IRT, Steadfast Plan $7B Merger

Ballpark at Town Madison. Image courtesy of Steadfast Apartment REIT

Calling it a “merger of equals,” Independence Realty Trust Inc. and Steadfast Apartment REIT Inc. plan to merge creating a company with an enterprise value of $7 billion that will own 131 apartment communities totaling about 38,000 units across 16 states, mostly in the highly desirable Sun Belt region.

IRT will be the surviving public company. The deal, which requires approval of stockholders of both REITs, is expected to close in the fourth quarter. The boards of directors of the two companies have unanimously approved the proposed merger. Under the terms of the merger agreement, each STAR common share will converted into 0.905 shares of newly issued IRT common stock, including cash in lieu of fractional shares.

The proposed merger will create a portfolio of communities in urban and suburban locations in Georgia, North Carolina, Tennessee, Kentucky, Ohio, Oklahoma, Indiana, Texas, Florida, South Carolina, Missouri, Alabama, Colorado, Kansas, Illinois and Virginia. The combined company’s largest 10 markets by unit count would be Atlanta; Dallas/Fort Worth; Denver; Oklahoma City; Louisville, Ky.; Columbus, Ohio; Indianapolis; Raleigh-Durham, N.C.; Houston and Memphis, Tenn.

Scott Schaeffer, IRT’s chairman & CEO, said in a prepared statement the combination of the two highly complementary portfolios will create a leading multifamily REIT in the Sun Belt that will be well-positioned to unlock significant value and improve market diversification.

He noted the transaction will enhance the portfolio’s reach and diversification across the Sun Belt, which has and is expected to continue to experience strong population and employment growth. Schaeffer said it would expand the REIT’s presence into attractive new markets including Denver and Nashville, Tenn. The combination will also add Class B mid-market communities that continue to be in demand throughout various economic and real estate cycles.

In addition, the combined company will have a pipeline of approximately 20,000 units available for future redevelopment. The planned merger will also support IRT’s ongoing efforts to retain top talent, increase brand recognition in the multifamily industry and compete more effectively for acquisition and development opportunities. Once the merger is approved, the combined company expects to realize about $28 million in annual synergies, including $20 million in general, administrative and property management savings.

“We believe that this is a natural combination of highly complementary portfolios, which will allow IRT and Steadfast together to strengthen our presence in the multifamily sector, particularly in the Sun Belt markets, where we see substantial room for growth. We see notable near-term benefits associated with this merger of equals as well as significant long-term strategic opportunities through this partnership,” Schaeffer said during a conference call with analysts to discuss IRT’s second-quarter earnings and the proposed merger.

This would not be STAR’s first major M&A transaction. In August 2019, STAR announced it was acquiring Steadfast Income REIT and Steadfast Apartment REIT III to form a single REIT focused on moderate-income apartments. That deal, which closed in March 2020, resulted in STAR owning about $3.3 billion in assets at that time consisting of 71 properties in 14 states and major metros like Dallas, Nashville and Austin, Texas.

Leadership Plans

Once the merger is completed, Schaeffer will lead the combined company as CEO. Current IRT Chief Financial Officer James Sebra will continue in that role for the combined company as will President Farrell Ender. Ella Neyland, currently president, CFO & treasurer of STAR, will join the combined company as its Chief Operating Officer. Jessica Norman, currently IRT’s executive vice president & general counsel, will serve as Chief Legal Officer.

The size of the IRT board of directors will be expanded to 10 members, comprised of five incumbent directors of each REIT. Schaeffer will continue to serve as chairman of the board of directors of the combined company.

The company will retain the Independence Realty Trust name and trade under the IRT ticker symbol on the NYSE.

IRT’s advisors include Barclays as lead financial advisor, BMO Capital Markets as financial advisor and Troutman Pepper Hamilton Sanders LLP as legal advisor. STAR’s advisors are RBC Capital Markets and Robert A. Stanger & Co. as financial advisors and Morrison & Foerster legal advisor.

Sales and Acquisitions

Schaeffer said the combined company will be targeting the sale of non-core assets which is expected to total about $340 million. Both REITS have been active buyers in recent months. In early July, STAR acquired The Station at Town Madison, a newly-built, 274-unit apartment community in Huntsville, Ala., from Tynes Development. STAR has renamed the property Ballpark at Town Madison as it is located near Toyota Field, home of Huntsville’s Minor League Baseball team.

In May, IRT acquired Solis City Park, a new 272-unit apartment community in Charlotte, N.C., from Terwillinger Pappas for $66.5 million.