Going Out With A Bang On Q1 Earnings

Research evidence excerpt

Going Out With A Bang On Q1 Earnings

Biggest Questions / Topics Being Discussed With Clients?

While the earnings conversations have certainly dominated the airwaves over the past few weeks, we thought it would

be helpful to share some of the more frequent conversations we’ve had with clients over the past few weeks to help

frame out the key issues investors are grappling with following Q1 reporting season.

1. Without question, the biggest focal point for investors over the past week was the Bloomberg article on April 29th

that first mentioned the potential merger between industry heavyweights AvalonBay (AVB) and Equity

Residential (EQR), two coastally focused apartment REITs with aspirational growth in the Sunbelt. Some of the

biggest questions from investors centered on the rationale for the deal, who would run the combined company,

what types of synergies and savings could be achieved with such a combination along with a host of other

questions. Below are some of our initial thoughts around a potential merger and some of the key issues that

investors should think about should a deal come to fruition.

a. G&A savings – while both companies have talented C-suites that are capable of running the combined

company, there’s obviously only 1 CEO, 1 CFO, 1 COO and 1 CIO. While it’s hard to predict who gets each

of the key management seats, we believe there would be meaningful savings between AVB’s $88mn in G&A

and EQR’s $63mn in G&A.

b. Prop 13 Tax Reset – Both companies have significant exposure to CA assets and therefore the reassessment

of property values upon a merger would clearly kick in for one and possibly the 2nd company based on CA’s

change in Control laws. While it’s hard to know who the surviving entity is, EQR has roughly 42% of its NOI