US apartment rental lift spurs $8.6bn trust deal

Mid-America Apartment Communities has agreed to buy Colonial Properties Trust CLP in a USD 2.2 billion stock deal amid rising demand for US apartment rentals.

The move will create a real estate investment trust with a total market capitalisation of USD 8.6 billion and will be the second largest multifamily apartment Reit in the US by number of units. Investors in Colonial, the Alabama-based apartment owner, operator and developer, will receive 0.36 newly issued MAA shares for each Colonial share they own, the companies said in a statement on Monday. Also read: US house prices rise most in seven years Based on the closing share price of MAA, the Memphis-based residential landlord, on May 31 of USD 67.97, that indicates a price of USD 24.47 for Colonial investors, or nearly 11 per cent higher than Colonial's last close. Colonial shares rose about 6 per cent to USD 23.41 in New York trading while MAA shares declined about 3 per cent to USD 65.97. The deal, if approved by a majority of both the MAA and Colonial shareholders, would create a Reit with about 85,000 rental units. The joint company will own 285 properties in the US's southern states, with its largest markets including Dallas, Atlanta and Tampa. Although house purchases have risen in the US against the backdrop of an improving employment picture and record low mortgage interest rates, many potential buyers are still held back by tight credit conditions and tough mortgage requirements, forcing them to rent. "The scale of the combined company will support accelerated growth and deployment of capital across our high-growth Sunbelt markets," said Eric Bolton Jr, MAA chief executive. "We will enhance our ability to ... drive higher margins as a result of synergies." MAA shareholders will own about 56 per cent of the combined company's equity, while Colonial investors will own the rest. Mr Bolton will be chairman and chief executive of the combined company while MAA's chief financial officer and chief operating officer will also assume those roles. The deal, which is expected to result in gross savings of USD 25 million a year once the companies are fully merged, is due to be completed in the third quarter of 2013. "Public to public M&A does not happen very often in this sector," said Jeff Langbaum, senior Reit analyst at Bloomberg Industries. "Over the last 10 years there have been calls for consolidation as there are lots of mid-cap companies in this space. Both companies operate in the same market so this transaction makes sense."
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