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Bloomberg
Post Properties Inc. shares rose the most in seven years after Mid-America Apartment Communities Inc. agreed to buy the real estate investment trust for about $3.9 billion, forming a company with about 105,000 multifamily units amid rising demand for rental housing.
Post Properties investors will get 0.71 of a Mid-America share for each of their shares, the companies said in a statement. That equals about $72.53 a share, or a 17 percent premium. Annual gross synergies from the acquisition are expected to be about $20 million, the REITs said.
The takeover would create the largest publicly traded apartment landlord by number of units, with a combined 105,008 units, largely in the U.S. Southeast, the REITs said in a corporate filing. The combined company will have a market value of $17 billion, and the largest share of its net operating income will come from Atlanta, Dallas and Charlotte, North Carolina, where the REITs project three-year employment growth to be above the national average.
“We see some of the strongest job growth and household formation than anywhere in the country,†H. Eric Bolton, Jr., chief executive officer of Mid-America Apartment Communities, which uses the trade name MAA, said on a conference call. “The longer-term value proposition, we think, is quite compelling.â€
Post Properties shares gained 8.9 percent in New York, after earlier rising almost 12 percent, their biggest increase since 2009. MAA fell 5.4 percent to $96.64. Apartment owners have benefited as first-time homebuyers struggle to find affordable properties as low mortgage rates and an improving job market spur competition for a tight supply of listings. In the second quarter, the U.S. homeownership rate fell to 69.2 percent, the lowest in more than 50 years.
At the same time, multifamily landlords including Equity Residential have contended with weakness in markets including Manhattan and San Francisco, where an apartment-construction boom has given residents more bargaining power and limited how much owners can raise rents. Equity Residential has cut its revenue forecast three times this year, and AvalonBay Communities Inc. gave renters lease-signing concessions worth $300,000 in the second quarter, four times more than in the year-earlier period. Such challenges, along with slowing rent growth, may be spurring companies such as Memphis, Tennessee-based MAA and Atlanta-based Post Properties to merge to reduce costs. The combined company’s largest markets by unit count will include Atlanta, Dallas and Austin, Texas.
Southeast Units
The deal “will strengthen MAA’s southeast geography (and Texas) while enhancing the locations/quality of the portfolio,†SunTrust Robinson Humphrey Inc. analysts led by Michael Lewis said in a note to investors Monday morning. “It changes MAA’s narrative a bit, which has been suburban locations in secondary/tertiary markets, but it creates a larger, even more diversified Sunbelt portfolio†with Post Properties’ “higher price point, infill properties.â€
The combined company will have 75 percent of its properties in large metro markets and see average monthly rents across its portfolio of $1,135, the firms said in a regulatory filing. The national average rent in the second quarter was $1,252, according to property-data provider Reis Inc. In Atlanta, the combined company’s largest market, rent grew 6.3 percent in the second quarter from a year earlier to $1,032, Reis data show.
Development Pipeline
MAA’s purchase of Post Properties, along with its $479 million pipeline of apartments under construction, means that property development will be a bigger part of “who we are,†Bolton said on the call. MAA, which hasn’t relied heavily on development for growth — its pipeline is less than $100 million — would likely complete the projects that Post Properties has under construction and dispose of the rest of its land holdings, Green Street Advisors LLC analysts led by Dave Bragg wrote in a note to clients.
The deal must be approved by shareholders of both REITs, which said they expect the deal to be completed in the fourth quarter. Bolton will be chairman and CEO of the combined company, and MAA board member Alan B. Graf will remain independent lead director. MAA will continue to trade under that ticker.