AvalonBay Communities Inc. and Equity Residential agreed on May 21 to merge in an all-stock transaction combining two of the largest U.S. apartment real estate investment trusts by market value [1, 2, 3]. The deal will exchange 2.793 shares of Equity Residential stock for each AvalonBay share [1, 2].
The combined company will be among the largest residential landlords in the U.S., controlling more than 180,000 rental apartments across the country [3]. AvalonBay shareholders will own about 51.2% of the merged entity, which has an estimated market value exceeding $50 billion [2, 3].
Benjamin Schall, CEO of AvalonBay, will lead the merged firm while Equity Residential CEO Mark Parrell will retire [2, 3]. The operation will maintain dual headquarters in Arlington, Virginia, and Chicago, Illinois, and will adopt a new company name at closing [2].
The merger is expected to produce approximately $175 million in gross synergies through reduced costs and enhanced efficiencies [2]. The combined firm currently has $4.4 billion invested in 10,800 apartments under construction [2].
The companies said the merger comes amid sluggish rent growth and a surge in new apartment supply following the COVID-19 pandemic [2, 3]. Schall said, "This combination creates a new and fundamentally stronger company with differentiated capabilities that will drive structurally superior cash flow generation, earnings and dividend growth, and value for shareholders" [2, 3].
Industry experts view the merger as both a strategic scale play and a defensive move. Allan Swaringen called the merger "really incredible" and suggested it may protect the firms against privatization by becoming "almost too big to get bought" [3]. Analyst David Auerbach commented, "Strategically, the rationale is straightforward: scale, liquidity, balance sheet efficiency and overhead synergies," adding, "We have WAY too many Apartment REITs out there, and it's a sector ripe for consolidation" [3].
People familiar with the matter said AvalonBay and Equity Residential were nearing a deal just two days earlier on May 20 [1]. Confirmation and official details followed on May 21 [2]. CNBC covered the announcement and industry reaction on May 22 [3].
