AvalonBay and Equity Residential are merging to create Vivmark Residential. Massive merger to create a $53B Market cap and $70B+ Enterprise Value. They cited $175M in operational Synergies and combining data for AI-driven insights (not sure exactly what that means).
Any thoughts?
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“Vivmark” is a terrible company name. Corposlop right up there with Truist.
It sounds like a South Asian name
Hilarious reunification of the Archstone portfolio. They should have just named the company Archstone.
Have met a lot of smart people from both companies. I imagine the “synergies” mean a lot of people getting fired.
This would have been the funniest of all outcomes.
Archstone was in many ways a better operating company than either AvalonBay or Equity. But a poor capitalization structure of its parent company timed with the GFC required their sale. At the end of the day it's just an asset on a balance sheet.
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Vivmark has multiple development jobs posted right now - Miami, Charlotte, Dallas, etc.
Seems like they fired lots of corporate overlap and are betting heavily on development. Timing of this feels pretty speculative. I wonder if the stock will do well, most REITs have been very underwhelming.
I'm only vaguely aware of the deal, but if I were a shareholder of either, I'd support it. And yes the only 'value' is the 'synergies' .... of firing the people performing overlapping duties. Nature of the beast. Companies belong to shareholders, not the employees (for whom I do feel genuinely bad). What's alternative? Continue independent, shares continue to dive, become take-over target, get taken over and employees get axed anyway? Might as well preserve your shareholder value and achieve the same outcome. Tough market. And I don't wish job loss on my worse enemy.
Unbelievably compassionate that you don’t wish your worst enemy might be fired lol
I’ve been watching Jay Parsons’ coverage of the merger . He made a few interesting points that I’ll try to accurately express: despite public claims this will create a monopoly, the combined firm owns less than 1% of units in the US. In their respective markets they own less than 4%, which is not going to move an entire market. Another thing I thought was interesting is the affordability issues in multi are not with Class A properties. Class A renters are not rent burdened (which firms know because of the income information they collect from prospective renters). Most of the firm’s units are in Class A properties, which still have runway before rents become unaffordable to most class A renters. But the OpEx side should see lots of efficiency for obvious reasons, and it seems that was more the play, not so much “monopoly”. I’d say I generally agree with Parsons. Also agree with others here that the name sucks lol.
Perhaps not as much runway as you may think. Many of these properties compete with owning in their markets. It's a different demographic and customer segment at a certain price point the property owner has to be aware of their competitor - ownership.
Most of the firms units are not class A. REITs are diversifying across asset quality; capital allocation going market, suburban or urban, product types within markets, vintage within markets , quality within markets. Source: I work at a Multifamily REIT lol
Also interesting that the new combined firm's portfolio is actually still notably smaller (by number of units) than Equity's multifamily portfolio alone at it's peak in the 2000's.
I’ve seen what happened when Essex merged with BRE Properties. The result was not good for the super majority of the employees of the taken over company.
I know people at both firms - in speaking to them (to extent they can/will share) and brokers in various markets that represent them, a few things have become clear:
My personal opinion is the merger makes sense, but won’t be too accretive. Makes them large enough to avoid being takeover targets, their portfolios largely overlap but are complimentary (AVB is largely core, maybe core plus; EQR has good mix of core, core plus, & value add), and you need to show Wall Street something that will grow AFFO; in a low/no rent growth market that is done through cutting costs.
Thanks for overview, that's helpful. As a deal guy but not a RE guy . . it screams of two things you mentioned at the end. First becoming large enough to avoid takeover and second to show something accretive to the street. Both of those IMHO are bad reasons to do a deal from a shareholder value perspective. But again I don't know the reasons, only saying what it smells like.
respectfully, isn't accretive CFFO the entire game for REIT shareholder value? (I may be wrong, but thought this was conventional wisdom)
Don't forget some of the other incentives. Parrell is also retirement age, and by selling the company his stock automatically vests at closing (my understanding is that he'll clear $25-$50m).
Know Pat Gniadek from AVB (runs transactions nationally) is out. Sounds like all the EQR investment folks are/were in Chicago this week, and they'll likely find out who still has a job.
Talked to a friend at one of the firms who said lots of cuts on asset management past two weeks. Merger just got approved and new company starts trading next week.
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