Mid-America's (NYSE:MAA) discount to peers is "unwarranted," says analyst John Kim, upgrading to Outperform from Market Perform, and lifting the price target to $104 from $102 (suggests about 11% upside).
Catalysts for narrowing that discount are the Post Properties purchase and the coming addition to the S&P 500.
Kim has held that MAA's organic growth and balance-sheet strength are at "the high end of the sector," views he's even more comfortable with after meeting with management at the recent NAREIT conference.
Analyst James Sullivan moves over the BTIG from Cowen & Co. Checking apartment REITs:
AvalonBay (NYSE:AVB) is started at Buy and $208 price target after being rated only a Hold with $192 price target at Cowen, with Sullivan saying the company is the sector's best external growth story.
Also a Hold at Cowen, UDR is initiated at Buy with $42 price target, with Sullivan saying the portfolio mix of primary and secondary markets and moderate price points has outperformed in a decelerating market.
Essex Property Trust (NYSE:ESS) also merits an upgrade - now a Buy at BTIG.
MAA shareholders will own ~67.7% and former PPS shareholders will own 32.3% of the combined company with a ~$12B market cap, creating the largest multi-family REIT by number of units, with ~105K across 317 properties.
The companies expect the deal to achieve $20M in annual gross synergies.
M&A activity is kicking off the headlines this week with an array of deals expected to be announced shortly.
Among them: Mid-America Apartment (NYSE:MAA)- Post Properties (NYSE:PPS), Sharp (OTCPK:SHCAY)- Foxconn (OTC:FXCOF), Honeywell (NYSE:HON)- JDA Software, Xylem (NYSE:XYL)- Sensus USA and KKR- Entertainment One (OTC:ENTMF).
The technology sector is still leading the global M&A market in 2016, but the real estate segment is not far behind.
Will 2016 outpace 2015's record in terms of acquisitions and deal value?
Based on MAA's Friday close of $102.15, this would mean about $72.53 for each share of Post - roughly a 16% premium to Friday's close.
Apartment landlords have naturally benefitted from the aftermath of the housing bust, but rent growth has begun to slow of late, leaving managements looking to mergers as the next way to drive value. Real estate is this year's 2nd busiest sector for M&A activity with more than $215B of deals, including $52B among REITs.