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Item 1.01.
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Entry into a Material Definitive Agreement
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Agreement and Plan of Merger
On July 26, 2021, Independence Realty Trust, Inc., a Maryland corporation (“IRT”), Independence Realty Operating Partnership, LP, a Delaware limited partnership and a subsidiary of IRT (“IRT OP”), and IRSTAR Sub, LLC, a Maryland limited liability company and a wholly-owned subsidiary of IRT (“IRT Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Steadfast Apartment REIT, Inc., a Maryland corporation (“STAR”), and Steadfast Apartment REIT Operating Partnership, L.P., a Delaware limited partnership and a subsidiary of STAR (“STAR OP”).
The Merger Agreement provides that, among other things and on the terms and subject to the satisfaction or waiver of the conditions set forth therein, (1) STAR will be merged with and into IRT Merger Sub (the “Company Merger”), with IRT Merger Sub surviving as a wholly-owned subsidiary of IRT, and (2) immediately following the Company Merger, STAR OP will be merged with and into IRT OP (the “Partnership Merger” and, together with the Company Merger, the “Mergers”), with IRT OP surviving.
At the effective time of the Company Merger (the “Company Merger Effective Time”), each share of common stock, par value $0.01 per share, of STAR (“STAR Common Stock”) issued and outstanding immediately prior to the Company Merger Effective Time (other than certain shares set forth in the Merger Agreement) will be converted automatically into the right to receive 0.905 (the “Exchange Ratio”) shares of common stock, par value $0.01 per share, of IRT (“IRT Common Stock”), with cash paid in lieu of fractional shares. The Exchange Ratio is fixed, and no change will be made to the Exchange Ratio if the market price of IRT Common Stock changes before consummation of the Mergers.
Each share of STAR Common Stock outstanding immediately prior to the Company Merger Effective Time that is subject to vesting or forfeiture conditions, other than vesting or forfeiture conditions that terminate at the Company Merger Effective Time (such shares, the “STAR Restricted Shares”) will be subject to the same vesting or forfeiture conditions as were applicable to the STAR Restricted Shares.
At the effective time of the Partnership Merger (the “Partnership Merger Effective Time”), (1) each unit of limited partnership interest of STAR OP designated as a “Class A Common Unit” (each a “Class A STAR OP Unit”) issued and outstanding immediately prior to the Partnership Merger Effective Time and owned by STAR or a subsidiary of STAR will be converted automatically into the right to receive a number of common units (each, an “IROP Common Unit”) of limited partnership of IRT OP equal to the Exchange Ratio and will be owned by IRT through IRT Merger Sub and (2) each unit of limited partnership interest of STAR OP designated as a “Class A-2 Common Unit” or “Class B Common Unit” issued and outstanding immediately prior to the Partnership Merger Effective Time will be converted automatically into the right to receive a number of IROP Common Units that generally will have the same rights as the currently issued and outstanding IROP Common Units, including as to distributions, but, in certain cases, will be subject to additional restrictions as to when the holders thereof may exercise redemption rights. Holders of IROP Common Units generally have the right, subject to certain time restrictions, to tender their IROP Common Units, in whole or in part, to IRT OP for redemption for a cash amount based on the then market price of an equivalent number of shares of IRT Common Stock, and IRT may thereupon elect, at its option, to satisfy the redemption by issuing one share of IRT Common Stock for each IROP Common Unit tendered for redemption.
Through the Mergers, STAR stockholders will receive, in aggregate, in exchange for their shares of STAR Common Stock, approximately 99.756 million shares of IRT Common Stock and limited partners in STAR OP will receive, in aggregate, in exchange for their STAR OP Units, approximately 6.429 million IROP Common Units.
The respective boards of directors of IRT and STAR have unanimously approved the Merger Agreement. IRT’s board of directors has unanimously resolved to recommend that the stockholders of IRT approve the issuance of IRT Common Stock in connection with the Mergers, by a majority of the votes cast by holders of IRT Common Stock, and STAR’s board of directors has unanimously resolved to recommend that the stockholders of STAR approve the Company Merger, by a majority of the outstanding shares of STAR Common Stock entitled to vote on the matter.
The Company Merger is intended to qualify as a reorganization for U.S. federal income tax purposes, and the Partnership Merger is intended to be treated as a transaction that is generally tax-free to the holders of STAR OP partnership units for U.S. federal income tax purposes.
The completion of the Mergers is subject to satisfaction or waiver of certain conditions, including (1) the receipt of required approvals from IRT’s common stockholders and from STAR’s common stockholders, (2) the authorization for listing of the shares of IRT
Common Stock to be issued in the Mergers or reserved for issuance in connection therewith on the New York Stock Exchange, (3) the effectiveness of the registration statement on Form S-4 to be filed by IRT pursuant to which shares of IRT Common Stock to be issued in connection with the Mergers are registered with the Securities and Exchange Commission (the “SEC”), (4) the absence of any order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Mergers or any law that makes the consummation of the Mergers illegal, (5) the accuracy of each party’s representations and warranties, subject in most cases to materiality or material adverse effect qualifications, (6) material compliance with each party’s covenants, (7) the receipt by each of IRT and STAR of an opinion to the effect that the Company Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and of an opinion as to the qualification of IRT and STAR, respectively, as a real estate investment trust (“REIT”) under the Code and (8) the receipt of certain lender consents.
