DEFM14A 1 d183700ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

 

Filed by the Registrant         ☐    Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to Rule 14a-12

STEADFAST APARTMENT REIT, INC.

 

(Name of Registrant as Specified in its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies:

 

 

  (2)

Aggregate number of securities to which transaction applies:

 

 

  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4)

Proposed maximum aggregate value of transaction:

 

 

  (5)

Total fee paid:

 

 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)

Amount Previously Paid:

 

 

  (2)

Form, Schedule or Registration Statement No.:

 

 

  (3)

Filing Party:

 

 

  (4)

Date Filed

 

 

 

 

 


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LOGO

     

LOGO

 

MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT

The boards of directors of Independence Realty Trust, Inc., a Maryland corporation (which we refer to as “IRT”), and Steadfast Apartment REIT, Inc., a Maryland corporation (which we refer to as “STAR”), have each approved an Agreement and Plan of Merger, dated as of July 26, 2021 (which we refer to as the “Merger Agreement”), by and among STAR, Steadfast Apartment REIT Operating Partnership, L.P., a Delaware limited partnership (which we refer to as “STAR OP”), IRT, Independence Realty Operating Partnership, LP, a Delaware limited partnership (which refer to as “IRT OP”), and IRSTAR Sub, LLC, a Maryland limited liability company and wholly owned subsidiary of IRT (which we refer to as “IRT Merger Sub”). Following the Mergers (defined below), the combined company will own a portfolio of 131 apartment communities comprising approximately 38,000 units across 16 states 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 combination of IRT and STAR will be accomplished through (1) a merger of STAR with and into IRT Merger Sub, whereupon the separate existence of STAR will cease and IRT Merger Sub will be the surviving entity and a wholly owned subsidiary of IRT (which we refer to as the “Company Merger”) and (2) immediately thereafter, a merger of STAR OP with and into IRT OP, whereupon the separate existence of STAR OP will cease and IRT OP will be the surviving entity (which we refer to as the “Partnership Merger” and, together with the Company Merger, the “Mergers”). At the effective time of the Company Merger (which we refer to as the “Company Merger Effective Time”), each share of common stock, par value $0.01 per share, of STAR (which we refer to as “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 automatically converted into the right to receive 0.905 (which we refer to as the “Exchange Ratio”) shares of common stock, par value $0.01 per share, of IRT (which we refer to as “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. IRT Common Stock is traded on the New York Stock Exchange (which we refer to as the “NYSE”) under the ticker symbol “IRT.” Based on the closing price of IRT Common Stock on the NYSE of $20.00 on July 23, 2021, the last trading day before public announcement of the proposed Mergers, the Exchange Ratio represented approximately $18.10 in IRT Common Stock for each share of STAR Common Stock, which represented a premium of approximately 16.40% to the most recently disclosed estimated value per share of STAR Common Stock as of December 31, 2020. Based on the closing price of IRT Common Stock on the NYSE of $20.23 on September 20, 2021, the latest practicable date before the date of this joint proxy statement/prospectus, the Exchange Ratio represented approximately $18.31 in IRT Common Stock for each share of STAR Common Stock. The value of the consideration will fluctuate with changes in the market price of IRT Common Stock. We urge you to obtain current market quotations of IRT Common Stock.

Pursuant to the terms and subject to the conditions of the Merger Agreement, at the date and time the Partnership Merger becomes effective (the “Partnership Merger Effective Time”), (1) each unit of limited partnership interest of STAR OP designated as a “Class A Common Unit” issued and outstanding immediately prior to the Partnership Merger Effective Time and owned by STAR will be automatically converted into the right to receive a number of common units (each, an “IROP Common Unit”) of limited partnership interest 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 automatically converted into


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the right to receive a number of IROP Common Units equal to the Exchange Ratio, which 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.

Based upon the number of outstanding shares on the record date of September 27, 2021 for the IRT special meeting and September 27, 2021 for the STAR special meeting, we anticipate that IRT will issue approximately 99,720,869 shares of IRT Common Stock and 6,429,481 IROP Common Units in connection with the Mergers.

Upon consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of IRT’s forward sale agreements prior to consummation of the Mergers, IRT and STAR estimate that legacy IRT stockholders and holders of IROP Common Units will own approximately 53% of the issued and outstanding shares of IRT Common Stock and IROP Common Units, and legacy STAR stockholders and STAR OP unitholders will own approximately 47% of the issued and outstanding shares of IRT Common Stock and IROP Common Units.

IRT and STAR have each scheduled special meetings of their respective stockholders to be held on December 13, 2021, in connection with the Mergers and related transactions. The IRT special meeting will be held at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103 on December 13, 2021, at 9:00 a.m., Eastern Time. The STAR special meeting will be held virtually via live webcast at www.proxydocs.com/STAR on December 13, 2021, at 11:00 a.m., Pacific Time.

At the special meeting of IRT stockholders, IRT stockholders will be asked to consider and vote on (1) a proposal to approve the issuance of IRT Common Stock in the Company Merger pursuant to the Merger Agreement (which we refer to as the “IRT Issuance Proposal”), and (2) a proposal to approve the adjournment of the IRT special meeting, if necessary or appropriate, to solicit additional proxies in favor of the IRT Issuance Proposal if there are insufficient votes at the time of such adjournment to approve such proposal (which we refer to as the “IRT Adjournment Proposal”).

At the special meeting of STAR stockholders, STAR stockholders will be asked to consider and vote on (1) a proposal to approve the Company Merger, on the terms and subject to the conditions of the Merger Agreement (which we refer to as the “STAR Merger Proposal”), (2) a proposal to approve by advisory (non-binding) vote, the compensation that may be paid or become payable to the named executive officers of STAR in connection with the merger of STAR with and into IRT Merger Sub (which we refer to as the “STAR Compensation Proposal”) and (3) a proposal to approve the adjournment of the STAR special meeting to solicit additional proxies in favor of the STAR Merger Proposal, if there are not sufficient votes to approve the STAR Merger Proposal, if necessary and as determined by the chair of the STAR special meeting (which we refer to as the “STAR Adjournment Proposal”).

Your vote is very important, regardless of the number of shares you own. The record dates for determining the stockholders entitled to receive notice of, and to vote at, the special meetings are September 27, 2021, with respect to the IRT special meeting, and September 27, 2021, with respect to the STAR special meeting. The Mergers cannot be consummated without the approval of both IRT stockholders and STAR stockholders. We urge you to read this joint proxy statement/prospectus carefully. The obligations of IRT and STAR to consummate the Mergers are subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement. More information about IRT, STAR, the special meetings, the Merger Agreement and the transactions contemplated thereby, including the Mergers, is included in this joint proxy statement/prospectus. You should also consider carefully the risks that are described in theRisk Factorssection, beginning on page 24.


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Whether or not you plan to attend the IRT special meeting or the STAR special meeting, please submit your proxy as soon as possible to make sure that your shares of IRT Common Stock or STAR Common Stock are represented at the applicable meeting.

The IRT board of directors recommends that IRT stockholders vote “FOR” the IRT Issuance Proposal, which approval is necessary to consummate the Mergers, and “FOR” the IRT Adjournment Proposal.

The STAR board of directors recommends that STAR stockholders vote “FOR” the STAR Merger Proposal, which approval is necessary to consummate the Mergers, “FOR” the STAR Compensation Proposal and “FOR” the STAR Adjournment Proposal.

We join our respective boards in their recommendation and look forward to the successful combination of IRT and STAR.

 

Sincerely,    Sincerely,
LOGO    LOGO
Scott F. Schaeffer
Chairman of the Board and Chief Executive Officer
Independence Realty Trust, Inc.
   Rodney F. Emery
Chairman of the Board and Chief Executive Officer
Steadfast Apartment REIT, Inc.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined that this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated September 29, 2021 and is first being mailed to the stockholders of IRT and stockholders of STAR on or about October 4, 2021.


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LOGO

Independence Realty Trust, Inc.

1835 Market Street, Suite 2601

Philadelphia, Pennsylvania 19103

(267) 270-4800

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On December 13, 2021

Dear Stockholders of Independence Realty Trust, Inc.:

We are pleased to invite you to attend a special meeting of stockholders of Independence Realty Trust, Inc., a Maryland corporation (which we refer to as “IRT”). The meeting will be held at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, on December 13, 2021, at 9:00 a.m., Eastern Time (which we refer to as the “IRT special meeting”), to consider and vote upon the following matters:

 

   

a proposal to approve the issuance of IRT common stock, par value $0.01 per share (which we refer to as “IRT Common Stock”), in connection with the transactions contemplated by the Agreement and Plan of Merger, dated as of July 26, 2021 (which we refer to as the “Merger Agreement”), by and among IRT, Independence Realty Operating Partnership, LP (which we refer to as “IRT OP”), Steadfast Apartment REIT, Inc. (which we refer to as “STAR”), Steadfast Apartment REIT Operating Partnership, L.P. (which we refer to as “STAR OP”), and IRSTAR Sub, LLC, a wholly owned subsidiary of IRT (which we refer to as “IRT Merger Sub”), pursuant to which, among other things, (i) STAR will merge with and into IRT Merger Sub (which we refer to as the “Company Merger”), with IRT Merger Sub continuing as the surviving entity and a wholly owned subsidiary of IRT, and (ii) immediately thereafter, STAR OP will merge with and into IRT OP (which we refer to as the “Partnership Merger” and, together with the Company Merger, the “Mergers”), with IRT OP continuing as the surviving entity (which we refer to as the “IRT Issuance Proposal”); and

 

   

a proposal to approve the adjournment of the IRT special meeting, if necessary or appropriate, to solicit additional proxies in favor of the IRT Issuance Proposal if there are insufficient votes at the time of such adjournment to approve such proposal (which we refer to as the “IRT Adjournment Proposal”).

The approval by IRT stockholders of the IRT Issuance Proposal is a condition to the consummation of the Mergers and the other transactions contemplated by the Merger Agreement.

Please refer to the attached joint proxy statement/prospectus for further information with respect to the business to be transacted at the IRT special meeting.

Holders of record of shares of IRT Common Stock at the close of business on September 27, 2021 are entitled to notice of, and to vote at, the IRT special meeting and any adjournments or postponements of the IRT special meeting.


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The IRT Issuance Proposal requires the affirmative vote of a majority of the votes cast by IRT stockholders at the IRT special meeting, assuming a quorum is present. The IRT Adjournment Proposal requires the affirmative vote of a majority of the votes cast by IRT stockholders at the IRT special meeting.

Your vote is important. Whether or not you expect to attend the IRT special meeting in person, we urge you to authorize a proxy to vote your shares as promptly as possible by: (1) accessing the Internet at www.voteproxy.com; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the IRT special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.

By Order of the Board of Directors,

 

LOGO

Jessica K. Norman

General Counsel & Secretary

September 29, 2021

Philadelphia, Pennsylvania

 


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LOGO

Steadfast Apartment REIT, Inc.

18100 Von Karman Avenue, Suite 200

Irvine, California 92612

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On December 13, 2021

Dear Stockholders of Steadfast Apartment REIT, Inc.:

We are pleased to invite you to attend a special meeting of stockholders of Steadfast Apartment REIT, Inc., a Maryland corporation (which we refer to as “STAR”). The meeting will be held virtually via live webcast at www.proxydocs.com/STAR on December 13, 2021, at 11:00 a.m., Pacific Time (which we refer to as the “STAR special meeting”), to consider and vote upon the following matters:

 

   

a proposal to approve the merger of STAR with and into IRSTAR Sub, LLC (which we refer to as “IRT Merger Sub”), a wholly owned subsidiary of Independence Realty Trust, Inc. (which we refer to as “IRT”), with IRT Merger Sub continuing its existence as a wholly owned subsidiary of IRT (the “Company Merger”), on the terms and subject to the conditions of the Agreement and Plan of Merger, dated as of July 26, 2021 (which we refer to as the “Merger Agreement”), by and among STAR, Steadfast Apartment REIT Operating Partnership, L.P., IRT, IRT Merger Sub and Independence Realty Operating Partnership, LP, as more fully described in the enclosed proxy statement (which we refer to as the “STAR Merger Proposal”);

 

   

a proposal to approve by advisory (non-binding) vote, the compensation that may be paid or become payable to the named executive officers of STAR in connection with the merger of STAR with and into IRT Merger Sub (which we refer to as the “STAR Compensation Proposal”); and

 

   

a proposal to approve the adjournment of the STAR special meeting to solicit additional proxies in favor of the STAR Merger Proposal if there are not sufficient votes to approve such proposal, if necessary and as determined by the chair of the STAR special meeting (which we refer to as the “STAR Adjournment Proposal”).

The approval by STAR stockholders of the STAR Merger Proposal is a condition to the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement.

Please refer to the attached joint proxy statement/prospectus for further information with respect to the business to be transacted at the STAR special meeting.

The virtual waiting room for the STAR special meeting will open 15 minutes prior to the start of the meeting. Stockholders will hear music until the meeting starts. If stockholders have any difficulty accessing the meeting, they should call STAR’s proxy solicitor, Mediant Communications Inc., at the toll-free number provided in the email received prior to the special meeting. Live technicians will be available to assist stockholders with any virtual meeting attendance difficulties.

