Apollo funds to invest $1.34B in $2B UDR apartment joint venture

Apollo-managed funds and affiliates will invest $1.34 billion of equity in a $2 billion joint venture with UDR covering 19 apartment communities and 7,059 homes, according to the announcement reported by IREI. Apollo takes an approximately two-thirds interest. UDR retains one-third, continues to operate and manage the portfolio for an asset management fee, and consolidates the joint venture.

The transaction is expected to imply a capitalization rate of approximately 6% on a portfolio with average revenue of $2,058 per home and an average age of 39 years. Divided by the $2 billion joint venture figure, the portfolio works out to roughly $283,000 per home, though that is arithmetic on the headline number rather than a disclosed per-unit price.

UDR's option to repurchase Apollo's interest, available for a limited period beginning on the fifth anniversary of closing, carries an expected fixed return of 7% to 7.5%. That is a higher number than the roughly 6% cap rate the deal is expected to imply, but the two measures work on different bases: a cap rate compares a portfolio's income with its value, while the fixed return applies to Apollo's $1.34 billion of equity.

Chief Financial Officer Dave Bragg described the structure as giving UDR “access to a new, low-cost permanent source of equity capital,” with proceeds directed to high-growth assets and other general corporate purposes. “Proceeds will also be utilized for debt reduction, strengthening the balance sheet at an opportune moment,” he said in the release. Toomey said shareholders would benefit from “the flexibility to move assets in and out of our newly established joint venture” and from “the ability to realize outsized value creation over time.”

The joint venture is expected to close Oct. 29, subject to execution of the documentation and customary closing conditions, per the release. Citigroup Global Markets and Wells Fargo Securities were structuring agents and financial advisers to UDR, and Scotiabank was the financial adviser to Apollo, Multifamily Dive reported.