REIT Bidding War Emerges

The Town & Country Trust (TCT Quote) has found itself in the middle of a three-way bidding war for its portfolio of apartments located on the East Coast.

The real estate investment trust already agreed in December to be bought out by a joint venture of Morgan Stanley (MS Quote) and Onex Real Estate for $33.90 a share in cash, which represented a 13.8% premium over Town and Country's closing price at the time.

But on Thursday morning, a partnership consisting of Essex Property Trust (ESS Quote), UBS Wealth Management and AEW Capital submitted a definitive offer to buy Town & Country for $36 a share.

Later Thursday, a $37-a-share bid came in from Berkshire Property Advisors, a private Boston-based apartment owner.

Town & Country says it continues to support the Morgan Stanley deal.

The bidding war isn't surprising. Apartment REITs have been reporting solid operating results, and there were several REIT buyouts last year.

"Multifamily remains high on the radar screen to all sorts of investors, private and public, and the fundamentals of the business are early on in the sweet spot for that asset class," says Richard Anderson, an analyst with Harris Nesbitt.

Baltimore-based Town & Country owns a portfolio of 38 apartment communities in the mid-Atlantic and Florida. Most of the properties are older, with the exception of newer developments in Florida and Washington, D.C.

"The portfolio is older, but it is well-located," Anderson says. "A more aggressive operator could come in and earn a little bit more at the margin."

The bid by Essex, also a REIT, is a bit surprising since Essex only owns apartments on the West Coast.

Recently, many apartment properties have been changing hands at capitalization rates, or initial yields, as low as 3% or 4%. At $37 a share, Town and Country's portfolio is being valued at a 6.15% cap rate, according to Anderson's calculations. The Morgan Stanley bid represents a 6.5% cap rate, and the Essex bid stands at 6.25%, he says. To get those rates, Anderson says Town and Country's rental portfolio is spitting out $80 million of annualized net operating income.