M&A Spotlight Shines on Apartment REITs

Apartment real estate investment trusts of all sizes have been soaring lately. After several years of seeing their tenants jump ship and become home buyers, apartment owners are boosting occupancies and rents -- and recent M&A activity has piqued investors' curiosity in the sector.

This added interest in the group has been highlighted by a three-way bidding war that has surfaced for one lesser-known player. The Town & Country Trust (TCT), an apartment REIT with a portfolio of mostly older apartments located on the East Coast, agreed in December to be bought by a joint venture of Morgan Stanley (MS) and Onex Real Estate for $33.90 a share in cash.

Last week, though, two new would-be acquirers decided to shake things up by putting in competing offers, and the stakes were again raised late Wednesday. A group composed of fellow REIT Essex Property (ESS), AEW Capital and UBS Wealth Management increased its offer for Town & Country to $39.50 a share from last week's bid of $36. The Morgan Stanley partnership had upped its bid to $39 Wednesday, right before the Essex group topped it once again. The other bidder who submitted a competing offer last week, privately held Berkshire Property Advisors, has yet to make a move on its informal offer of $37 a share.

Shares of Baltimore-based Town & Country -- which has a market cap of $698 million and just one analyst covering it -- have jumped from $29.78 before the December deal was announced to trade at $40.70 early Thursday. (The shares trade above the offer price because unpaid dividends will be added to the offer.) The company has declared the Essex group bid superior, though Morgan Stanley has three business days to match or beat the offer.

Industry watchers say the deal shows that apartment properties are being more highly valued in the private market than in the public sector. Now investors are scrambling to find the next M&A candidate among apartment REITs.