Colonial Properties Trust Inc (CLP), Mid America Apartment Communities Inc (MAA): Great Synergy in This Multi-Family REIT Merger

Eric Bolton, CEO of Mid-America felt excited about the merger. He commented

The scale of the combined company will support accelerated growth and deployment of capital across our high-growth Sunbelt markets driving superior value creation opportunity for our shareholders.

He also expected that the ability to serve residents across the region would be enhanced with higher margins via potential synergies. Colonial Properties Trust Inc (NYSE:CLP) expected to generate around $1.34 to $1.40 in diluted FFO (Funds from Operations) per share. Thus, with the valuation of $2.2 billion, it would value Colonial at around 17.50 times its forward FFO.

AvalonBay Communities Inc (NYSE:AVB) has a much higher valuation on the market. For the full year 2013, AvalonBay Communities Inc (NYSE:AVB) expected to generate around $6.29 in FFO per share. Including non-routine items including the recent Archstone Acquisition costs, interest hedge, the company estimated to have $4.98 to $5.28 in FFO per share for the full year. AvalonBay Communities Inc (NYSE:AVB) is trading at around $134.50 per share, with the total market cap of around $17.40 billion. The market values AvalonBay Communities Inc (NYSE:AVB) at a much higher valuation than Colonial Communities, at around 27 times its forward FFO. At the current trading price, AvalonBay Communities Inc (NYSE:AVB) offers shareholders dividend with a yield of 3.2% while Mid-America pays a higher yield to shareholders, at 4.2%.

My Foolish take

The acquisition of Colonial Communities is quite a great fit for Mid-America to expand and strengthen its footprint in the Sunbelt area, giving the combined company a significant economies of scale as being the second largest multifamily REIT and the great synergies. With the juicy dividend yield, investors might consider investing in Mid-America for income in a long run.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Great Synergy in This Multi-Family REIT Merger originally appeared on Fool.com is written by Anh HOANG.

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