The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome and Safari), with Chrome being the preferred option. Devices (desktops, laptops, tablets and cell phones) running the most updated version of applicable software and plugins will provide the best experience. Participants should ensure that they have a strong internet connection wherever they intend to participate in the STAR special meeting. Participants should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the start of the STAR special meeting.


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Holders of record of STAR common stock, par value $0.01 per share (which we refer to as “STAR Common Stock”), at the close of business on September 27, 2021 are entitled to notice of, and to vote on, all proposals at the STAR special meeting and any adjournments or postponements of the STAR special meeting.

The STAR Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of STAR Common Stock entitled to vote. The STAR Compensation Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock at the STAR special meeting, assuming a quorum is present. The STAR Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock at the STAR special meeting.

Your vote is important. Whether or not you expect to attend the STAR special meeting virtually, we urge you to authorize a proxy to vote your shares as promptly as possible by: (1) accessing the Internet at www.proxydocs.com/STAR; (2) calling (844) 391-3598; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the STAR special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.

By Order of the Board of Directors,

 

LOGO

Rodney F. Emery

Chairman of the Board and Chief Executive Officer

September 29, 2021

Irvine, California

 


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates by reference important business and financial information about IRT from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Independence Realty Trust, Inc.
1835 Market Street, Suite 2601
Philadelphia, Pennsylvania 19103
(267) 270-4800
Attn.: Investor Relations

 

or

 

D.F. King & Co., Inc.
48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-Free: (866) 416-0553

Banks and Brokers Call: (212) 269-5550

irt@dfking.com

Investors may also consult the websites of IRT or STAR for more information concerning the Mergers and the other transactions described in this joint proxy statement/prospectus. The website of IRT is www.irtliving.com and the website of STAR is www.steadfastliving.com. Information included on these websites is not incorporated by reference into this joint proxy statement/prospectus.

If you would like to request any documents, please do so by November 30, 2021, in order to receive them before the special meetings.

For more information, see “Where You Can Find More Information.”


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ABOUT THIS DOCUMENT

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission by Independence Realty Trust, Inc. (File No. 333-258871), constitutes a prospectus of IRT under Section 5 of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), with respect to the IRT Common Stock to be issued in connection with the Company Merger. This document also constitutes a joint proxy statement of IRT and STAR under Section 14(a) of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting of IRT stockholders and a notice of meeting with respect to the special meeting of STAR stockholders, at which IRT stockholders and STAR stockholders, respectively, will be asked to vote upon certain proposals to approve the Mergers and/or other related matters.

You should rely only on the information contained or incorporated by reference into this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated September 29, 2021. You should not assume that the information contained in, or incorporated by reference into, this joint proxy statement/prospectus is accurate as of any date other than the date on the front cover of those documents. Neither the mailing of this joint proxy statement/prospectus to IRT stockholders or STAR stockholders nor the issuance of IRT Common Stock in connection with the Mergers will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding IRT has been provided by IRT and information contained in this joint proxy statement/prospectus regarding STAR has been provided by STAR.

 


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TABLE OF CONTENTS

 

     Page  

DEFINED TERMS

     1  

QUESTIONS AND ANSWERS

     2  

SUMMARY

     10  

RISK FACTORS

     24  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     38  

INFORMATION ABOUT THE COMPANIES

     42  

THE MERGERS

     44  

THE MERGER AGREEMENT

     102  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     128  

THE IRT SPECIAL MEETING

     151  

IRT PROPOSALS

     154  

THE STAR SPECIAL MEETING

     155  

STAR PROPOSALS

     159  

SELECTED HISTORICAL FINANCIAL INFORMATION OF IRT AND STAR

     161  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     163  

DESCRIPTION OF CAPITAL STOCK

     174  

COMPARISON OF RIGHTS OF IRT STOCKHOLDERS AND STAR STOCKHOLDERS

     179  

LEGAL MATTERS

     205  

EXPERTS

     206  

FUTURE STOCKHOLDER PROPOSALS

     207  

OTHER MATTERS

     209  

WHERE YOU CAN FIND MORE INFORMATION

     210  

ANNEX A AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B OPINION OF BARCLAYS CAPITAL INC.

     B-1  

ANNEX C OPINION OF BMO CAPITAL MARKETS CORP.

     C-1  

ANNEX D OPINION OF RBC CAPITAL MARKETS, LLC

     D-1  

ANNEX E STEADFAST APARTMENT REIT, INC.’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020

     E-1  

ANNEX F STEADFAST APARTMENT REIT, INC.’S QUARTERY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 2021

     F-1  

 

-i-


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DEFINED TERMS

Unless otherwise indicated or as the context otherwise requires, all references in this joint proxy statement/prospectus to:    

 

   

“Code” are to the Internal Revenue Code of 1986, as amended;

 

   

“combined company” are to IRT and its consolidated subsidiaries after consummation of the pending Mergers;

 

   

“Company Merger” are to the merger of STAR with and into IRT Merger Sub, with IRT Merger Sub surviving the merger;

 

   

“Company Merger Effective Time” are to the effective time of the Company Merger;

 

   

“IROP Common Units” are to common units of limited partnership interest of IRT OP;

 

   

“IRT” are to Independence Realty Trust, Inc., a Maryland corporation;

 

   

“IRT Board” are to IRT’s board of directors;

 

   

“IRT Common Stock” are to shares of common stock of IRT, par value $0.01 per share;

 

   

“IRT Merger Sub” are to IRSTAR Sub, LLC, a Maryland limited liability company and wholly owned subsidiary of IRT;

 

   

“IRT OP” are to Independence Realty Operating Partnership, LP, a subsidiary of IRT;

 

   

“IRT parties” are to IRT, IRT OP, and IRT Merger Sub;

 

   

“Merger Agreement” are to the Agreement and Plan of Merger dated as of July 26, 2021, by and among the IRT parties and STAR parties;

 

   

“Mergers” are to both the Company Merger and the Partnership Merger;

 

   

“NYSE” are to the New York Stock Exchange;

 

   

“Partnership Merger” are to the merger of STAR OP with and into IRT OP, with IRT OP surviving the merger;

 

   

“Partnership Merger Effective Time” are to the effective time of the Partnership Merger;

 

   

“REIT” are to a real estate investment trust;

 

   

“SEC” are to the Securities and Exchange Commission;

 

   

“STAR” are to Steadfast Apartment REIT, Inc., a Maryland corporation;

 

   

“STAR Board” are to STAR’s board of directors;

 

   

“STAR Common Stock” are to shares of common stock of STAR, par value $0.01 per share;

 

   

“STAR OP” are to Steadfast Apartment REIT Operating Partnership, L.P., a Delaware limited partnership;

 

   

“STAR OP Units” are to units of limited partnership interest in STAR OP; and

 

   

“STAR parties” are to both STAR and STAR OP.

 

-1-


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QUESTIONS AND ANSWERS

The following are answers to some questions that you, as a stockholder of IRT, or a stockholder of STAR, may have regarding the proposed transactions between IRT and STAR and their respective subsidiaries, and the other matters being considered at the special meeting of IRT and at the special meeting of STAR. IRT and STAR urge you to carefully read this joint proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Mergers and the other matters being considered at the special meetings. Additional important information is also contained in the annexes to and the documents incorporated by reference into this joint proxy statement/prospectus.

 

Q:

What are the Mergers?

 

A:

IRT and STAR have agreed to a series of transactions, pursuant to the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.

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) the Company Merger will be consummated, and (2) immediately following the Company Merger, the Partnership Merger will be consummated.

At the Company Merger Effective Time, each share of 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 automatically converted into the right to receive 0.905 (which we refer to as the “Exchange Ratio”) shares of IRT Common Stock, with cash paid in lieu of fractional shares.

In addition, pursuant to the terms and subject to the conditions of the Merger Agreement, at the Partnership Merger Effective Time, (1) each Class A STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time and owned by STAR will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio and will be owned by IRT through IRT Merger Sub and (2) each Class A-2 STAR OP Unit and each Class B STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio, which 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.

Upon consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date, and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of the IRT Forward Sale Agreements (as defined below) prior to consummation of the Mergers, IRT and STAR estimate that legacy IRT stockholders and holders of IROP Common Units will own approximately 53% of the issued and outstanding shares of IRT Common Stock and IROP Common Units, and legacy STAR stockholders and STAR OP unitholders will own approximately 47% of the issued and outstanding shares of IRT Common Stock and IROP Common Units.

 

Q:

What happens if the market price of shares of IRT Common Stock changes before the closing of the Mergers?

 

A:

No change will be made to the Exchange Ratio of 0.905 if the market price of shares of IRT Common Stock changes before the consummation of the Mergers. Because the Exchange Ratio is fixed, the value of the consideration to be received by STAR stockholders in the Company Merger will depend on the market price of shares of IRT Common Stock at the time of the consummation of the Mergers.

 

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Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

The Mergers cannot be consummated, unless:

 

   

the holders of IRT Common Stock vote to approve the issuance of IRT Common Stock in connection with the Mergers (which we refer to as the “IRT Issuance Proposal”); and

 

   

the holders of STAR Common Stock vote to approve the Company Merger, on the terms and subject to the conditions of the Merger Agreement (which we refer to as the “STAR Merger Proposal”).

Each of IRT and STAR will hold separate special meetings of their stockholders to obtain these approvals and approvals for other related proposals as described herein.

This joint proxy statement/prospectus contains important information about the Mergers and the other proposals being voted on at the special meetings, and you should read it carefully. It is a joint proxy statement because the IRT Board is soliciting proxies from its stockholders and the STAR Board is soliciting proxies from its stockholders. It is a prospectus because IRT will issue shares of its common stock. The enclosed voting materials allow you to authorize a proxy to vote your shares without attending your respective meeting.

Your vote is important. We encourage you to authorize a proxy to vote your shares as soon as possible.

 

Q:

Why is IRT proposing the Mergers?

 

A:

Among other reasons, the IRT Board approved the Merger Agreement and recommended the approval of the IRT Issuance Proposal based on a number of strategic and financial benefits to IRT, including the expectation that the combination of IRT and STAR would join together two high-quality portfolios with complementary geographic footprints in the highly desirable Sunbelt region of the United States and on a pro forma basis, the combined company will own a portfolio of 131 apartment communities comprising approximately 38,000 units across 16 states. The pro forma equity market capitalization and pro forma total enterprise value of the combined company is expected to provide the combined company with greater access to multiple forms of debt and equity capital at a lower cost of capital over the long term than IRT on a standalone basis and offer financial flexibility to capture opportunities across business cycles. The combination of two companies with businesses in highly complementary geographic regions is expected to increase IRT’s competitive advantage across the Sunbelt region, improve submarket diversification and enable IRT to realize significant economies of scale, which is expected to significantly enhance the value of the portfolio. For more information, see “The Mergers—IRT’s Reasons for the Mergers; Recommendations of the IRT Board.”

 

Q:

Why is STAR proposing the Mergers?

 

A:

Among other reasons, the STAR Board approved the Merger Agreement and recommended its approval by STAR stockholders based on a variety of factors, including that (a) the proposed Company Merger will result in the creation of a leading publicly-traded multifamily REIT, with a larger, more diversified portfolio than STAR on a standalone basis that is expected to benefit from economies of scale, including enhanced pricing leverage with strategic partners and vendors, (b) STAR stockholders will benefit from the liquidity of owning shares of a significantly larger company, the shares of which will be listed on the NYSE and (c) STAR stockholders will have the opportunity to participate in the potential future growth of the combined company and any future appreciation of the combined company’s shares after the Company Merger because they will own approximately 47% of the combined company upon consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date, and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of the IRT Forward Sale Agreements (as defined below) prior to consummation of the Mergers. For more information, see “The Mergers—STAR’s Reasons for the Mergers; Recommendations of the STAR Board.”

 

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Q:

When and where will the special meetings be held?

 

A:

The IRT special meeting will be held at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, on December 13, 2021, at 9:00 a.m., Eastern Time.

The STAR special meeting will be held virtually via live webcast at www.proxydocs.com/STAR on December 13, 2021, at 11:00 a.m., Pacific Time.

 

Q:

How do I vote?

 

A:

IRT. If you are a holder of record of IRT Common Stock as of the record date for the IRT special meeting, you may vote by:

 

   

accessing the Internet website specified on your proxy card;

 

   

calling the toll-free number specified on your proxy card; or

 

   

signing and returning the enclosed proxy card in the postage-paid envelope provided.

If you hold IRT Common Stock in the name of a broker, bank or nominee, please follow the voting instructions provided by your broker, bank or nominee to ensure that your shares are represented at your special meeting.

STAR. If you are a holder of record of STAR Common Stock as of the record date for the STAR special meeting, you may vote by:

 

   

accessing the Internet website specified on your proxy card;

 

   

calling the toll-free number specified on your proxy card; or

 

   

signing and returning the enclosed proxy card in the postage-paid envelope provided.

