IRVINE, Calif.--(BUSINESS WIRE)--Steadfast Apartment REIT, Inc., Steadfast Income REIT, Inc. and Steadfast Apartment REIT III, Inc. announced today that they have entered into definitive merger agreements pursuant to which STAR would acquire SIR and STAR III in separate stock-for-stock, tax-free transactions, creating a combined company with approximately $3.3 billion in gross real estate assets.

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 SIR and STAR III stockholders. The merger transactions are expected to close concurrently but are not conditioned on the consummation of each other. There can be no assurance that the merger transactions will be consummated.

The merger agreements were negotiated on behalf of STAR, SIR and STAR III by their respective special committees, each of which is composed exclusively of independent directors, along with each special committees’ independent financial and legal advisors. Each of the special committees recommended approval of the merger agreements to their respective Boards of Directors, each of which unanimously approved entry into the merger agreements.

“We believe the strategic merger of these three highly complementary portfolios with similar investment strategies will create an enhanced and diversified portfolio, concentrated in high growth markets,” said Rodney F. Emery, Chairman of STAR, SIR and STAR III. “We believe the enhanced size, scale and prominence of the combined portfolio will greatly improve our access to attractive capital sources, which can be used to drive future growth opportunities and potentially deliver enhanced liquidity options to stockholders.”

“This transaction would allow each company’s stockholders to participate in the potential benefits of a larger, stronger combined company,” said Ella Neyland, President of STAR, SIR and STAR III. “We look forward to pursuing additional value creation opportunities as a stronger company with increased cash flow, improved diversification and an improved balance sheet."

Potential Strategic Benefits

• Improves Portfolio: Through this transaction, management believes the combined company will have an improved portfolio that is poised for growth. The combined 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. If the mergers were to occur today, the combined company’s portfolio would consist of 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.

• Enhances Market Prominence and Increases Portfolio Diversification: The combined company will have enhanced market prominence in high growth areas, and growth potential in a recession-resilient sector supported by demographic trends. The combined company will have a presence in seven of the top 20 real estate investment markets, including Dallas, Nashville and Austin, and will rank among the top 50 apartment owners in the country.1 The combination will enable the combined company to reposition the portfolio based on market and property conditions and pursue ground-up development opportunities. The combined company expects average annual returns on ground-up development to average 40% higher than acquisitions of stabilized, developed multifamily properties.

• Generates Savings and Increased Cash Flow: The expected revised fee structure, platform synergies and increased purchasing power are expected to generate cash savings for the combined company. The expected synergies and fee structure realignment related to investment management fees, acquisition fees, disposition fees, financing fees and refinancing fees are expected to provide a projected average annual increase of almost $21 million in cash flow to the combined company as a result of the mergers. In addition, we believe the combined company will have the ability to raise rents in the majority of its markets.

• Expands Access to and Use of Capital: As a larger entity, the combined company is expected to have improved access to capital sources that may be used to grow the portfolio. The combined company should be able to increase 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.

• Lowers Risk Profile and Strengthens Balance Sheet: The combined company will have limited near-term debt maturities and a combined capital structure of 52% secured debt vs. 48% equity. The combined company 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. Upon completion of the transactions, 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.

STAR expects to continue distributions, which are currently equivalent to 6% annualized based on a purchase price of $15.00 per share, or $0.90 per share annually, subject to market factors and company performance.

STAR’s distribution reinvestment plan (“DRIP”) will remain in effect. SIR and STAR III stockholders will be able to elect to participate in the STAR DRIP upon completion of the respective transactions. Pursuant to the merger agreements, SIR, STAR and STAR III have each agreed to limit its quarterly share repurchases to repurchase requests made in connection with the death or qualifying disability of the stockholder, subject to certain terms and conditions.

The merger agreements provide SIR and STAR III with go-shop periods of 30 days and 45 days, respectively. During these periods, the special committees of each Board of Directors and its advisors will actively solicit alternative proposals from third parties. SIR and STAR III will each have the right to terminate their respective merger agreements with STAR to accept a superior proposal, subject to the terms and conditions of their respective merger agreements. There can be no assurance that this “go-shop” process will result in superior proposals, and the companies do not intend to disclose developments with respect to the solicitation process unless and until the special committees of their Boards of Directors make a determination with respect to any potential superior proposal.

STAR, SIR and STAR III have made a webcast presentation available detailing the highlights of the proposed transactions at www.SteadfastREITs.com.

Advisors

The STAR special committee, consisting entirely of independent directors, was advised by Robert A. Stanger & Co., Inc. as its financial advisor and Venable LLP as its legal advisor. STAR was advised by Morrison & Foerster LLP as its legal advisor. The SIR special committee, consisting entirely of independent directors, was advised by BMO Capital Markets as its financial advisor and Proskauer Rose LLP as its legal advisor. The STAR III special committee, consisting entirely of independent directors, was advised by Houlihan Lokey, Inc. as its financial advisor and DLA Piper LLP (US) as its legal advisor.

About Steadfast Apartment REIT, Inc., Steadfast Income REIT and Steadfast Apartment REIT III

Steadfast Apartment REIT, Inc., Steadfast Income REIT and Steadfast Apartment REIT III are public, non-traded corporations that have elected to be taxed and currently qualify as real estate investment trusts. The REITs invest in quality mid-tier apartment communities across the United States and are sponsored by Steadfast REIT Investments, LLC, an affiliate of Steadfast Companies, an Orange County, Calif.-based group of affiliated real estate investment and operating companies that acquire, develop and manage real estate in the U.S. and Mexico.