Essex Closes $16B Merger with BRE - Analyst Blog

Essex Property Trust, Inc. ESS and BRE Properties have finally accomplished the $16.2 billion merger. This led to the creation of a premium West Coast pure play multifamily REIT with an equity market capitalization of about $11.1 billion.

The combined entity's common stock will now trade under the symbol ESS on the New York Stock Exchange. Former Essex stockholders have around 63% of the combined company's common stock and former BRE stockholders hold approximately 37%.

Following the merger, Essex boasts of 233 multifamily properties in which it has ownership interests and another 15 properties in different phases of development. Essex expects the deal to be accretive to core funds from operation (FFO) per share of 5 to 8 cents annually (on a run rate basis).

We believe that with a solid property base, significant geographic overlap and strong management team at Essex, this combined entity can efficiently leverage on the attractive market fundamentals, synergies and reward shareholders accordingly.

As per the deal, each BRE common stock got converted into 0.2971 newly issued shares of Essex common stock and $7.18 in cash, without interest. An adjustment was made to the cash part of the deal as a result of a declaration of a special distribution of $5.15 per share to the BRE stockholders arising as part of the deal. BRE stockholders of record as of the close of business on Mar 31, 2014 would receive this distribution on or around Apr 9, 2014.

Essex Property currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Investors interested in the residential REIT industry may also consider Associated Estates Realty Corporation AEC, Preferred Apartment Communities, Inc. APTS and UDR Inc. UDR. All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.