If you hold shares of STAR Common Stock in the name of a broker, bank or nominee, please follow the voting instructions provided by your broker, bank or nominee to ensure that your shares are represented at your special meeting.

 

Q:

What am I being asked to vote upon?

 

A:

IRT. IRT stockholders are being asked to vote to approve the IRT Issuance Proposal and to approve a proposal to adjourn the IRT special meeting, if necessary or appropriate, to solicit additional proxies in favor of the IRT Issuance Proposal, if there are insufficient votes at the time of such adjournment to approve such proposal (which we refer to as the “IRT Adjournment Proposal”).

STAR. STAR stockholders are being asked to vote to approve the STAR Merger Proposal. STAR stockholders are also being asked to approve a proposal by advisory (non-binding) vote, the compensation that may be paid or become payable to the named executive officers of STAR in connection with the Company Merger (which we refer to as the “STAR Compensation Proposal”) and to approve a proposal to adjourn the STAR special meeting to solicit additional proxies in favor of the STAR Merger Proposal if there are not sufficient votes to approve such proposal, if necessary and as determined by the chair of the STAR special meeting (which we refer to as the “STAR Adjournment Proposal”).

The Mergers cannot be consummated without the approval by IRT stockholders of the IRT Issuance Proposal and the approval by STAR stockholders of the STAR Merger Proposal.

 

Q:

What vote is required to approve each proposal?

 

A:

IRT.

 

   

The IRT Issuance Proposal requires the affirmative vote of a majority of the votes cast by IRT stockholders at the IRT special meeting, assuming a quorum is present.

 

   

The IRT Adjournment Proposal requires the affirmative vote of a majority of the votes cast by IRT stockholders at the IRT special meeting.

 

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STAR.

 

   

The STAR Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of STAR Common Stock.

 

   

The STAR Compensation Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock at the STAR special meeting, assuming a quorum is present; however, such vote is non-binding and advisory only.

 

   

The STAR Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock at the STAR special meeting.

 

Q:

How do the IRT Board and STAR Board recommend that I vote?

 

A:

IRT. The IRT Board unanimously recommends that holders of IRT Common Stock vote “FOR” the IRT Issuance Proposal and “FOR” the IRT Adjournment Proposal.

STAR. The STAR Board unanimously recommends that holders of STAR Common Stock vote “FOR” the STAR Merger Proposal, “FOR” the STAR Compensation Proposal and “FOR” the STAR Adjournment Proposal.

 

Q:

How many votes do I have?

 

A:

IRT. You are entitled to one vote for each share of IRT Common Stock that you owned as of the close of business on the record date. As of the close of business on September 27, 2021, the record date for the IRT special meeting, there were 105,106,712 outstanding shares of IRT Common Stock, approximately 0.8% of which were beneficially owned by IRT directors and executive officers and their affiliates.

STAR. You are entitled to one vote for each share of STAR Common Stock that you owned as of the close of business on the record date. As of the close of business on September 27, 2021, the record date for the STAR special meeting, there were 110,188,806 outstanding shares of STAR Common Stock, approximately 0.9% of which were beneficially owned by STAR directors and executive officers and their affiliates.

 

Q:

What constitutes a quorum?

 

A:

IRT. Stockholders who hold a majority of the shares of IRT Common Stock outstanding on the record date and who are entitled to vote must be present or represented by proxy to constitute a quorum at the IRT special meeting.

STAR. Stockholders who hold a majority of the shares of STAR Common Stock outstanding on the record date and who are entitled to vote must be present (virtually) or represented by proxy to constitute a quorum at the STAR special meeting.

 

Q:

If my shares of common stock are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

If you hold your shares of common stock in a stock brokerage account or if your shares of common stock are held by a bank or nominee (that is, in “street name”), you must provide the record holder of your shares with instructions on how to vote your shares of common stock. Please follow the voting instructions provided by your broker, bank or nominee. Please note that you may not vote shares of common stock held in street name by returning a proxy card directly to IRT or STAR unless you provide a “legal proxy,” which you must obtain from your broker, bank or nominee. If you are an IRT stockholder, you may not vote shares of IRT Common Stock held in street name by voting in person at the IRT special meeting unless you provide a “legal proxy.” If you are a STAR stockholder, you may not vote shares of STAR Common Stock held in street name by voting in person (virtually) at the STAR special meeting unless you provide a “legal proxy.” Further, brokers who hold shares of IRT Common Stock or STAR Common Stock on behalf of their customers may not give a proxy to IRT or STAR to vote those shares without specific instructions from their customers.

 

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Q:

What will happen if I fail to instruct my broker, bank or nominee how to vote?

 

A:

IRT. If you are an IRT stockholder and you do not instruct your broker, bank or nominee on how to vote your shares of common stock, your broker will not be permitted to vote your shares on the IRT Issuance Proposal or the IRT Adjournment Proposal. Broker non-votes will have no effect on the IRT Issuance Proposal, assuming a quorum is present, or the IRT Adjournment Proposal.

STAR. If you are a STAR stockholder and you fail to instruct your broker, bank or nominee to vote your shares of STAR Common Stock, your broker will not be permitted to vote your shares on the STAR Merger Proposal, the STAR Compensation Proposal, or the STAR Adjournment Proposal. Broker non-votes will have the same effect as a vote against the STAR Merger Proposal, but it will have no effect on the STAR Compensation Proposal, assuming a quorum is present, or the STAR Adjournment Proposal.

 

Q:

What will happen if I fail to vote or I abstain from voting?

 

A:

IRT. If you are an IRT stockholder and fail to vote, it will have no effect on the IRT Issuance Proposal or the IRT Adjournment Proposal, assuming a quorum is present. If you are an IRT stockholder and abstain from voting, it will have the same effect as a vote against the IRT Issuance Proposal but it will have no effect on the IRT Adjournment Proposal.

STAR. If you are a STAR stockholder and fail to vote or abstain from voting, it will have the same effect as a vote against the STAR Merger Proposal, assuming a quorum is present, but it will have no effect on the STAR Compensation Proposal, assuming a quorum is present, or the STAR Adjournment Proposal.

 

Q:

What if I return my proxy card without indicating how to vote?

 

A:

If you sign and return your proxy card without indicating how to vote on any particular proposal, your shares of IRT Common Stock or STAR Common Stock will be voted in accordance with the recommendation of the IRT Board or the STAR Board, as applicable, with respect to such proposal.

 

Q:

Can I change my vote after I have returned a proxy or voting instruction card?

 

A:

Yes. You can change your vote at any time before your proxy is voted at your special meeting. You can do this in one of three ways:

 

   

you can send a signed notice of revocation;

 

   

you can grant a new, valid proxy bearing a later date; or

 

   

if you are a holder of record, you can attend your special meeting and vote in person (virtually, with respect to the STAR special meeting), which will automatically cancel any proxy previously given.

Attending the IRT special meeting or the STAR special meeting without voting will not, by itself, revoke your proxy. If your shares of IRT Common Stock or STAR Common Stock are held by a bank, broker or nominee, you should follow the instructions provided by the bank, broker or nominee.

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to be received by the secretary of IRT or the secretary of STAR, as appropriate, no later than the beginning of the IRT special meeting or the STAR special meeting. If your shares of IRT Common Stock or STAR Common Stock are held in street name by your broker, bank or nominee, you should contact your broker, bank or nominee to change your vote.

 

Q:

What does it mean if I receive more than one set of voting materials for the IRT special meeting or the STAR special meeting?

 

A:

You may receive more than one set of voting materials for the IRT special meeting and/or the STAR special meeting, as applicable, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares of IRT Common Stock or your shares of STAR Common Stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of IRT Common Stock or shares of

 

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  STAR Common Stock. If you are a holder of record and your shares of IRT Common Stock or your shares of STAR Common Stock are registered in more than one name, you may receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive or, if available, please submit your proxy by telephone or over the internet.

 

Q:

Are there any conditions to closing of the Mergers that must be satisfied for the Mergers to be consummated?

 

A:

Yes. In addition to the approvals of the stockholders of each of IRT and STAR described herein, there are a number of conditions that must be satisfied or waived for the Mergers to be consummated. For more information, see “The Merger Agreement - Conditions to Completion of the Mergers.”

 

Q:

When do you expect the Mergers to be consummated?

 

A:

IRT and STAR are working to consummate the Mergers in the fourth quarter of 2021. However, the Mergers are subject to various conditions, and it is possible that factors outside the control of IRT and STAR could result in the Mergers being consummated at a later time, or not at all. There may be a substantial amount of time between the respective IRT special meeting and the STAR special meeting and the consummation of the Mergers. IRT and STAR hope to consummate the Mergers as soon as reasonably practicable following the satisfaction of all applicable conditions.

 

Q:

Who will be the board of directors and management of the combined company?

 

A:

Upon consummation of the Mergers, the board of directors of the combined company will be comprised of the following five incumbent directors of the IRT Board and the following five incumbent directors of the STAR Board: Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington; and Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell, respectively.

In addition, upon consummation of the Mergers, Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, will continue in these positions for the combined company; James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company; Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company; Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company; and Ella S. Neyland, currently STAR’s President, Chief Financial Officer and Treasurer, will serve as Chief Operating Officer of the combined company.

 

Q:

Will IRT and STAR continue to pay distributions prior to the closing of the Mergers?

 

A:

Yes. The Merger Agreement permits IRT and IRT OP to pay (1) quarterly distributions of up to $0.12 per share of IRT Common Stock for each quarter or partial quarter ending prior to the Company Merger Effective Time and (2) distributions per IROP Common Unit in the same amount as a dividend per share of IRT Common Stock. The Merger Agreement permits STAR and STAR OP to pay (1) daily distributions (payable monthly) of up to $0.001438 per share of STAR Common Stock for each calendar day ending prior to the Company Merger Effective Time and (2) a distribution per STAR OP Unit in the same amount as a dividend per share of STAR Common Stock. In addition, the Merger Agreement permits both IRT and STAR to distribute additional amounts that are determined to be the minimum dividend required to be distributed in order to for it to qualify as a REIT and to avoid to the extent reasonably possible the incurrence of income or excise tax.

 

Q:

What are the material U.S. federal income tax consequences of the Company Merger to U.S. holders?

 

A:

It is intended that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. The closing of the Mergers is conditioned on the receipt by each of IRT and STAR of an opinion from

 

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  its respective counsel to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Assuming that the Company Merger qualifies as a reorganization, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences”) of shares of STAR Common Stock generally will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of IRT Common Stock in exchange for STAR Common Stock in connection with the Mergers, except with respect to cash received in lieu of fractional shares of IRT Common Stock. Holders of STAR Common Stock should read the discussion under the heading “Material U.S. Federal Income Tax Consequences” and consult their tax advisors to determine the tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the Mergers.

 

Q:

Are STAR and IRT stockholders entitled to appraisal rights or dissenters’ rights in connection with the Mergers?

 

A:

No. Holders of STAR Common Stock and IRT Common Stock will not be entitled to appraisal rights or dissenters’ rights in the Mergers under Section 3-202 of the Maryland General Corporation Law (which we refer to as the “MGCL”) because, in the case of STAR, its charter expressly excludes these rights unless the STAR Board determines otherwise, and in the case of IRT, because the issuance of IRT Common Stock in the Company Merger is not a transaction for which these rights may be had, and because its common stock is listed on a national securities exchange. For more information, see “The Mergers—No Appraisal or Dissenters’ Rights.”

 

Q:

What do I need to do now?

 

A:

Carefully read and consider the information contained in and incorporated by reference into this joint proxy statement/prospectus, including its annexes.

In order for your shares to be voted at the IRT special meeting or the STAR special meeting:

 

   

you can attend the IRT special meeting in person or the STAR special meeting virtually;

 

   

you can authorize a proxy to vote your shares through the Internet or by telephone by following the instructions included on your proxy card; or

 

   

you can indicate on the enclosed proxy or voting instruction card how you would like to vote and return the card in the accompanying postage-paid envelope.

 

Q:

Will I receive any fractional shares of IRT Common Stock in connection with the Mergers?

 

A:

No. All holders of STAR Common Stock entitled to receive IRT Common Stock in connection with the Mergers will receive cash in lieu of fractional shares.

 

Q:

Do I need identification to attend the IRT special meeting in person?

 

A:

Yes. Please bring proper identification, together with proof that you are a record owner of IRT Common Stock. If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement stating or showing that you beneficially owned shares of IRT Common Stock on the applicable record date.

 

Q:

What do I need to do to attend the STAR special meeting virtually?

 

A:

To be admitted to the live webcast for the STAR special meeting, you must register at www.proxydocs.com/STAR by 5:00 p.m. Pacific Time on December 9, 2021. You will be asked to provide the control number located inside the shaded gray box on your proxy card. After completion of your registration by the registration deadline, further instructions, including a unique link to access the STAR special meeting, will be emailed to you.

 

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Q:

Who can help answer my questions?

