MINNEAPOLIS, MN - Centerspace (NYSE: CSR) has entered into Contribution Agreements with entities managed by KMS Management, Inc. (KMS), to acquire a portfolio of 17 communities for the aggregate purchase price of $323.8 million. The portfolio of 19 real estate assets is comprised of 14 communities in Minneapolis, Minnesota and three communities in St. Cloud, Minnesota. The acquisition will add 2,696 apartment homes to the Centerspace portfolio, further strengthening the Company's footprint in markets where the Company has historically strong operations.
The Company will fully fund the transaction through the issuance of up to $197.3 million Convertible Preferred Operating Partnership units that pay a preferred 3.875% dividend and are convertible into common units at an exchange rate of 1.2048 common units per Convertible Preferred Operating Partnership Unit representing a conversion price of $83.00 per unit. In lieu of Convertible Preferred Operating Partnership Units, KMS may elect to receive up to $16.2 million of the aggregate purchase price in cash at closing. The Company will acquire the communities subject to approximately $126.5 million in mortgage liabilities, a portion of which the Company intends to refinance upon consummation of the transaction. Additionally, the Company plans to fund approximately $40 million of capital into repositioning the communities over the next 24-36 months. The transaction is expected to close in the third quarter of 2021, subject to customary approvals and closing conditions.
"This fully-funded acquisition fits seamlessly into our investment thesis," said Mark O. Decker Jr., President and CEO. "Adding KMS' communities, team and investors to our Company will double our presence in our core market of Minneapolis, increase the scale of our operations and provide numerous opportunities to improve our business. We are thankful to the KMS team and investors and all of their work on this transaction and for their faith in Centerspace as they join our platform."
Centerspace currently owns 2,537 homes in Minneapolis across 14 communities and 1,192 homes in St. Cloud in six communities. With the addition of the KMS portfolio, the Company will increase its footprint in Minneapolis to 4,901 homes and to 1,524 homes in St. Cloud.
Minneapolis boasts a diverse economy driven by strong employment, headquartering 24 Fortune 1,000 companies and maintains the highest median income in the Midwest. Centerspace's Minneapolis suburban communities have seen compounded revenue growth of 6.3% and compounded NOI growth of 5.8% from 2018-2020 with St. Cloud having compounded revenue growth of 4.7% and compounded NOI growth of 9.3% during the same period.
"Our plan is to integrate this portfolio onto our existing platform and leverage our operating initiatives, particularly our focus on customer experience and margin expansion, to enhance the overall quality and cash flow of our aggregate portfolios in Minneapolis and St. Cloud. The KMS communities have a long and successful operating history, great locations within their respective submarkets, and we are seeing high demand for product with attainable rental rates," said Mr. Decker.