Guess the companies…
Two of them. Both public, both on the NYSE.
Hints:
Both still trade about 30% below their 2022 peaks.
Both have spent the better part of a decade telling investors the private market would pay a lot more for their buildings than the public market will.
Both built their portfolios in expensive coastal markets. Neither has much Sun Belt exposure. (One actually sold off the half of the company that had sunbelt exposure before the pre-Covid boom. Womp womp.)
Both compete in a sector their own executives openly admit has too many public players.
Neither has a super strong growth story.
Both run a product type that depends heavily on people to operate.
Both have leaned hard into technology over the last ten years.
Add the two together and you get a $52 billion company.
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AvalonBay and Equity Residential.
This week they announced the largest REIT merger on record, an all-stock “merger of equals.”
With respect to our friends at both firms…
Here is what the press release works hard not to say plainly. This is not a growth deal. You cannot bolt together two slow-growth, coastal, NAV-discounted apartment REITs and conjure growth that was not there the day before. The combined company wakes up owning the same buildings in the same markets.
What it does get hundreds of millions in net cost savings. The synergy comes from the one place a people-heavy operating business reliably finds it: duplicated functions. E.g., regional managers.
That is a perfectly good reason to do a deal. It is just an efficiency story, not the transformation the headline implies.
When two management teams who have argued for years that their stock is too cheap decide the best use of that cheap stock is to buy each other, the honest read is that organic growth got hard enough that cost-cutting became the most dependable lever left.
Scale still counts. But scale is not a strategy. It is a way to do the same thing for less.
Ps - if you’re at one of these firms and are worrrid about being in a duplicative role, don’t wait around. …especially if you think you’re skills are strong. Your best days are likely in front of you, just probably not in a public REIT which has nothing to do with you and eveerhing to do with the shift from public to private.
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