 

A:

IRT stockholders or STAR stockholders who have questions about the Mergers or the other matters to be voted on at the special meetings or who desire additional copies of this joint proxy statement/prospectus or additional proxy or voting instruction cards should contact:

 

if you are an IRT stockholder:    if you are a STAR stockholder:

D.F. King & Co., Inc.
48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-Free: (866) 416-0553

Banks and Brokers Call: (212) 269-5550

irt@dfking.com

  

Mediant Communications, Inc.

P.O. Box 8035

Cary, NC 27512

(844) 391-3598

 

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SUMMARY

This summary highlights information contained elsewhere in this joint proxy statement/prospectus and may not contain all of the information that is important to you. IRT and STAR urge you to read carefully this joint proxy statement/prospectus, including the attached annexes, and the other documents to which we have referred you because this section does not provide all of the information that might be important to you with respect to the Mergers and the related matters being considered at the applicable special meeting. See also “Where You Can Find More Information.” We have included page references to direct you to a more complete description of the topics presented in this summary.

Information about the Companies

Independence Realty Trust, Inc. (See page 42)

IRT, a Maryland corporation, is a self-administered and self-managed Maryland REIT that acquires, owns, operates, improves and manages multifamily apartment communities across non-gateway U.S. markets. As of June 30, 2021, IRT owned a diversified portfolio of 58 multifamily apartment properties, totaling 16,261 units. IRT’s properties are located in Georgia, North Carolina, Tennessee, Kentucky, Ohio, Oklahoma, Indiana, Texas, Florida, South Carolina, Missouri, and Alabama. IRT does not have any foreign operations and its business is not seasonal.

IRT’s primary business objective is to maximize stockholder value through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. Its investment strategy is focused on the following:

 

   

gaining scale within key amenity rich submarkets of non-gateway cities that offer good school districts, high-quality retail and major employment centers and are unlikely to experience substantial new apartment construction in the foreseeable future;

 

   

increasing cash flows at our existing apartment properties through prudent property management and strategic renovation projects; and

 

   

acquiring additional properties that have strong and stable occupancies and support a rise in rental rates or that have the potential for repositioning through capital expenditures or tailored management strategies.

The principal offices of IRT are located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800. IRT has offices in Philadelphia, Pennsylvania and Chicago, Illinois.

IRT Common Stock is listed on the NYSE, trading under the symbol “IRT.”

Additional information about IRT and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. For more information, see “Where You Can Find More Information.”

Independence Realty Operating Partnership, LP (See page 42)

IRT owns all of its assets and conducts substantially all of its operations through IRT OP, a Delaware limited partnership, of which IRT is the sole general partner. As of June 30, 2021, IRT owned a 99.5% interest in IRT OP. The remaining 0.5% consists of IROP Common Units issued to third parties in exchange for contributions of properties to IRT OP. The principal executive offices of IRT OP are located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800.


 

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IRSTAR Sub, LLC (See page 42)

IRT Merger Sub, a Maryland limited liability company, is a direct, wholly owned subsidiary of IRT. IRT Merger Sub was formed by IRT solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. IRT Merger Sub has not conducted any business activities, has no assets, liabilities or obligations and has conducted its operations solely as contemplated by the Merger Agreement. Its principal executive offices are located at c/o Independence Realty Trust, Inc., 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800.

Steadfast Apartment REIT, Inc. and Steadfast Apartment REIT Operating Partnership, L.P. (See page 42)

STAR was formed on August 22, 2013, as a Maryland corporation that elected to be taxed as, and qualifies as, a real estate investment trust for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2014. STAR owns and operates a diverse portfolio of real estate investments, primarily in the multifamily sector located throughout the United States.

As of June 30, 2021, STAR owned and managed 70 multifamily properties comprising a total of 21,936 apartment homes and three parcels of land held for the development of apartment homes.

Substantially all of STAR’s business is conducted through STAR OP, of which STAR is the sole general partner. As of June 30, 2021, STAR was the holder of 94% of the STAR OP Units.

The principal offices of STAR and STAR OP are located at 18100 Von Karman Avenue, Suite 200, Irvine, CA 92612, and its telephone number is (949) 569-9700.

STAR Common Stock is not publicly traded.

For more information on STAR, please see STAR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Quarterly Report on Form 10-Q for the period ended June 30, 2021, copies of which are attached to this joint proxy statement/prospectus as Annex E and Annex F, respectively.

Risk Factors (See page 24)

Before voting at the IRT special meeting or the STAR special meeting, you should carefully consider all of the information contained in or incorporated by reference into this joint proxy statement/prospectus, as well as the specific factors under the heading “Risk Factors” beginning on page 24, including the risks that:

 

   

the Mergers are subject to a number of conditions, and may not be consummated on the terms or timeline currently contemplated, or at all;

 

   

the Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock price of IRT;

 

   

IRT and STAR stockholders will be significantly diluted by the Mergers;

 

   

provisions in the Merger Agreement could discourage a potential competing acquiror of either IRT or STAR;

 

   

if the Mergers do not occur, one of the companies may incur payment obligations to the other;

 

   

the pendency of the Mergers could adversely affect the business and operations of IRT and STAR;

 

   

certain directors and executive officers of IRT or STAR may have different interests in seeing the Mergers consummated than stockholders of IRT or STAR;

 

   

the Mergers are not consummated by January 31, 2022, resulting in either IRT or STAR terminating the Merger Agreement;


 

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the Company Merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Code;

 

   

an adverse litigation outcome relating to the Merger Agreement, or the transactions contemplated thereby, has a material adverse impact on IRT’s or STAR’s businesses or their ability to consummate the Mergers;

 

   

IRT and STAR expect to incur substantial costs in connection with the Mergers and the other transactions contemplated by the Merger Agreement;

 

   

IRT and STAR may be unable to successfully integrate their businesses and realize the anticipated synergies in order to realize the anticipated benefits of the Mergers, or to do so within the anticipated timeframe; and

 

   

the historical and unaudited pro forma condensed combined financial statements may not be representative of the combined company’s results after the Mergers and the other transactions contemplated by the Merger Agreement.

IRT Common Stock Offering

On July 26, 2021, IRT commenced an offering (the “IRT Common Stock Offering”) of shares of IRT Common Stock on a forward sale basis, and on July 27, 2021, IRT and IRT OP entered into an underwriting agreement (the “Underwriting Agreement”) with Barclays Capital Inc. and BMO Capital Markets Corp., as representatives of the several underwriters named therein (collectively, the “Underwriters”), BMO Capital Markets Corp., in its capacity as agent (in such capacity, the “Forward Seller”) for Bank of Montreal, as forward counterparty (the “Forward Counterparty”) and the Forward Counterparty relating to the sale, on a forward basis, of an aggregate of 16,100,000 shares of IRT Common Stock at a price to the Underwriters of $17.04 per share. The IRT Common Stock Offering closed on July 30, 2021. IRT did not initially receive any proceeds from the sale of shares of IRT Common Stock by the Forward Seller to the Underwriters.

In connection with the IRT Common Stock Offering, IRT entered into forward sale agreements with the Forward Seller and Forward Counterparty (collectively, the “IRT Forward Sale Agreements”). In connection with the IRT Forward Sale Agreements, the Forward Seller (or its affiliate) borrowed from third parties and sold to the Underwriters an aggregate of 16,100,000 shares of IRT Common Stock that were sold in the IRT Common Stock Offering. IRT expects to physically settle the IRT Forward Sale Agreements and receive proceeds, subject to certain adjustments, from the sale of those shares upon one or more such physical settlements no later than July 30, 2022, the scheduled maturity date of the IRT Forward Sale Agreements. The Forward Sale Agreements provide for an initial forward sale price of $17.04 per share, subject to certain adjustments pursuant to the terms of each of the Forward Sale Agreements. IRT intends to use substantially all of the net proceeds from the full physical settlement of the IRT Forward Sale Agreements to repay indebtedness, including, potentially, indebtedness that IRT will assume upon consummation of the Mergers, and to use the balance of the net proceeds for general working capital, including to pay fees and expenses that IRT has incurred and will continue to incur in connection with the Mergers. If the pending Mergers are not consummated for any reason, IRT will have broad discretion to use the net proceeds of the IRT Common Stock Offering for general business purposes, including other acquisitions and repayment of indebtedness.

The Mergers

The Merger Agreement (See page 102)

IRT and STAR have entered into the Merger Agreement attached as Annex A to this joint proxy statement/prospectus. The IRT Board and the STAR Board have both unanimously approved the Merger Agreement and the transactions contemplated thereby. IRT and STAR encourage you to read the entire Merger Agreement carefully because it is the principal legal document governing the Mergers.


 

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Form of the Mergers (See page 102)

Pursuant to the Merger Agreement, the combination of the businesses of IRT and STAR will be accomplished through (i) a merger of STAR with and into IRT Merger Sub, with IRT Merger Sub continuing as the surviving entity, and (ii) immediately thereafter, a merger of STAR OP with and into IRT OP, with IRT OP continuing as the surviving entity.

Upon the consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of the IRT Forward Sale Agreements prior to consummation of the Mergers, IRT and STAR estimate that legacy IRT stockholders and holders of IROP Common Units will own approximately 53% of the issued and outstanding shares of IRT Common Stock and IROP Common Units, and legacy STAR stockholders and STAR OP unitholders will own approximately 47% of the issued and outstanding shares of IRT Common Stock and IROP Common Units.

Merger Consideration (See page 103)

Pursuant to the terms of the Merger Agreement, upon consummation of the Company Merger, holders of STAR Common Stock will have the right to receive 0.905 newly issued shares of IRT Common Stock for each share of STAR Common Stock they own immediately prior to the Company Merger Effective Time, with cash paid in lieu of fractional shares. The Exchange Ratio in the Mergers is fixed and will not be adjusted for changes in the market value of IRT Common Stock. Because of this, the implied value of the consideration to STAR stockholders in the Company Merger will fluctuate between now and the consummation of the Company Merger. Based on the closing price of IRT Common Stock on the NYSE of $20.00 on July 23, 2021, the last trading day before public announcement of the Mergers, the Exchange Ratio represented approximately $18.10 in IRT Common Stock for each share of STAR Common Stock. Based on the closing price of IRT Common Stock on the NYSE of $20.23 on September 20, 2021, the latest practicable date before the date of this joint proxy statement/prospectus, the Exchange Ratio represented approximately $18.31 in IRT Common Stock for each share of STAR Common Stock. For more information, see “Comparative Stock Prices and Dividends.”

The following table presents trading information for IRT Common Stock on July 23, 2021, the last trading day before public announcement of the Mergers, and September 20, 2021, the latest practicable date before the date of this joint proxy statement/prospectus.

 

     IRT Common
Stock (Close)
 

July 23, 2021

   $ 20.00  

September 20, 2021

   $ 20.23  

The market price of IRT Common Stock fluctuates. As a result, we urge you to obtain current market quotations of IRT Common Stock.

The Merger Agreement provides that, at the Partnership Merger Effective Time, (1) each Class A STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio and will be owned by IRT through IRT Merger Sub and (2) each Class A-2 STAR OP Unit and each Class B STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio. 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.


 

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Treatment of STAR Restricted Shares (See page 103)

The Merger Agreement provides that, at the Company Merger Effective Time, each award of shares of restricted STAR Common Stock that is subject to vesting or other forfeiture conditions, other than vesting or forfeiture conditions that terminate at the Company Merger Effective Time, (“STAR Restricted Shares”) that is outstanding immediately prior to the Company Merger Effective Time will be automatically converted into a number of shares of restricted IRT Common Stock (“IRT Restricted Shares”) (rounded to the nearest whole number of shares) equal to the product obtained by multiplying (A) the number of shares of STAR Common Stock subject to such restricted stock award immediately prior to the Company Merger Effective Time by (B) the Exchange Ratio. Notwithstanding the foregoing, with respect to any STAR Restricted Shares held by a grantee who is a non-employee member of the STAR Board immediately prior to the Company Merger Effective Time and who does not become a member of the board of directors of the combined company at the Company Merger Effective Time, such STAR Restricted Shares will vest upon the Company Merger Effective Time and therefore any IRT Restricted Shares issued in respect thereof will be fully vested and non-forfeitable.

Each IRT Restricted Share will be subject to the same terms and conditions as applied to the corresponding STAR Restricted Share immediately prior to the Company Merger Effective Time, subject to certain exceptions described in the section “The Mergers—Interests of STAR Directors and Executive Officers in the Mergers—Treatment of Outstanding Equity Awards” beginning on page 94.

Recommendations of the IRT Board (See page 57)

After careful consideration, the IRT Board, on July 26, 2021, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and declared the Merger Agreement and such transactions (including the issuance of IRT Common Stock in the Company Merger) to be advisable and in the best interests of IRT and the stockholders of IRT.

The IRT Board unanimously recommends that holders of IRT Common Stock vote “FOR” the IRT Issuance Proposal and “FOR” the IRT Adjournment Proposal.

For the factors considered by the IRT Board in reaching its decision to approve the Merger Agreement and the recommendations of the IRT Board, see “The Mergers—IRT’s Reasons for the Mergers; Recommendations of the IRT Board.”

Recommendations of the STAR Board (See page 61)

After careful consideration, the STAR Board, on July 24, 2021, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and declared the Merger Agreement and such transactions to be advisable and in the best interests of STAR and the stockholders of STAR.

