U.S. Multifamily REITs "Bay-ter Together?" Goldsmith

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U.S. Multifamily REITs "Bay-ter Together?" Goldsmith

does mean that it will take a greater amount of development to move the needle

on earnings.

Will there be any changes in the Sunbelt expansion targets? New Co has not

provided targets for Sunbelt exposure. Though, the footprint will be increased.

AVB had owned properties in Raleigh, Charlotte, metro Miami, Dallas, and Austin,

while EQR had owned in Atlanta, Dallas, and Austin. Thus, including Denver, there

are now seven expansion markets in the Sunbelt. We think this may be an

opportunity to trim some of the market exposure.

Are there benefits to the balance sheet? Both AVB and EQR had strong

balance sheets coming into the merger. The larger company size is unlikely to have

a material impact on debt costs, in our view. New Co will have $2 bn+ in annual

FCF and leverage neutral debt capacity. This should be a major funding source for

development spend, and we think it could mark a shift from AVB's practice of

match-funding development with dispositions.

Are there regulatory concerns? The companies noted that there are no

regulatory hurdles for the merger itself. It believes that its scale will enhance its

pro-housing stance because it can ramp up in supply as well as seed a fund for

affordable development. It will only own a max of ~3% of competitive stock in

each of its markets. We see the potential for increased regulatory scrutiny at the

local or state levels. In highly desirable submarkets, the New Co may own a

disproportionate share of the market, which could draw scrutiny.

Who will lead the company? EQR's CEO Mark Parrell will be stepping down,

and AVB CEO Benjamin Schall will be President and CEO of New Co. There were

no other announcements on the management team. The initial board will be