The Merger Agreement contains customary representations and warranties by each party. The parties have also agreed to various customary covenants and agreements, including, among others, to conduct their businesses in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement and the completion of the Mergers, to not engage in certain kinds of transactions during this period and to maintain REIT status. Additionally, IRT and STAR have agreed that, prior to the consummation of the Mergers, each may continue to pay their regular monthly/quarterly dividends, but may not increase the amounts, except to the extent required to maintain REIT status, subject to certain limitations. The parties will coordinate record and payment dates for all pre-closing dividends.
Each of IRT and STAR has agreed to covenants prohibiting each party from soliciting, providing non-public information and entering into discussions or agreements concerning proposals relating to an alternative business combination transaction, subject to certain limited exceptions. Prior to obtaining the requisite stockholder approval, the board of directors of either party may change its recommendation or terminate the Merger Agreement (to enter into an agreement with respect to a superior proposal) if (1) it has received an unsolicited written acquisition proposal that constitutes a superior proposal, and (2) its board of directors determines, after consultation with outside legal counsel and independent financial advisors, that (x) failure to do so would be inconsistent with the directors’ duties under applicable law, and (y) taking into account any changes to the Merger Agreement proposed in response by the other party, that the superior proposal continues to constitute a superior proposal. The board of directors of either party may also change its recommendation in response to a material development or change in circumstances that was not known by it as of the date of the Merger Agreement if such party’s board of directors determines, after consultation with outside legal counsel, taking into account any changes to the Merger Agreement proposed in response by the other party, that failure to do so would be inconsistent with the directors’ duties under applicable law.
The Merger Agreement contains certain termination rights for IRT and STAR. The Merger Agreement can be terminated by either IRT or STAR (1) by mutual written consent; (2) if the Mergers have not been consummated by an outside date of January 31, 2022; (3) if there is a permanent, non-appealable injunction or law restraining or prohibiting the consummation of the Mergers; (4) if stockholders of either IRT or STAR fail to approve the transactions; (5) if the other party’s board of directors changes its recommendation in favor of the transactions or the other party enters into an alternative acquisition agreement with respect to a superior proposal; (6) if the other party has materially breached its covenant not to solicit acquisition proposals or its covenant to hold its stockholder meeting; (7) in order to enter into a superior proposal (subject to compliance with certain terms and conditions included in the Merger Agreement); or (8) if the other party has breached its representations or covenants in a way that prevents satisfaction of a closing condition, subject to a cure period.
Upon a termination of the Merger Agreement, under certain circumstances, including entering into an agreement with respect to a superior proposal, STAR will be required to pay to IRT a termination fee of $74.0 million, and in certain other circumstances, including entering into an agreement with respect to a superior proposal, IRT will be required to pay to STAR a termination fee of $74.0 million.
The Merger Agreement also provides that either IRT or STAR must pay the other party an expense reimbursement of up to $10.0 million, if the Merger Agreement is terminated (1) because such party’s stockholders fail to approve (a) in the case of IRT, the issuance of IRT Common Stock in connection with the Mergers or (b) in the case of STAR, the Company Merger or (2) because a breach of any representation or warranty or failure to perform any covenant or agreement has occurred, and cannot be cured within 20 days, that would cause such party to be unable to satisfy the closing conditions before January 31, 2022. The expense reimbursement will be set off against any termination fee if the termination fee later becomes payable.
The Mergers are currently expected to close in the fourth quarter of 2021. Upon consummation of the Mergers, IRT expects to assume or repay STAR indebtedness in the aggregate amount of approximately $2.13 billion as of June 30, 2021.
The foregoing summary of the Mergers and the Merger Agreement and the transactions contemplated thereby is a summary only and does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and incorporated by reference herein.
The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about IRT. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement as of the specific dates therein, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in IRT’s public disclosures.
Board and Executive Management
The Merger Agreement provides that at the Company Merger Effective Time:
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Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, will continue in these positions for the combined company;
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James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company;
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Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company;
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Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company; and
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Ella S. Neyland, currently STAR’s President, Chief Financial Officer and Treasurer, will serve as Chief Operating Officer of the combined company.
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In addition, the Merger Agreement provides that at the Company Merger Effective Time the board of directors of IRT will be comprised of 10 directors, comprised of five incumbent directors of IRT (Scott F. Schaeffer, Melinda H. McClure, Richard D. Gebert, DeForest Blake Soaries Jr. and Lisa Washington) and five incumbent directors of STAR (Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell). Mr. Schaeffer will continue as Chairman of the Board.
Treatment of Mergers under IRT LTIP
In anticipation of IRT’s entry into the Merger Agreement, each of IRT’s executive officers (Messrs. Schaeffer, Ender, Sebra and Delozier and Ms. Norman) executed an Acknowledgment in the form attached hereto as Exhibit 10.1 acknowledging that the Mergers will not constitute a “Change in Control” as defined in the IRT 2016 Long Term Incentive Plan (the “IRT LTIP”). Following the Mergers, each executive officer’s awards under the IRT LTIP will remain outstanding and subject to the same performance- and/or time-vesting conditions as would apply in the ordinary course.