The STAR Board unanimously recommends that the STAR stockholders vote “FOR” the STAR Merger Proposal, “FOR” the STAR Compensation Proposal and “FOR” the STAR Adjournment Proposal.

For the factors considered by the STAR Board in reaching its decision to approve the Merger Agreement and the recommendations of the STAR Board, see “The Mergers—STAR’s Reasons for the Mergers; Recommendations of the STAR Board.”

Opinions of IRT’s Financial Advisors (See page 64)

Opinion of Barclays Capital Inc.

IRT engaged Barclays Capital Inc. (“Barclays”) to act as one of its two financial advisors with respect to the Mergers. On July 26, 2021, Barclays rendered its oral opinion (which opinion was subsequently confirmed in


 

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writing) to the IRT Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio was fair, from a financial point of view, to IRT, as more fully described in the section of this proxy statement/prospectus entitled “The Mergers—Opinions of IRT’s Financial Advisors—Opinion of Barclays Capital Inc.” beginning on page 64. The summary of Barclays’ opinion set forth below is qualified in its entirety by reference to the full text of Barclays’ written opinion.

The full text of Barclays’ written opinion, dated as of July 26, 2021, is attached as Annex B to this joint proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety.

Barclays’ opinion was addressed to the IRT Board and addressed only the fairness, from a financial point of view, of the Exchange Ratio to IRT and does not constitute a recommendation to any IRT stockholder as to how such stockholder should vote with respect to the Mergers or any other matter. Barclays did not recommend any specific form of consideration to IRT or that any specific form of consideration constituted the only appropriate consideration for the Mergers. Barclays was not requested to opine as to, and its opinion does not in any manner address, IRT’s underlying business decision to proceed with or effect the Mergers, the likelihood of the consummation of the proposed transaction, or the relative merits of the Mergers as compared to any other transaction in which IRT may engage. In addition, Barclays expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the Mergers, or any class of such persons, relative to the consideration paid in the Mergers or otherwise.

For additional information, see the section entitled “The Mergers—Opinions of IRT’s Financial Advisors—Opinion of Barclays Capital Inc.” beginning on page 64.

Opinion of BMO Capital Markets Corp.

In connection with the Mergers at the meeting of the IRT Board on July 26, 2021, IRT’s financial advisor, BMO Capital Markets Corp. (which we refer to as “BMO”), rendered to the IRT Board its oral opinion, subsequently confirmed by delivery of a written opinion dated July 26, 2021, as to the fairness, from a financial point of view, to IRT as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by BMO as set forth in its written opinion, of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement.

The full text of BMO’s written opinion, dated July 26, 2021, is attached to this proxy statement as Annex C and is incorporated into this proxy statement/prospectus by reference. You should read BMO’s opinion carefully and in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by BMO in rendering its opinion. This summary is qualified in its entirety by reference to the full text of the opinion. BMO’s opinion was directed to the IRT Board in its capacity as such and addressed only the fairness, from a financial point of view, to IRT as of the date of the opinion, of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement. The opinion did not address any other aspects or implications of the Mergers and did not address the relative merits of the Mergers contemplated by the Merger Agreement as compared to other business or financial strategies that might have been available, nor did it address the underlying business decision to enter into the Merger Agreement or proceed with any other transaction contemplated by the Merger Agreement. BMO’s opinion was not intended to, and does not, constitute advice or a recommendation as to how any holder of IRT Common Stock should vote at the special meeting or take any other action with respect to the Mergers.


 

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See “The Mergers—Opinions of IRT’s Financial Advisors—Opinion of BMO Capital Markets Corp.” beginning on page 72.

Opinion of STAR’s Financial Advisor (See page 78)

STAR engaged RBC Capital Markets, LLC, which we refer to as “RBC Capital Markets,” as a financial advisor to STAR in connection with the Mergers. As part of this engagement, RBC Capital Markets delivered an opinion, dated July 26, 2021, to the STAR Board as to the fairness, from a financial point of view and as of such date, of the Exchange Ratio provided for pursuant to the Merger Agreement. The full text of RBC Capital Markets’ written opinion, dated July 26, 2021, is attached as Annex D to this joint proxy statement/prospectus and sets forth, among other things, the procedures followed, assumptions made, factors considered and qualifications and limitations on the review undertaken by RBC Capital Markets in connection with its opinion. RBC Capital Markets delivered its opinion to the STAR Board for the benefit, information and assistance of the STAR Board (in its capacity as such) in connection with its evaluation of the Mergers. RBC Capital Markets’ opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, of the Exchange Ratio (to the extent expressly specified in such opinion) and did not address any other aspect of the Mergers. RBC Capital Markets’ opinion also did not address the underlying business decision of STAR to engage in the Mergers or the relative merits of the Mergers compared to any alternative business strategy or transaction that may be available to STAR or which STAR might engage in or consider.

RBC Capital Markets’ opinion spoke only as of the date of the opinion, was based on conditions as they existed and information supplied or reviewed as of the date of the opinion, and is without regard to any market, economic, financial, legal, regulatory or other circumstances or event of any kind or nature which may exist or occur after such date. RBC Capital Markets did not undertake and has no obligation to reaffirm, revise or update its opinion or otherwise comment upon events occurring after the date of its opinion with respect to its opinion. RBC Capital Markets did not express any opinion and does not make any recommendation to any securityholder as to how such securityholder should vote or act with respect to the Mergers or any proposal to be voted upon in connection with the Mergers or otherwise.

Interests of IRT Directors and Executive Officers in the Mergers (See page 93)

In addition to their interests in the Mergers as stockholders, the directors and executive officers of IRT have interests in the Mergers that may be different from, or in addition to, those of IRT stockholders generally. The IRT Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement.

Upon consummation of the Mergers, the board of directors of the combined company will be comprised of the following five incumbent directors of the IRT Board and the following five incumbent directors of the STAR Board: Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington; and Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell, respectively. In addition, upon consummation of the Mergers, Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, will continue in these positions for the combined company; James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company; Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company; and Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company.

In addition, the Mergers are expected to constitute a “change in control” for purposes of Mr. Schaeffer’s employment agreement. Under that agreement, upon a termination without cause or a resignation with good reason (and subject to execution of a release), Mr. Schaeffer will become entitled to severance benefits, including a cash payment equal to a multiple of his annual base salary and his average annual bonus received for the three years preceding his termination.


 

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Interests of STAR Directors and Executive Officers in the Mergers (See page 94)

In considering the recommendation of the STAR Board to approve the STAR Merger Proposal, STAR stockholders should be aware that STAR’s directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of STAR stockholders generally, including potential severance benefits, potential appointment to the IRT Board, and rights to ongoing indemnification and insurance coverage. The STAR Board was aware of those interests and considered them, among other matters, in evaluating and negotiating the Merger Agreement, in reaching its decision to approve and declare advisable the Merger Agreement and the transactions contemplated by the Merger Agreement (including the Mergers), and in recommending to STAR stockholders that the STAR Merger Proposal be approved.

In addition, upon consummation of the Mergers, the board of directors of the combined company will be comprised of the following five incumbent directors of the IRT Board and the following five incumbent directors of the STAR Board: Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington; and Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell, respectively. Upon consummation of the Mergers, Ella S. Neyland, currently STAR’s President, Chief Financial Officer and Treasurer, will serve as Chief Operating Officer of the combined company.

Letter Agreement (See page 98)

On July 26, 2021, STAR entered into a letter agreement (the “Letter Agreement”) with Rodney Emery, the Chief Executive Officer and Chairman of STAR, and Steadfast REIT Investments, LLC (“SRI”). SRI is a controlled affiliate of Mr. Emery not otherwise related to STAR. In the Letter Agreement, and subject to limitations, SRI agreed to indemnify STAR and its subsidiaries and their successors (including IRT and its subsidiaries) (collectively, the “Indemnified Parties”) for 75% of certain expenses and other liabilities incurred in connection with covered stockholder claims.

Accounting Treatment (See page 99)

IRT and STAR prepare their financial statements, respectively, in accordance with accounting principles generally accepted in the United States (which we refer to as “GAAP”). The Mergers will be accounted for by applying the acquisition method of accounting in accordance with ASC 805, Business Combinations, with IRT treated as the acquiror. For more information, see “The Mergers—Accounting Treatment.”

Regulatory Approvals (See page 100)

IRT and STAR are not aware of any material federal or state regulatory requirements that must be complied with, or regulatory approvals that must be obtained, in connection with the Mergers or the other transactions contemplated by the Merger Agreement.

Closing; Effective Time of the Mergers (See page 102)

IRT and STAR expect to consummate the Mergers in the fourth quarter of 2021. However, the Mergers are subject to various conditions, and it is possible that factors outside the control of IRT and STAR could result in the Mergers being consummated at a later time, or not at all. There may be a substantial amount of time between the respective IRT special meeting and STAR special meeting and the consummation of the Mergers. IRT and STAR expect to consummate the Mergers as soon as reasonably practicable following the satisfaction of all applicable conditions.


 

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Conditions to Completion of the Mergers (See page 120)

As more fully described in this joint proxy statement/prospectus and in the Merger Agreement, the consummation of the Mergers depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others:

 

   

receipt of required approvals from IRT’s stockholders and from STAR’s stockholders;

 

   

approval for listing on the NYSE of the shares of IRT Common Stock to be issued in the Company Merger or reserved for issuance in connection with the Partnership Merger;

 

   

the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part;

 

   

the absence of a court order or other legal restraint preventing the consummation of the Mergers;

 

   

accuracy of each party’s representations and warranties, subject in most cases to materiality or material adverse effect qualifications;

 

   

material compliance with each party’s covenants;

 

   

receipt by each of IRT and STAR of an opinion of counsel to the effect that the Company Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code;

 

   

receipt by IRT of an opinion of counsel to STAR that STAR qualifies as a REIT under the Code, and receipt by STAR of an opinion of counsel to IRT that IRT qualifies as a REIT under the Code; and

 

   

receipt of certain lender consents.

IRT and STAR cannot be certain when, or if, the conditions to the Mergers will be satisfied or waived, or that the Mergers will be consummated at all.

No Solicitation; Permitted Change in Recommendation (See page 112)

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 (x) after consultation with outside legal counsel that 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, after consultation with outside legal counsel and independent financial advisors, 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.

Termination of the Merger Agreement (See page 123)

The Merger Agreement may be terminated prior to the effective time of the Mergers, whether before or after the required approvals of the IRT stockholders and STAR stockholders are obtained:

 

   

by mutual written consent;

 

   

by either IRT or STAR, if the Mergers are not consummated on or before January 31, 2022;


 

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by either IRT or STAR, if there is a permanent, non-appealable injunction or law restraining or prohibiting the consummation of the Mergers;

 

   

by either IRT or STAR, if the stockholders of either IRT or STAR fail to approve the transactions;

 

   

by IRT or STAR, as the case may be, 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;

 

   

by IRT or STAR, as the case may be, if the other party has materially breached its covenant not to solicit acquisition proposals or its covenant to hold its stockholder meeting;

 

   

by IRT or STAR, as the case may be, in order to enter into a superior proposal (subject to compliance with certain terms and conditions included in the Merger Agreement); or

 

   

by IRT or STAR, as the case may be, 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.

Termination Fees and Expenses (See page 124)

Generally, all fees and expenses incurred in connection with the Mergers and the transactions contemplated by the Merger Agreement will be paid by the party incurring those expenses, subject to certain exceptions. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain circumstances:

 

   

one party may be obligated to pay a termination fee to the other party of $74.0 million; or

 

   

one party may be obligated to pay the other party up to $10.0 million as expense reimbursement, which would be set off against any termination fee if the termination fee later becomes payable.

For more information, see “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by STAR to IRT” and “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by IRT to STAR.”

No Appraisal or Dissenters’ Rights (See page 105)

Under Maryland law, the holders of STAR Common Stock and IRT Common Stock, respectively, are not entitled to appraisal or dissenters’ rights in connection with the Mergers. For more information, see “The Mergers—No Appraisal or Dissenters’ Rights.”

Material U.S. Federal Income Tax Consequences of the Company Merger (See page 129)

IRT and STAR intend that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. The closing of the Mergers is conditioned on the receipt by each of IRT and STAR of an opinion from its respective counsel to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Assuming that the Company Merger qualifies as a reorganization, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Company Merger”) of shares of STAR Common Stock are not expected to recognize gain or loss as a result of the Company Merger (except with respect to the receipt of cash in lieu of fractional shares of IRT Common Stock).

For further discussion of certain U.S. federal income tax consequences of the Company Merger and the ownership and disposition of IRT Common Stock, see “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences of the Company Merger” and “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Considerations Regarding IRT’s Taxation as a REIT.”


 

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The IRT Special Meeting (See page 151)

The IRT special meeting will be held at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, on December 13, 2021, at 9:00 a.m. Eastern Time. You may vote at the IRT special meeting if you owned shares of IRT Common Stock at the close of business on September 27, 2021, the record date for the IRT special meeting. On that date, there were 105,106,712 shares of IRT Common Stock outstanding and entitled to vote. You may cast one vote for each share of IRT Common Stock that you owned on that date.

