Steadfast Merger Agreements to Create $3.3B REIT

➤➤ Join the GlobeSt.APARTMENTS (formerly RealShare) conference October 29-30 in Los Angeles. The event will analyze the opportunity in the emerging trends and conditions of the multifamily market. Don’t miss out on joining the 1000+ of the industry’s top owners, investors, developers, brokers and financiers as they gather for THE MULTIFAMILY EVENT OF THE YEAR! Click here to register and view the agenda.

IRVINE, CA—Steadfast Apartment REIT, Steadfast Income REIT and Steadfast Apartment REIT III have entered into definitive merger agreements that will create a combined company with $3.3 billion in real estate assets.

Under the deal Steadfast Apartment REIT (STAR) is acquiring Steadfast Income REIT (SIR) and Steadfast Apartment REIT III (STAR III) in separate stock-for-stock, tax-free transactions.

The combined REIT will have a diversified portfolio that is concentrated in high-growth markets, according to Rodney F. Emery, chairman of the three REITs. And with its larger size the new REIT will have better access to capital sources and offer more liquidity options to shareholders, he also said in prepared remarks.

These liquidity options could include potential share repurchases, sales of properties that no longer fit the portfolio strategy, periodic monetization or distribution events or a potential listing on an exchange in the future.

The transactions are expected to close in the first quarter of 2020, subject to certain closing conditions, including the approval of the respective mergers by the stockholders.

What the New REIT Will Look Like

The combined REIT will continue its multifamily focus with an emphasis on moderate income apartments. If the mergers were to occur today, the combined company’s portfolio would have 71 properties in 14 states with an average effective rent of $1,158. Based on occupancy as of June 30, 2019, the combined company’s portfolio is expected to have an occupancy rate of 94%, an average age of 20 years and gross real estate assets of $3.3 billion.

The REIT will also pursue ground-up development opportunities, with an eye on average annual returns that will be 40% higher than acquisitions of stabilized, developed multifamily properties.

Synergies of the deal will increase average annual cash flow by a projected $21 million. The combined company will have a combined capital structure of 52% secured debt vs. 48% equity. It will also have a lower average interest rate compared to the current STAR standalone rate.

Transaction Terms

In exchange for each share of SIR and STAR III common stock, SIR and STAR III stockholders will receive 0.5934 and 1.43 shares, respectively, of STAR common stock, which is equivalent to $9.40 per SIR share and $22.65 per STAR III share, based on STAR’s most recent estimated value per share of $15.84.

Following the closing of the transactions, STAR, SIR and STAR III stockholders are expected to own approximately 48.1%, 40.6% and 11.3% of the combined company, respectively. One independent director from SIR and one independent director from STAR III will join the STAR Board of Directors, increasing the STAR Board of Directors from five to seven members, and the number of independent directors from three to five.

The merger agreements provide SIR and STAR III with go-shop periods of 30 days and 45 days, respectively.