Properties’ closing share price on April 24, the last trading day prior to media reports of a possible buyout. Home Properties will become privately held when the transaction is complete, according to a statement Monday.
Lone Star, the Dallas-based private equity firm founded by billionaire John Grayken, will gain control of 121 communities with 41,917 apartment units, primarily along the East Coast. The transaction is the company’s second large apartment purchase recently, following the 2014 acquisition of a 64-property portfolio, according to Hugh J. Ward III, co-head of real estate investments at Lone Star Funds.
The Home Properties purchase is consistent with Lone Star’s strategy of buying second-tier apartment complexes such as workforce housing, rather than expensive new stock, Ward said in the statement.
The agreement includes a provision that allows Home Properties to solicit alternative proposals during the next 30 days in search of a better deal.
Also Monday, Home Properties said it agreed to sell as many as six communities with 3,246 units to UDR Inc., a Highlands Ranch, Colorado-based apartment landlord. The buildings are located primarily in the Washington, D.C., area and are valued at $908 million, UDR said in its own statement.
Shares of Home Properties climbed 1.8 percent Monday, closing at $74.01. UDR slipped 1 percent to $32.93.
Apartment building values have surged as Americans delay homeownership, boosting demand for rentals. Prices for U.S. multifamily buildings are about 28 percent above the previous peak reached in 2007, according to an index from Moody’s Investors Service and Real Capital Analytics Inc.
Lone Star Funds, with assets of about $60 billion, is known for its real estate plays including buying up soured mortgages. In October, the firm planned to raise $1 billion to invest in higher-risk mortgages granted to U.S. homebuyers unable to borrow from the nation’s biggest lenders.