At the IRT special meeting, IRT stockholders will be asked to consider and vote upon:

 

   

the IRT Issuance Proposal; and

 

   

the IRT Adjournment Proposal.

The approval of the IRT Issuance Proposal is a condition to the consummation of the Mergers. The IRT Issuance Proposal requires approval by the affirmative vote of a majority of the votes cast by IRT Common Stockholders, in person or by proxy, at the IRT special meeting, assuming a quorum is present. The IRT Adjournment Proposal requires approval by the affirmative vote of a majority of the votes cast by IRT Common Stockholders, in person or by proxy, at the IRT special meeting.

On the record date, approximately 0.8% of the outstanding shares of IRT Common Stock was held by IRT directors and executive officers and their affiliates. IRT currently expects that the IRT directors and executive officers will vote their shares in favor of the IRT Issuance Proposal and the IRT Adjournment Proposal, although none has entered into any agreements obligating them to do so.

The IRT Board unanimously recommends that IRT stockholders vote “FOR” both of the proposals set forth above. For more information, see “The IRT Special Meeting.”

The STAR Special Meeting (See page 155)

The STAR special meeting will be held virtually via live webcast at www.proxydocs.com/STAR, on December 13, 2021, at 11:00 a.m. Pacific Time. You may vote at the STAR special meeting if you owned STAR Common Stock at the close of business on September 27, 2021, the record date for the STAR special meeting. On that date, there were 110,188,806 shares of STAR Common Stock outstanding and entitled to vote. Each share of STAR Common Stock is entitled to cast one vote on all matters that come before the STAR special meeting.

At the STAR special meeting, stockholders of STAR will be asked to consider and vote upon:

 

   

the STAR Merger Proposal;

 

   

the STAR Compensation Proposal; and

 

   

the STAR Adjournment Proposal.

The approval of the STAR Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of STAR Common Stock. The approval of the STAR Compensation Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock, in person (virtually) or by proxy, at the STAR special meeting, assuming a quorum is present. The STAR Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of STAR Common Stock, in person (virtually) or by proxy, at the STAR special meeting.

On the record date, approximately 0.9% of the outstanding shares of STAR Common Stock was held by STAR directors and executive officers and their affiliates. STAR currently expects that the directors and executive officers of STAR will vote their shares in favor of the STAR Merger Proposal, the STAR Compensation Proposal and the STAR Adjournment Proposal, although none has entered into any agreements obligating them to do so.


 

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The STAR Board unanimously recommends that STAR stockholders vote “FOR” all of the proposals set forth above. For more information, see “The STAR Special Meeting.”

Rights of STAR Stockholders Will Change as a Result of the Mergers (See page 179)

STAR stockholders will have different rights once they become stockholders of IRT, due to differences between the governing documents of IRT and STAR. These differences are described in detail under “Comparison of Rights of IRT Stockholders and STAR Stockholders.”

Equivalent and Comparative Per Share Information

The following table sets forth, for the six months ended June 30, 2021 and the year ended December 31, 2020, selected per share information for IRT Common Stock on a historical and pro forma combined basis and for STAR Common Stock on a historical and pro forma equivalent basis. You should read the table below together with (i) the historical consolidated financial statements and related notes of IRT contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2021 and Annual Report on Form 10-K for the year ended December 31, 2020, both of which are incorporated by reference into this joint proxy statement/prospectus and (ii) the historical consolidated financial statements and related notes of STAR contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2021 and Annual Report on Form 10-K for the fiscal year ended December 31, 2020, copies of which are attached to this joint proxy statement/prospectus as Annex F and Annex E, respectively. For more information, see “Where You Can Find More Information.”

The IRT pro forma combined earnings per share were calculated using the methodology as described below under the heading “Unaudited Pro Forma Condensed Consolidated Financial Data,” and are subject to all the assumptions, adjustments and limitations described thereunder. The unaudited pro forma condensed combined balance sheet data gives effect to the Mergers and the IRT Common Stock Sale as if they had occurred on June 30, 2021. The unaudited pro forma condensed combined statements of operations data give effect to the Mergers and the IRT Common Stock Sale as if they had occurred on January 1, 2020. The STAR pro forma equivalent per common share amounts were calculated by multiplying the IRT pro forma combined per share amounts by the exchange ratio of 0.905. You should not rely on the pro forma amounts as being indicative of the financial position or results of operations of IRT that actually would have occurred had the Mergers been consummated as of the date indicated above, nor is it necessarily indicative of the future operating results or financial position of the IRT.

 

    IRT (1)     STAR (2)  
    Historical     Pro Forma for
Mergers and IRT
Common Stock
Offering
    Historical     Pro Forma for
Mergers and IRT
Common Stock
Offering
 
    Six
Months
Ended
June 30,
2021
    Year
Ended
December 31,
2020
    Six
Months
Ended
June 30,
2021
    Year
Ended
December 31,
2020
    Six
Months
Ended
June 30,
2021
    Year
Ended
December 31,
2020
    Six
Months
Ended
June 30,
2021
    Year
Ended
December 31,
2020
 

Book earnings per share

  $ 0.04     $ 0.16     $ 0.04     $ (0.12   $ (0.25   $ (1.15   $ 0.04     $ (0.11

Diluted earnings per share

    0.04       0.16       0.04       (0.12     (0.25     (1.15     0.04       (0.11

Cash dividends declared per share

    0.24       0.54       0.24       0.54       0.29       0.90       0.22       0.49  

Book value per share (period end)

    7.07         13.32         8.36         12.05    

 

(1)

Dividends are declared and paid at the discretion of the IRT Board. The IRT Board may change IRT’s dividend policy at any time and there can be no assurance as to amount or timing of dividends in the future.


 

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(2)

Dividends are declared and paid at the discretion of the STAR Board. The STAR Board may change STAR’s dividend policy at any time and there can be no assurance as to amount or timing of dividends in the future.

Comparative Stock Prices and Dividends

Shares of IRT Common Stock are listed for trading on the NYSE under the symbol “IRT.” STAR Common Stock is not listed on an exchange and there is no established public trading market for shares of STAR Common Stock. The following table presents trading information for IRT Common Stock on July 23, 2021, the last trading day before public announcement of the Merger Agreement and September 20, 2021, the latest practicable trading day before the date of this joint proxy statement/prospectus.

 

     IRT Common Stock  

Date

   High      Low      Close  

July 23, 2021

   $ 20.00      $ 19.70      $ 20.00  

September 20, 2021

   $ 20.28      $ 19.74      $ 20.23  

For illustrative purposes, the following table provides STAR equivalent per share information on each of the specified dates. STAR equivalent per share amounts are calculated by multiplying the per share price of each share of IRT Common Stock by 0.905, the Exchange Ratio.

 

     STAR Common Stock  

Date

   High      Low      Close  

July 23, 2021

   $ 18.10      $ 17.83      $ 18.10  

September 20, 2021

   $ 18.35      $ 17.86      $ 18.31  

The following table sets forth the high and low sales prices of IRT Common Stock as reported in the NYSE’s consolidated transaction reporting system, and the quarterly cash dividends declared per share, for the calendar quarters indicated.

 

     High      Low      Dividend
Declared
 

2018

        

First Quarter

   $ 10.24      $ 8.26      $ 0.1800  

Second Quarter

   $ 10.39      $ 8.91      $ 0.1800  

Third Quarter

   $ 10.53      $ 9.81      $ 0.1800  

Fourth Quarter

   $ 10.59      $ 8.75      $ 0.1800  

2019

        

First Quarter

   $ 10.87      $ 8.92      $ 0.1800  

Second Quarter

   $ 12.17      $ 10.01      $ 0.1800  

Third Quarter

   $ 14.57      $ 11.49      $ 0.1800  

Fourth Quarter

   $ 15.89      $ 13.64      $ 0.1800  

2020

        

First Quarter

   $ 16.85      $ 7.44      $ 0.1800  

Second Quarter

   $ 12.20      $ 6.86      $ 0.1200  

Third Quarter

   $ 12.34      $ 10.40      $ 0.1200  

Fourth Quarter

   $ 14.12      $ 11.17      $ 0.1200  

2021

        

First Quarter

   $ 15.76      $ 13.01      $ 0.1200  

Second Quarter

   $ 18.83      $ 15.20      $ 0.1200  

Third Quarter (through September 20, 2021)

   $ 21.00      $ 16.50      $ 0.1200  

 

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STAR Distribution Data

The STAR Board historically has authorized distributions to STAR stockholders on a quarterly basis that accrue daily to STAR stockholders of record on each day and are payable in cumulative amounts on or before the 3rd day of each calendar month with respect to the prior month.

For the period from January 1, 2021 through January 31, 2021, distributions were based on daily record dates and calculated at a rate of $0.002466 per share of STAR Common Stock per day. For the period from February 1, 2021 through June 30, 2021, distributions were based on daily record dates and calculated at a rate of $0.001438 per share of STAR Common Stock per day, which if paid over a 365-day period is equivalent to $0.525 per share.

 

(in thousands, except per share amounts)

   Total
Distributions
Paid to
Common
Stockholders
     Distributions
Declared Per
Common
Share
 

2018

     

First Quarter

   $ 11,299      $ 0.222  

Second Quarter

   $ 11,594      $ 0.224  

Third Quarter

   $ 11,647      $ 0.227  

Fourth Quarter

   $ 11,573      $ 0.227  

2019

     

First Quarter

   $ 11,495      $ 0.222  

Second Quarter

   $ 11,798      $ 0.224  

Third Quarter

   $ 11,844      $ 0.227  

Fourth Quarter

   $ 11,767      $ 0.227  

2020

     

First Quarter

   $ 11,801      $ 0.224  

Second Quarter

   $ 23,968      $ 0.224  

Third Quarter

   $ 24,778      $ 0.226  

Fourth Quarter

   $ 24,615      $ 0.226  

2021

     

First Quarter

   $ 21,242      $ 0.161  

Second Quarter

   $ 14,581      $ 0.131  

Third Quarter (through September 20, 2021)

   $ 14,587      $ 0.118  

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” whether you are an IRT stockholder or a STAR stockholder, you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the risks associated with each of the businesses of IRT and STAR because these risks will also affect IRT following consummation of the Mergers. These risks can be found in (i) IRT’s Quarterly Report on Form 10-Q for the period ended June 30, 2021 and Annual Report on Form 10-K for the year ended December 31, 2020, both of which are incorporated by reference into this joint proxy statement/prospectus and (ii) STAR’s Quarterly Report on Form 10-Q for the period ended June 30, 2021 and Annual Report on Form 10-K for the fiscal year ended December 31, 2020, copies of which are attached to this joint proxy statement/prospectus as Annex F and Annex E, respectively. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. For more information, see “Where You Can Find More Information.”

Risks Relating to the Mergers

The Mergers may not be consummated on the terms or timeline currently contemplated, or at all. Consummation of the Mergers is subject to many conditions and if these conditions are not satisfied or waived, the Mergers will not be consummated, which could adversely affect the businesses of IRT or STAR, and, in certain circumstances, result in the requirement that IRT or STAR pay a termination fee or certain expense reimbursement.

Consummation of the Mergers is subject to certain conditions, including: (1) the receipt of required approvals from IRT’s stockholders and from STAR’s stockholders; (2) approval for listing of the shares of IRT Common Stock to be issued in the Mergers or reserved for issuance in connection therewith on the NYSE; (3) the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part; (4) the absence of a court order or other legal restraint preventing the consummation of the Mergers; (5) 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) 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 Code; (8) receipt by IRT of an opinion of counsel to STAR that STAR qualifies as a REIT under the Code, and receipt by STAR of an opinion of counsel to IRT that IRT qualifies as a REIT under the Code; and (9) receipt of certain lender consents.

Neither IRT nor STAR can provide assurance that the conditions to consummation of the Mergers will be satisfied or waived, and accordingly, that the Mergers will be consummated on the terms or timeline that the parties anticipate, or at all. IRT or STAR may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Mergers are not consummated by January 31, 2022.

Failure to consummate the Mergers may adversely affect IRT’s and/or STAR’s results of operations, financial condition and business prospects for many reasons, including, among others:

 

   

IRT and STAR will have incurred substantial costs relating to the Mergers, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration costs that have already been incurred or will continue to be incurred until consummation of the Mergers, which could adversely affect their respective financial conditions, results of operations and ability to make distributions to their respective stockholders and to pay the principal of and interest on their respective outstanding indebtedness;

 

   

the Mergers, whether or not they close, will divert the attention of the management of each of IRT and STAR instead of enabling them to more fully pursue other opportunities that could be beneficial to the companies, in each case, without realizing any of the benefits of having consummated the Mergers or the other transactions contemplated by the Merger Agreement; and

 

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any reputational harm due to the adverse perception of any failure to successfully consummate the Mergers.

In addition, if the Merger Agreement is terminated under certain circumstances specified therein, IRT or STAR may be required to pay a $74.0 million termination fee or expense reimbursement of up to $10.0 million, as more fully described in “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by STAR to IRT” and “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by IRT to STAR.”

