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Steadfast REITs File Proxy Statements for Merger of Three Nontraded REITs

December 19, 2019

Steadfast REITs File Proxy Statements for Merger of Three Nontraded REITs

December 18, 2019

On December 18, 2019, Steadfast Income REIT, Inc. (“SIR”), Steadfast Apartment REIT III, Inc. (“STAR III”) and Steadfast Apartment REIT, Inc. filed Proxy Statements for the merger of the three REITs, with the surviving company continuing as a wholly owned subsidiary of Steadfast Apartment REIT, Inc. (“STAR”).

According to the SIR Proxy Statement:

On August 5, 2019, STAR also entered into an Agreement and Plan of Merger to acquire Steadfast Apartment REIT III, Inc. (“STAR III”). STAR’s proposed merger with STAR III is referred to herein as the “STAR III Merger” and collectively with the SIR Merger, the “Mergers.” The consummation of the STAR III Merger is not contingent upon the completion of the SIR Merger, and the consummation of the SIR Merger is not contingent upon the completion of the STAR III Merger.

The Combined Company

If the SIR Merger was consummated on September 30, 2019, the portfolio of the surviving company (the “SIR/STAR Combined Company”) would have a gross real estate value of approximately $2.8 billion, consisting of 60 properties in 13 states. On a pro forma basis, the SIR/STAR Combined Company portfolio would have an average effective rent of $1,163 and occupancy of 95.0%.

If both Mergers were consummated on September 30, 2019, the portfolio of the surviving company (the “Fully Combined Company”) would have a gross real estate value of approximately $3.2 billion, consisting of 70 properties in 14 states. On a pro forma basis, the Fully Combined Company portfolio would have an average effective rent of $1,165 and occupancy of 94.8%. SIR stockholders do not have the right to vote on the STAR III Merger. If both Mergers are completed, holders of shares of common stock, par value $0.01 per share, of SIR (the “SIR Common Stock”) will become holders of the common stock of the Fully Combined Company.

Summary of Strategic Benefits

The SIR Merger and, if consummated, the STAR III Merger, are expected to create meaningful operational and financial benefits, including:

Improves Portfolio: Through the proposed transaction, management believes the SIR/STAR Combined Company and the Fully Combined Company would have a portfolio that is larger, more diversified than SIR’s portfolio. Following the merger transaction(s), STAR, as the resulting company, expects to maintain its exclusive multifamily focus with an emphasis on moderate income apartments, a property type that has demonstrated strong performance with low levels of volatility.

Enhances Market Prominence and Increases Portfolio Diversification: The SIR/STAR Combined Company and the Fully Combined Company should have enhanced market prominence in high growth areas, and growth potential in a recession-resilient sector supported by demographic trends. The Fully Combined Company would have a presence in seven of the top 20 real estate investment markets, including Dallas, Nashville and Austin, and would rank among the top 50 apartment owners in the country based on number of apartment homes owned. The Mergers are expected to enable the Fully Combined Company to reposition the portfolio based on market and property conditions and pursue ground-up development opportunities. STAR expects average annual returns on ground-up development to average 40% higher than acquisitions of stabilized, developed multifamily properties. 

Generates Cash Savings and Increased Cash Flow: Management expects that the expected revised fee structure, platform synergies and increased purchasing power will generate cash savings. The expected synergies and revised fee structure described herein are expected to provide a projected average annual increase through 2024 of almost $21 million in cash flow to the Fully Combined Company and $17 million for the SIR/STAR Combined Company, each as compared to SIR’s, STAR’s and STAR III’s stand-alone projected cash flow through the same period. In addition, management believes that STAR, as the resulting company, should have the ability to raise rents in a majority of its markets where the median household income to rent ratios are 4.0x and above.

Expands Access to Capital: As a larger entity, the SIR/STAR Combined Company or the Fully Combined Company is expected to have improved access to capital sources that may be used to grow the portfolio.

Lowers Risk Profile and Strengthens Balance Sheet: The SIR/STAR Combined Company is expected to have limited near-term debt maturities and a combined capital structure of 51% secured debt and 49% equity. The Fully Combined Company is expected to have limited near-term debt maturities and a combined capital structure of 52% secured debt and 48% equity.

Increases Liquidity Options: STAR, as the resulting company, should be able to increase potential liquidity options through potential share repurchases, divestitures of assets that no longer fit the portfolio strategy, periodic monetization or distribution events or a potential listing on an exchange in the future. 

Merger Consideration

As consideration for the SIR Merger, in exchange for each share of SIR Common Stock, SIR stockholders will receive 0.5934 shares of common stock of STAR, par value $0.01 per share (“STAR Common Stock”). The exchange ratio was determined based on a thorough review of the relative valuation of each company by the STAR Special Committee, the SIR Special Committee and their respective financial advisors.

SIR will hold a special meeting of its stockholders on March 2, 2020, at which its stockholders will be asked to consider and vote on (i) a proposal to approve the SIR Merger, (ii) a proposal to approve the amendment of the charter of SIR to remove the provision related to “Roll-Up Transactions” in connection with the SIR Merger (the “SIR Charter Amendment”), and (iii) a proposal to adjourn the SIR Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the SIR Merger.

The record date for determining the stockholders entitled to receive notice of, and to vote at, the SIR Special Meeting is the close of business on December 16, 2019 (the “SIR record date”). The SIR Merger will not be completed unless SIR stockholders approve the SIR Merger and the SIR Charter Amendment by the affirmative vote of at least a majority of the outstanding shares of SIR Common Stock entitled to vote.

Source:  SEC

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Loreen M. Gilbert, CIMA, AIF, CRC, CLTC - President, WealthWise Financial Services
Blue Vault
July 6, 2016
    

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