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Why Did Essex Property Trust Merge with BRE Properties?

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Overview

In 2014, Essex Property Trust (ESS) merged with BRE Properties to create a company with a combined market capitalization of $11.1 billion in a deal worth $6.2 billion. The merger led to the creation of the largest real estate investment trust on the West Coast. In the process, Essex Property Trust also kept its competitors in the apartment REITs such as AvalonBay Communities (AVB), Equity Residential (EQR), and Camden Property Trust (CPT) at bay. Essex Property Trust comprised 0.52% holdings of the Financial Select Sector SPDR ETF (XLF).

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Transaction details

As per the agreement, the conversion ratio was ~0.3 of newly issued shares of Essex Property Trust common stock for each share of BRE common stock in addition to ~$7.2 in cash, without interest. The cash consideration was adjusted by a special distribution to the stockholders of BRE of $5.15 per share of BRE common stock. Former Essex Property Trust stockholders hold ~63% of the combined company’s common stock while former BRE stockholders hold ~37% of the stock. Essex Property Trust issued 23.1 million shares of common stock as a stock consideration in the merger.

What did Essex Property Trust gain?

The merger provided the company with an opportunity to acquire a highly complementary apartment portfolio concentrated in its target markets. Following the merger, Essex Property Trust’s multifamily properties rose to 233 as of April 1, 2014, compared to 164 at the end of fiscal 2013, and it gained access to another 15 properties in different phases of development. Acquiring BRE Properties strengthened Essex’s portfolio in Southern California, where the company expects healthy growth for its assets. It also expects the deal to be accretive to core funds from operation per share of $0.05–$0.08 annually. As a result of the merger, the company’s stock was admitted to the S&P 500.

Following the merger, the company was able to quickly improve revenue growth in the BRE portfolio, narrowing the growth differential between the two portfolios, while implementing a number of operating and expense synergies. Essex Property Trust believes that the BRE merger will be a transformative event, enabling it to implement best practices from both companies while providing the scale to create a better operating platform with greater efficiency and an improved customer experience.

In the next article, we’ll discuss Essex Property Trust’s portfolio restructuring.

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