The Exchange Ratio is fixed and will not be adjusted in the event of any change in the price of IRT’s common stock or in the relative values of IRT and STAR.

At the effective time of the Company Merger, each issued and outstanding share of STAR Common Stock (other than certain shares set forth in the Merger Agreement) will be automatically converted into the right to receive newly issued shares of IRT Common Stock equal to the Exchange Ratio, with cash paid in lieu of fractional shares. At the effective time of the Partnership Merger, each issued and outstanding common unit of STAR OP will be automatically converted into the right to receive 0.905 IROP Common Units. The Exchange Ratio is fixed and will not be adjusted for changes in the market price of IRT Common Stock or in the relative values of IRT and STAR. The price of IRT Common Stock at the closing of the Mergers may vary from its price on July 26, 2021, the date the Merger Agreement was executed. Changes in IRT’s common stock price prior to consummation of the Mergers will affect the market value of the merger consideration, which may be more or less than the fair value of STAR’s net assets on the closing date. Changes in IRT’s common stock price may result from a variety of factors (many of which are beyond the control of IRT), including the following factors:

 

   

market reaction to the announcement of the Mergers;

 

   

changes in IRT’s business, operations, assets, liabilities or prospects;

 

   

changes in market assessments of the business, operations, financial position and prospects of IRT and STAR;

 

   

market assessments of the likelihood that the Mergers will be consummated;

 

   

interest rates, general market and economic conditions and other factors generally affecting the price of IRT Common Stock;

 

   

federal, state and local legislation, governmental regulation and legal developments in the businesses in which IRT and STAR operate; and

 

   

other factors beyond the control of IRT or STAR, including those described in this “Risk Factors” section.

The price of IRT Common Stock on the closing date of the Mergers may vary from its price on July 26, 2021, the date the Merger Agreement was executed, on the date of this joint proxy statement/prospectus and on the date of the special meetings of the stockholders of IRT and STAR. As a result, the market value of the merger consideration represented by the Exchange Ratio will also vary. For example, based on the range of closing prices of IRT Common Stock during the period from July 23, 2021, the last trading day before public announcement of the Mergers, through September 20, 2021, the latest practicable date before the date of this joint proxy statement/prospectus, the Exchange Ratio of 0.905 represented a market value per share of STAR Common Stock ranging from a low of $16.53 to a high of $18.94.

Because the Mergers will be consummated after the date of the special meetings of the stockholders of IRT and STAR, respectively, at the time of your special meeting, you will not know the exact market value of the shares of IRT Common Stock that STAR stockholders will receive upon consummation of the Mergers. You should consider the following two risks:

 

   

if the price of shares of IRT Common Stock increases between July 26, 2021, the date the Merger Agreement was executed or the date of the IRT and STAR special meetings and the closing date

 

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of the Mergers, STAR stockholders will receive shares of IRT Common Stock that have a market value upon consummation of the Mergers that is greater than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was executed or on the date of the IRT and STAR special meetings, respectively; and

 

   

if the price of shares of IRT Common Stock declines between July 26, 2021, the date the Merger Agreement was executed or the date of the IRT and STAR special meetings and the closing date of the Mergers, STAR stockholders will receive shares of IRT Common Stock that have a market value upon consummation of the Mergers that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was executed or on the date of the IRT and STAR special meetings, respectively.

Therefore, while the number of shares of IRT Common Stock to be issued per share of STAR Common Stock is fixed, and while the number of IROP Common Units to be issued per common unit of STAR OP is fixed, (1) IRT cannot be sure of the market value and consideration to be paid to STAR stockholders and STAR OP unitholders and (2) STAR stockholders and STAR OP unitholders cannot be sure of the market value of the consideration they will receive upon consummation of the Mergers.

The pendency of the Mergers could adversely affect the business and operations of IRT and STAR.

In connection with the pending Mergers, current and prospective employees of IRT and STAR may experience uncertainty about their future roles with IRT following the Mergers, which may materially adversely affect the ability of each of IRT and STAR to attract and retain key personnel during the pendency of the Mergers. In addition, due to operating covenants in the Merger Agreement, each of IRT and STAR may be unable (without the other party’s prior written consent), during the pendency of the Mergers, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial. Similarly, some current or prospective operators or vendors of each of IRT and STAR may delay or defer decisions, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of IRT and STAR, regardless of whether the Mergers are consummated.

Some of the directors and executive officers of IRT and STAR have interests in seeing the Mergers consummated that are different from, or in addition to, those of the other IRT stockholders and STAR stockholders.

Certain of the directors and executive officers of IRT and directors and executive officers of STAR have interests in the Mergers that may be different from other IRT stockholders and STAR stockholders, respectively. These interests include, among other things, the continued service as a director or an executive officer of IRT following consummation of the Mergers. These interests, among other things, may influence or may have influenced the directors and executive officers of IRT and STAR to support or approve the Mergers. For more information, see “The MergersInterests of IRT Directors and Executive Officers in the Mergers” and “The MergersInterests of STAR Directors and Executive Officers in the Mergers.”

The Mergers and related transactions are subject to approval by stockholders of both IRT and STAR.

In order for the Mergers to be consummated, STAR stockholders must approve the Company Merger, which requires the affirmative vote of the holders of at least a majority of the outstanding shares of STAR Common Stock entitled to vote on such proposal. In addition, IRT stockholders must approve the issuance of IRT Common Stock in the Mergers by the affirmative vote of at least a majority of the votes cast on such proposal. This approval by IRT stockholders is required under applicable NYSE rules.

 

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IRT and STAR stockholders will be significantly diluted by the Mergers.

The Mergers will significantly dilute the ownership position of IRT stockholders and result in STAR stockholders having an ownership stake in IRT that is smaller than their current stake in STAR. Upon the consummation of the Mergers, based on the number of shares of IRT Common Stock and STAR Common Stock outstanding as of September 20, 2021, and assuming issuance by IRT of 16,100,000 shares of common stock in full physical settlement of the IRT Forward Sale Agreements prior to consummation of the Mergers, IRT and STAR estimate that legacy IRT stockholders and holders of IROP Common Units will own approximately 53% of the issued and outstanding shares of IRT Common Stock and IROP Common Units, and legacy STAR stockholders and STAR OP unitholders will own approximately 47% of the issued and outstanding shares of IRT Common Stock and IROP Common Units. IRT may also issue additional shares of common stock or preferred stock in the future and IRT OP may issue additional units of limited partnership in the future and such issuances would create further dilution. Consequently, IRT stockholders and STAR stockholders, as a general matter, will have less influence over the management and policies of IRT after consummation of the Mergers than they currently exercise over the management and policies of IRT and STAR, respectively.

The Merger Agreement contains provisions that could discourage a potential competing acquiror of either IRT or STAR or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict the ability of each of IRT and STAR to solicit, initiate, knowingly encourage or facilitate competing third-party proposals to effect, among other things, a merger, reorganization, share sale, share exchange, asset sale, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving any purchase or sale of 20% or more of the consolidated assets of IRT or STAR. In addition, either IRT or STAR generally has an opportunity to offer to modify the terms of the Merger Agreement in response to any competing “acquisition proposal” that may be made to the other party before the board of directors of such other party may withdraw or modify its recommendation in response to such competing acquisition proposal or may terminate the Merger Agreement to enter into such a competing acquisition proposal. In some circumstances, on termination of the Merger Agreement, one of the parties may be required to pay a $74.0 million termination fee to the other party or expense reimbursement of up to $10.0 million.

These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of IRT or STAR from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher value than the value expected to be received or realized in the Mergers, or might result in a potential competing acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement. For more information, see “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by STAR to IRT” and “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by IRT to STAR.”

An adverse outcome in any litigation or other legal proceedings relating to the Merger Agreement, or the transactions contemplated thereby, could have a material adverse impact on the businesses of IRT and STAR and their ability to consummate the transactions contemplated by the Merger Agreement.

Transactions similar to the Mergers are frequently the subject of litigation or other legal proceedings, including actions alleging that either parties’ board of directors breached their respective duties by entering into a merger agreement, by failing to obtain a greater value in the transaction for their stockholders or other equity holders or otherwise or any other claims (contractual or otherwise) arising out of a merger or the transactions related thereto. If litigation or other legal proceedings are brought against IRT, STAR and/or their respective boards of directors or subsidiaries in connection with the Merger Agreement, or the transactions contemplated thereby, the respective parties to the proceeding intend to defend against such actions but they might not be successful in

 

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doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on IRT’s or STAR’s ability to consummate the Mergers or their respective business, results of operation or financial position, including through the possible diversion of either company’s resources or distraction of key personnel.

If the Company Merger does not qualify as a reorganization, there may be adverse tax consequences.

The Company Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code. Consummation of the Company Merger is conditioned on the receipt by each of IRT and STAR of an opinion of its respective counsel to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. However, such opinions are not binding on the Internal Revenue Service. If the Company Merger were to fail to qualify as a reorganization, then each STAR stockholder generally would recognize gain or loss, as applicable, equal to the difference between (i) the sum of the fair market value of the shares of IRT Common Stock and cash in lieu of any fractional share of IRT Common Stock received by such STAR stockholder in the Company Merger; and (ii) the STAR stockholder’s adjusted tax basis in its STAR Common Stock. In addition, failure of the Company Merger to qualify as a reorganization may damage IRT’s reputation and have other adverse impacts on IRT.

Risks Relating to IRT Following Consummation of the Mergers

IRT expects to incur substantial expenses related to the Mergers and the transactions contemplated by the Merger Agreement.

IRT expects to incur substantial expenses in consummating the Mergers and integrating the business, operations, networks, systems, technologies, policies and procedures of IRT and STAR. There are a large number of systems that must be integrated or separated in connection with the Mergers, and the other transactions contemplated by the Merger Agreement, including leasing, billing, management information, purchasing, accounting and finance, sales, payroll and benefits, fixed asset, lease administration and regulatory compliance. While IRT and STAR have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. The expenses in connection with the Mergers and the transactions contemplated by the Merger Agreement are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present.

Following consummation of the Mergers, IRT may be unable to integrate the business of STAR successfully or realize the anticipated synergies and related benefits of the Mergers and the transactions contemplated by the Merger Agreement or do so within the anticipated time frame.

The Mergers involve the combination of IRT and STAR, two companies which currently operate as independent companies. In addition, STAR recently completed a series of transactions to provide for the internalization of its previously externalized management functions. IRT will be required to devote significant management attention and resources to integrating their business practices and operations. Potential difficulties that IRT and STAR may encounter in the integration process include the following:

 

   

the inability to successfully combine the businesses of IRT and STAR in a manner that permits the combined company to achieve the synergies and cost savings anticipated to result from the Mergers, which would result in some anticipated benefits of the Mergers not being realized in the time frame currently anticipated or at all;

 

   

loss of revenue as a result of certain residents of either of IRT or STAR deciding not to do business with IRT;

 

   

the complexities associated with managing the combined company out of multiple locations and integrating personnel from the two companies;

 

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the additional complexities of combining two companies with different histories, markets and customer bases;

 

   

the failure to retain key employees of either of IRT or STAR;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Mergers and the transactions contemplated by the Merger Agreement; and

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by consummating the Mergers and integrating IRT’s and STAR’s operations into the combined company.

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the combined company’s management, the disruption of the combined company’s ongoing business or inconsistencies in the combined company’s services, standards, controls, procedures and policies, any of which could adversely affect the ability of the combined company to maintain relationships with residents, customers, vendors, joint venture partners and employees or to achieve the anticipated benefits of the Mergers, or could otherwise adversely affect the business and financial results of the combined company. Furthermore, while it is anticipated that certain expenses will be incurred to achieve synergies, cost savings and related benefits of the Mergers, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits expected to be realized from the Mergers may be offset by costs incurred to, or delays in, integrating the businesses of IRT and STAR.

IRT’s level of indebtedness will increase substantially upon consummation of the Mergers and may increase the related risks IRT now faces.

Upon consummation of the Mergers, IRT intends to assume and/or refinance certain indebtedness of STAR and STAR OP and, as a result, IRT’s consolidated indebtedness will increase substantially and it will be subject to increased risks associated with debt financing, including an increased risk that IRT’s cash flows could be insufficient to meet required payments on its indebtedness or to continue to pay dividends on its common stock. On June 30, 2021, IRT had consolidated indebtedness of approximately $1.06 billion, net of approximately $4.6 million of unamortized deferred financing costs. Taking into account STAR’s consolidated indebtedness of approximately $2.13 billion, net of approximately $8.3 million of unamortized deferred financing costs, premiums and discounts, on June 30, 2021, the total consolidated indebtedness of the combined company (excluding fair value adjustments) as of June 30, 2021 would have been approximately $3.19 billion, net of unamortized deferred financing costs (or $2.92 billion assuming full physical settlement of the IRT Forward Sale Agreements and use of all net proceeds from the settlement to repay indebtedness, as more fully described in “Unaudited Pro Forma Condensed Combined Financial Statements”).

