ATLANTA AND RALEIGH, N.C. — Preferred Apartment Communities (NYSE: APTS) has agreed to sell a portfolio of office assets in Atlanta and North Carolina to Highwoods Properties Inc. (NYSE: HIW). The deal, which is expected to close during the third quarter, is valued at $717 million and includes $28 million of planned improvements and $5 million in transaction costs.
The sale comprises the bulk of Preferred Apartment Communities’ (PAC) office assets. Joel Murphy, president and CEO of the Atlanta-based REIT, says that the sale of the office portfolio is part of a larger plan to simplify its real estate footprint. The company also sold a portfolio of student housing properties last year as part of that plan.
Capitol Towers (pictured) is a two-building complex in Charlotte’s SouthPark submarket. The 479,000-square-foot property is part of the $717 million portfolio that PAC is selling to Highwoods Properties.
“Upon closing, PAC’s real estate portfolio will be further streamlined with an increased primary weighting on our core, Class A, suburban Sun Belt multifamily business and our complementary 100 percent grocery-anchored Sun Belt retail investments,” says Murphy, referring to PAC’s wholly owned retail investment subsidiary New Market Properties LLC.
The portfolio sale to Highwoods includes seven properties in Atlanta, Charlotte and Raleigh. The assets include:
• 150 Fayetteville, a 560,000-square-foot tower in downtown Raleigh
• Capitol Towers, a two-building complex in Charlotte’s SouthPark submarket totaling 479,000 square feet
• CAPTRUST Tower, a 300,000-square-foot tower in Raleigh’s North Hills district
• Morrocroft Centre, a three-building complex in Charlotte’s SouthPark submarket totaling 291,000 square feet
• Encore Center, a 111,000-square-foot complex located in Atlanta’s Cumberland-Galleria submarket that will be redeveloped into a mixed-use project
• Armour Yards, an adaptive reuse office complex in Atlanta totaling 187,000 square feet, and
• 251 Armour, a 36,000-square-foot creative office complex in Atlanta
As part of the transaction, PAC will separately market Armour Yards and 251 Armour for sale to a third party. Those sales may close earlier or later than the third quarter depending on whether PAC chooses to sell them to a third-party purchaser or requires Highwoods to purchase them after the primary portfolio sale closes.
The transaction also included one mezzanine construction loan for 8 West, a nine-story, 195,000-square-foot office property underway in Midtown Atlanta near the Georgia Tech campus.
Highwoods estimates that, all tallied, the total investment of the portfolio totals $769 million, including the value of the Armour Yards assets.
The board of directors of PAC unanimously approved the transaction. Murphy says that after the Highwoods portfolio sale is completed, PAC plans to exit the office sector.
“We will remain focused on maximizing the value of our few remaining office assets through prudent asset management and then effect a complete exit from the office sector through a controlled and well-navigated disposition process over time,” says Murphy.
Highwoods is financing the acquisition using $250 million under its unsecured revolving credit facility and a $200 million loan from JPMorgan Chase Bank. Highwoods also indicated it plans to accelerate its plan to sell $500 million to $600 million of office assets in its portfolio to bring its balance sheet to equilibrium by mid-2022.
JLL represented PAC in the portfolio sale. Goldman Sachs & Co. LLC acted as PAC’s exclusive financial advisor, and King & Spalding LLP acted as its legal advisor.
J.P. Morgan is acting as exclusive financial advisor to Highwoods in the transaction, and Allman Spry Davis Leggett & Crumpler PA is serving as the REIT’s outside real estate counsel.
Preferred Apartment Communities owns and operates primarily Class A multifamily communities and grocery-anchored centers around the Southeast. As of year-end 2020, the REIT owned or partially owned 116 properties in 13 states.
PAC’s stock price closed on Monday, April 19 at $10.40 per share, up from $6.52 a year ago.
Highwoods Properties is a Raleigh-based REIT that owns, develops, leases and manages real estate throughout the top Southeast markets, namely Atlanta, Charlotte, Nashville, Orlando, Raleigh, Richmond and Tampa, as well as Pittsburgh.
Highwoods’ stock price closed on Monday at $43.35 per share, up from $36.18 a year ago.
— John Nelson