DENVER AND NEW YORK CITY — Global asset manager Apollo (NYSE: APO) and UDR Inc. (NYSE: UDR), a multifamily REIT based in Denver, are forming a new long-term joint venture involving an apartment portfolio valued at approximately $2 billion. The joint venture will own a portfolio of 19 communities totaling 7,059 apartments. The names and addresses of the properties were not released.
Under terms of the agreement, Apollo’s affiliates and funds managed by Apollo will invest $1.34 billion of equity capital into the newly established joint venture, representing an approximate two-thirds interest. UDR will retain a one-third interest and consolidate the joint venture, as well as operate and manage the portfolio, for which it will earn an asset management fee.
UDR plans to utilize the proceeds from the new equity capital infusion for investment in “higher-growth assets,” general corporate purposes and debt reduction. Tom Toomey, chairman, president and CEO of UDR, says that accessing low-cost, permanent equity capital has been a “strategic priority” for the company.
“With this transaction, we believe we will be positioned to take advantage of compelling opportunities in the marketplace while improving the quality of our wholly owned portfolio and strengthening our balance sheet,” says Toomey.
“This transaction provides a cost-efficient capital solution tailored to UDR’s needs,” adds Jamshid Ehsani, partner at Apollo.
As part of the agreement, UDR will retain an option to repurchase Apollo’s interest in the joint venture at an expected 7 to 7.5 percent fixed rate of return for a finite period starting at the fifth anniversary of closing. The closing is expected to occur on Thursday, Oct. 29, subject to “execution of the documentation” and other customary closing conditions.
Citigroup Global Markets Inc. and Wells Fargo Securities LLC acted as structuring agents and financial advisors to UDR in the transaction. Scotiabank acted as financial advisor to Apollo.
As of Sept.30, UDR owned or had an ownership position in 60,617 apartment homes, including 634 units under development. The company’s stock price closed on Wednesday, Oct. 21 at $35.04 per share, down slightly from $36.60 a year ago.
As of June 30, Apollo had approximately $1 trillion in assets under management. The firm’s stock price closed yesterday at $111.69 per share, down from $126.53 a year ago, an 11.7 percent decline.
— John Nelson