Two of the largest residential landlords in America, Equity Apartments and AvalonBay Apartments, announced Thursday that they would merge, creating a REIT portfolio with over 180,000 rental apartments.
The combination will give the combined NewCo about half a percentage point of the total U.S. apartment market, generating over $2 billion in annual cash flow, which could allow it to more efficiently and quickly invest capital. At the same time, the deal purports that it will save shareholders $125 million of “net synergies after real estate tax reassessments.”
In a press release, the firms say the tie-up will make the “preeminent multifamily real estate company with a pro forma equity market capitalization of approximately $52 billion and an enterprise value of approximately $69 billion.”
How will the consolidation work?
The company’s release says that the proposed merger should be “completed in the second half of 2026, subject to shareholder approval.” Afterwards, the company appears to plan to operate under the Equity brand.
The merger will see AvalonBay shareholders receive 2.793 shares of Equity Residential common stock, under which the combined company will operate.
This means that $AVA shareholders will own 51.2% of the company, while existing Equity Residential shareholders will own 48.8% of the company.
The “new’ Equity Apartments will continue to pay an annualized dividend of $2.81 per share, which is higher than AvalonBay’s existing dividend yield.
Is it a consolidation risk?
While a tie-up between two massive residential landlords would ordinarily be cause for concern because of worries about anticompetitive behavior, it’s unlikely to much of a factor here, with the combined company owning about just half a percent of U.S. apartment stock. Further, the company’s ownership across various markets will not exceed 4%.
There’s also no telling how much higher it could corral rents. The two firms are earning top dollar across their largely affluent portfolio already, with average rental rates at Equity and AvalonBay coming in at $3,094 and $3,064 respectively. That includes studios, one-, and two-bedroom apartments, but that average monthly revenue is nearly triple the national median rent, per Apartment List.
In other words, the combined portfolio of 180,000 apartments will largely continue to cater to more affluent Americans. Per the firms’ first quarter earnings, AvalonBay Apartments owned 79,690 apartments, with an additional 8,673 actively under construction. while Equity Residential owned 85,211 apartment units either wholly or partially across 312 properties.
However, the company says that the merger will help support its “existing affordable and mixed-income housing presence,” which it currently purports to have in 30% of its communities. The company specifically calls out that it will support and partner with nonprofit developers to support its future goals.
