OREANDA-NEWS. S&P Global Ratings today said it has placed its ratings, including its 'BBB' long-term corporate credit ratings on Memphis, Tenn.-based multifamily real estate investment trusts (REITs) Mid-America Apartment Communities, Inc. and Post Properties Inc., on CreditWatch with positive implications.

The CreditWatch placement follows the joint announcement that Mid-America has agreed to acquire Post Properties. The transaction is an all-stock combination of two predominantly Sun Belt multifamily REITs. Mid-America will pay 0.71x of its shares for each Post Properties share. Pro forma for the transaction, ownership will be approximately 67.7% Mid-America and 32.3% Post Properties. The companies expect shareholder approval and closing by late fourth-quarter 2016. The combined multifamily REIT will have gross real estate assets totaling approximately $13.4 billion, making the combined entity one of the largest multifamily REITs in the Sun Belt region.

The positive CreditWatch placement indicates at least a 50% chance that we could raise the ratings by one notch, at most. With the addition of Post Properties' portfolio, we think the new Mid-America platform will be stronger because of its larger asset scale, which promotes greater cost efficiencies. Multifamily industry fundamentals in the Sun Belt markets remain stable in the near and intermediate term. We expect modest growth to be supported by stable demand for multifamily housing (from millennials and baby boomers) and a limited new supply in key markets, resulting in same store revenue growth in the low-single-digits percent area.

We also expect Mid-America to deleverage given the use of equity to finance the transaction and Post Properties' already more conservative financial leverage. For the 12 months ending June 30, 2016, Mid-America maintained debt to EBITDA of 5.8x and fixed-charge coverage of 4.5x. We expect to resolve the CreditWatch placement upon closing. Our view of the combined entity's competitive position, financial policy, pro forma credit metrics, details on the new management team and its strategy, as well as the impact of any intended asset sales--all relative to higher rated peers--will be important factors in our assessment of whether to raise the ratings.

Additionally, in our CreditWatch resolution, assuming Post Properties merges into Mid-America and Mid-America is the surviving entity, and all of Post Properties' debt is assumed by Mid-America if not repaid at closing, we would then likely withdraw all of the ratings on Post Properties.