Milestone Apartments Real Estate Investment Trust announced that it has entered into a definitive agreement with Starwood Capital Group to acquire, by way of merger, Landmark Apartment Trust for US $8.17 per Landmark share in cash, representing a total enterprise value of approximately US $1.9 billion.

The acquisition, which is subject to customary closing conditions, including approval by Landmark’s shareholders, is expected to close in the first quarter of 2016. As part of the acquisition, Milestone will acquire a 100 per cent interest in 15 properties (located in the states of Georgia, North Carolina and Texas) currently owned by Landmark, while Starwood will acquire Landmark’s interest in 63 properties, all of which will be property managed by the REIT.

The REIT also announced that its Board of Trustees has approved an approximate 11 per cent increase to its Unitholder cash distributions (based on the Bank of Canada’s noon U.S. dollar exchange rate as at October 21, 2015) and a change to U.S. dollar denominated cash distributions, with Unitholders having the option to elect to receive Canadian dollar denominated distributions. The increase to cash distributions and change to U.S. dollar denominated cash distributions (which are not conditional upon completion of the acquisition) is expected to be effective for the January 2016 distribution, payable on February 15, 2016, to Unitholders of record on January 29, 2016.

Acquisition highlights

• The acquisition provides Milestone and Starwood with a portfolio of properties that aligns with their respective investment objectives;
• Milestone will acquire 15 high quality, garden-style properties totaling 4,172 units, with an average year built of 2005, for a gross purchase price of approximately US $502.0 million, in line with the REIT’s growth strategy to high-grade its portfolio and improve its operating margins and cash flow position;
• The acquisition of the properties, the offering (as defined below) and Milestone’s planned strategic refinancings and dispositions, are together expected to be accretive to the REIT’s Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”) per unit;
• The properties will increase the REIT’s scale in seven of its existing U.S. Sunbelt markets, with property management expansion into existing and new U.S. markets, establishing greater critical mass to drive operating efficiencies and growth;
• The properties have an average year one cap rate of approximately 6.1 per cent and an average price per unit of approximately US $120,000;
• The properties have trailing 12-month ending June 30, 2015 average rents of US $958 and June 2015 average occupancy of 95.0 per cent, compared to rents and occupancy for the REIT portfolio average as at June 30, 2015 of US$837 and 95.2 per cent, respectively;
• Milestone will be retained by Starwood to property manage the portfolio of 63 properties acquired from Landmark totaling 19,615 units, increasing the total number of units managed by the REIT to over 50,000 units;
• The REIT will receive a fee for property management services provided to Starwood equal to 3.0 per cent of revenue. On the 19,615 units to be managed, such fees are expected to add approximately US $1.8 million annually to the REIT’s AFFO, net of incremental overhead and projected income taxes; and
• Following the close of the acquisition, the REIT’s equity market capitalization is expected to increase to over C$1.0 billion, and its asset value is expected to increase to approximately US $2.3 billion.

Landmark portfolio acquisition key facts

The properties are located in major metropolitan markets in the U.S. Sunbelt that fit within Milestone’s existing market footprint that have strong underlying demographic trends, including population and employment growth rates higher than the U.S. national average. The properties are similar to the REIT’s established portfolio, featuring extensive amenities and located in close proximity to shopping, dining, and entertainment options, as well as major transportation corridors and employment centers. The properties are being acquired at an average year one cap rate of approximately 6.1 per cent and an average price per unit of approximately US $120,000. The properties have trailing 12-month ending June 30, 2015 average rents of US $958 and June 2015 average occupancy of 95.0 per cent, compared to rents and occupancy for the REIT portfolio average as at June 30, 2015 of US $837 and 95.2 per cent, respectively.