Oppenheimer's First Take On Mid-America's Post Properties Purchase

Mid-America Apartment Communities Inc MAA's deal to buy Post Properties Inc PPS is appealing to Oppenheimer for four reasons:

1. "The strong market overlap should give MAA added depth."
2. "We believe assets are 10-15% cheaper in the public than private market."
3. "PPS's same-store operating metrics have lagged MAA's recently."
4. "Finally, we believe MAA will successfully integrate the acquisition having cut its teeth with the 2014 acquisition of Colonial Properties."

Analyst Steve Manaker noted that at 0.71 shares of Mid-America for each share of Post Properties, the deal values the latter's real estate assets at about $4.7 billion, or $230,000/unit. The common stock portion is about $3.9 billion ($72.52/share) and represents a 16.6 percent premium to Friday's close of $62.22/share.

The combined company is expected to have a pro forma equity market capitalization of about $12 billion and a total market capitalization of about $17 billion.

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The merger combines two highly complementary multifamily portfolios with a combined asset base consisting of approximately 105,000 multifamily units in 317 properties. The companies expect annual gross synergies at about $20 million.

Commenting on the FFO impact, Manaker said, "In our base case (PPS generating $236 million of NOI in next 12-months) we estimate about 2.5 percent dilution. If NOI increases 5 percent from our base case, dilution decreases to 1 percent. Our break-even is 13 percent NOI growth above our base case."

Mid-America's revenue/NOI increased 5.7 percent/7.2 percent in 2015 and 2016 guidance is for 4.0–4.5 percent/4.75–5.25 percent. On the other hand, Post Properties had 2.8 percent/2.2 percent in 2015 and expects 3.0–3.3 percent/2.5–3.3 percent in 2016.

Manaker has an Outperform rating and $115 price target on Mid-America shares.

At time of writing, shares of Mid-America were down 4.68 percent at $97.37, while Post Properties shares were up 9.54 percent at $68.17.

Full ratings data available on Benzinga Pro.