The combined company’s increased indebtedness could have important consequences to holders of its common stock, including:

 

   

increasing the combined company’s vulnerability to general adverse economic and industry conditions;

 

   

limiting the combined company’s ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

 

   

requiring the combined company to use a substantial portion of its cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;

 

   

limiting the combined company’s flexibility in planning for, or reacting to, changes in its business and its industry and economic conditions; and

 

   

putting the combined company at a disadvantage compared to its competitors with less indebtedness.

Additionally, if the combined company defaults under a debt instrument, it will automatically be in default under any other debt instrument that has cross-default provisions and the holders of all such indebtedness may be

 

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entitled to demand its immediate repayment. If the combined company defaults under a secured debt instrument, it may lose any property securing that indebtedness.

IRT may incur additional indebtedness in the future.

In connection with executing its business strategy following the Mergers, IRT expects to evaluate the possibility of acquiring additional properties and making strategic investments, and it may elect to finance these transactions by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for the combined company following the Mergers, including hindering its ability to adjust to changing market, industry or economic conditions; limiting its ability to access the capital markets to refinance maturing debt or to fund acquisitions; limiting the amount of cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses; making the combined company more vulnerable to economic or industry downturns, including interest rate increases; and placing the combined company at a competitive disadvantage compared to less leveraged competitors.

The Mergers will result in changes to the IRT Board that may affect its strategy and operations.

Upon consummation of the Mergers, the IRT Board will be comprised of five incumbent directors of the IRT Board (Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington) and five incumbent directors of the STAR Board (Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell), with Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, continuing in these positions. This new composition of the board of directors may affect IRT’s business strategy and operating decisions following consummation of the Mergers. In addition, there can be no assurances that the new board of directors will function effectively as a team and that there will not be any adverse effects on IRT’s business as a result.

IRT will depend on key personnel for its future success, and the loss of key personnel or inability to attract and retain personnel could harm the combined company’s business.

The success of the combined company following consummation of the Mergers will depend in part upon its ability to retain key IRT and STAR executives and other employees. Key executives and other employees may depart either before or after consummation of the Mergers because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following consummation of the Mergers. Accordingly, no assurance can be given that IRT, STAR or, following consummation of the Mergers, the combined company, will be able to retain key executives or other employees to the same extent as in the past.

The future results of IRT will suffer if IRT does not effectively manage its operations following consummation of the Mergers and the transactions contemplated by the Merger Agreement.

Following the Mergers, IRT expects to continue to expand its operations through additional acquisitions, development opportunities and other strategic transactions, some of which involve complex challenges. The future success of the combined company will depend, in part, upon the ability of the combined company to manage its expansion opportunities, which pose substantial challenges for the combined company to integrate new operations into its existing business in an efficient and timely manner, to successfully monitor its operations, costs, regulatory compliance and service quality and to maintain other necessary internal controls. IRT and STAR cannot assure you that following consummation of the Mergers, the combined company’s expansion or acquisition opportunities will be successful, or that the combined company will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

 

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The trading price of shares of IRT’s common stock following consummation of the Mergers may be affected by factors different from those affecting the price of shares of IRT Common Stock before consummation of the Mergers.

If the Mergers are consummated, then, based on the number of shares of IRT Common Stock and IROP Common Units and shares of STAR Common Stock and STAR OP Units outstanding as of the record date and assuming full physical settlement of IRT’s Forward Sale Agreements prior to consummation of the Mergers, immediately following consummation of the Mergers, legacy IRT stockholders and holders of IROP Common Units will hold approximately 53% of the outstanding shares of IRT Common Stock and IROP Common Units and legacy STAR stockholders and holders of STAR OP Units will hold approximately 47% of the outstanding shares of IRT Common Stock and IROP Common Units. The results of operations of IRT, as well as the trading price of IRT Common Stock, after consummation of the Mergers may be affected by factors different from those currently affecting the trading prices of IRT Common Stock. These different factors include:

 

   

a greater number of shares of IRT Common Stock and IROP Common Units outstanding, as compared to the number of shares of IRT Common Stock and IROP Common Units currently outstanding;

 

   

different stockholders in IRT;

 

   

IRT’s increased level of indebtedness; and

 

   

IRT owning different assets and maintaining different capitalizations.

Accordingly, the historical trading prices of IRT Common Stock and the historical financial results of IRT and STAR may not be indicative of these matters for IRT after the Mergers.

Holders of outstanding indebtedness of STAR may exercise contractual rights under the respective debt agreements in connection with the Mergers.

STAR is a party to debt agreements that give the lenders under such agreements certain rights following a merger or change of control, including the right to demand immediate repayment upon the merger or change of control absent a waiver or consent by the applicable lenders. Loan agreements covering substantially all of STAR’s indebtedness include such provisions. There is no assurance that any or all of the lenders will provide requested waivers or consents and if they do not, then the aggregate amount of indebtedness that would become due and payable upon consummation of the Mergers would be substantial and could result in a material adverse effect on IRT.

Risks Relating to REIT Status and Certain Tax Matters

IRT may incur adverse tax consequences if IRT or STAR has failed or fails to qualify as a REIT for U.S. federal income tax purposes.

Each of IRT and STAR has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so through the time of the Mergers. IRT intends to continue operating in such a manner following the Mergers. Neither IRT nor STAR has requested or plans to request a ruling from the IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of IRT or STAR may affect each company’s ability to qualify as a REIT. In order to qualify as a REIT, each of IRT and STAR must satisfy a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.

Consummation of the Mergers is conditioned on receipt by IRT of an opinion from Morrison & Foerster LLP to the effect that, for all taxable years commencing with STAR’s taxable year ended December 31, 2014 and

 

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through the Merger Effective Time, STAR has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and receipt by STAR of an opinion from Troutman Pepper Hamilton Sanders LLP to the effect that, for all taxable years commencing with IRT’s taxable year ended December 31, 2011, IRT has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and its proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year that includes the Merger Effective Time and future taxable years. The foregoing REIT opinions, however, will be based on the factual representations provided by IRT and STAR to counsel and limited by the assumptions set forth therein, and are not a guarantee that IRT or STAR, in fact, has qualified, or, in the case of IRT, will continue to qualify as a REIT, nor are such opinions binding on the IRS. Moreover, as noted above, neither IRT nor STAR has requested or plans to request a ruling from the IRS that it qualifies as a REIT.

If IRT loses its REIT status, or is determined to have lost its REIT status in a prior year, it will face serious tax consequences that would substantially reduce its cash available for distribution, including cash available to pay dividends to its stockholders, because:

 

   

it would be subject to U.S. federal income tax on its net income at regular corporate rates for the years it did not qualify for taxation as a REIT (and, for such years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income);

 

   

it could be subject to increased state and local taxes for such periods;

 

   

unless it is entitled to relief under applicable statutory provisions, neither it nor any “successor” company could elect to be taxed as a REIT until the fifth taxable year following the year during which it was disqualified; and

 

   

for five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.

Even if IRT retains its REIT status, if STAR is determined to have lost its REIT status for a taxable year ending on or before the Mergers, IRT would be subject to adverse tax consequences. This could substantially reduce IRT’s cash available for distribution, including cash available to pay dividends to its stockholders, because, assuming that IRT otherwise maintains its REIT qualification:

 

   

IRT generally would be subject to corporate level tax with respect to the built-in gain on each asset of STAR existing at the time of the Mergers if IRT were to dispose of the STAR asset during the five-year period following the Mergers;

 

   

IRT would succeed to any earnings and profits accumulated by STAR for taxable periods that it did not qualify as a REIT, and IRT would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits (or if IRT does not timely distribute those earnings and profits, IRT could fail to qualify as a REIT); and

 

   

if STAR incurred any unpaid tax liabilities prior to the Mergers, those tax liabilities would be transferred to IRT as a result of the Mergers.

If there is an adjustment to STAR’s taxable income or dividends paid deductions for taxable years ending on or prior to the Mergers, IRT could elect to use the deficiency dividend procedure in order to maintain STAR’s REIT status for such taxable years. That deficiency dividend procedure could require IRT to make significant distributions to its stockholders and to pay significant interest to the IRS.

As a result of all these factors, IRT’s or STAR’s failure to qualify as a REIT could impair IRT’s ability to expand its business and raise capital, and would materially adversely affect the market value of its common stock. In addition, for years in which IRT does not qualify as a REIT, it would not otherwise be required to make distributions to stockholders.

 

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The U.S. federal income tax treatment of the cash that IRT might receive from cash settlement of the IRT Forward Sale Agreements is unclear and could jeopardize IRT’s ability to meet the REIT qualification requirements.

In the event that IRT elects to settle the IRT Forward Sale Agreements for cash and the settlement price is below the forward sale price, IRT would be entitled to receive a cash payment from the forward purchaser. Under Section 1032 of the Code, generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a “securities futures contract,” as defined in the Code by reference to the Exchange Act. Although IRT believes that any amount received by IRT in exchange for IRT’s common stock would qualify for the exemption under Section 1032 of the Code, because it is not entirely clear whether a forward sale agreement qualifies as a “securities futures contract,” the U.S. federal income tax treatment of any cash settlement payment IRT may receive is uncertain. In the event that IRT recognizes a significant gain from the cash settlement of the IRT Forward Sale Agreements, IRT might not be able to satisfy the gross income requirements applicable to REITs under the Code. In that case, IRT may be able to rely upon the relief provisions under the Code in order to avoid the loss of IRT’s REIT status. Even if the relief provisions apply, IRT would be subject to a 100% tax on the greater of (1) the excess of 75% of IRT’s gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (2) the excess of 95% of IRT’s gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% gross income test, as discussed in Exhibit 99.1 to IRT’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Material U.S. Federal Income Tax Considerations”) multiplied in either case by a fraction intended to reflect IRT’s profitability. In the event that these relief provisions were not available, IRT could lose its REIT status under the Code.

Risks Relating to an Investment in Common Stock of IRT following Consummation of the Mergers and the Transactions Contemplated by the Merger Agreement

The market price of IRT Common Stock may decline as a result of the Mergers and the transactions contemplated by the Merger Agreement.

The market price of IRT Common Stock may decline as a result of the Mergers and the transactions contemplated by the Merger Agreement if, among other things, IRT does not achieve the perceived benefits of the Mergers and the transactions contemplated by the Merger Agreement or the effect of the Mergers and the transactions contemplated by the Merger Agreement on IRT’s results of operations or financial condition is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Mergers and the transactions contemplated by the Merger Agreement, IRT stockholders and STAR stockholders will own interests in IRT, which will operate an expanded business with a different mix of properties, risks and liabilities. Stockholders of IRT and STAR may not wish to continue to invest in IRT, or may wish to dispose of some or all of their shares of IRT Common Stock. If, following the effective time of the Mergers or while the Mergers are pending, large amounts of IRT Common Stock are sold, the market price of IRT Common Stock could decline, perhaps substantially.

Following consummation of the Mergers and the transactions contemplated by the Merger Agreement, IRT may not continue to pay dividends at the rate currently paid by IRT.

Following consummation of the Mergers, IRT may not pay dividends at the same level at which IRT currently pays dividends, or with the same frequency, including because of factors such as the following:

 

   

IRT may not have enough cash to pay such dividends due to changes in IRT’s cash requirements, capital spending plans, cash flow or financial position;

 

   

decisions on whether, when and in what amounts to pay any future dividends will remain at all times entirely at the discretion of IRT’s Board, which reserves the right to change IRT’s dividend practices at any time and for any reason; and

 

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the amount of dividends that IRT’s subsidiaries may distribute to IRT may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

Stockholders of IRT will have no contractual or other legal right to dividends that have not been declared by IRT’s Board.

The Mergers may not be accretive to the combined company’s stockholders.

Because IRT Common Stock will be issued in the Mergers, it is possible that the Mergers may be dilutive to IRT’s core or adjusted funds from operations per share if, among other things, the combined company incurs higher than expected expenses in connection with the Mergers or fails to realize the cost savings and other benefits of the Mergers in a timely manner or at all. The failure of the Mergers to be accretive to stockholders could have a material adverse effect on the combined company’s business, financial condition and results of operations.

Shares of IRT Common Stock to be received by STAR’s stockholders in the Company Merger will have rights different from the shares of STAR Common Stock.

After the Company Merger Effective Time, STAR’s stockholders who receive shares of IRT Common Stock in connection with the Company Merger will have different rights than they currently have as STAR stockholders and these rights may be, or may be perceived to be, less favorable than their current rights as stockholders of STAR.

Other Risks

The unaudited pro forma condensed consolidated financial statements contained herein do not purport to be indicative of IRT’s results after consummation of the Mergers and the transactions contemplated by the Merger Agreement, and accordingly, you will have limited financial information on which to evaluate the future performance of IRT.

The unaudited pro forma condensed consolidated financial statements contained herein are presented for informational purposes only and do not purport to be indicative of the financial position or results of operations that actually would have occurred had the Mergers and the transactions contemplated by the Merger Agreement been consummated as of the dates indicated, nor do they purport to be indicative of the future operating results or financial position of IRT after the Mergers and the transactions contemplated by the Merger Agreement. The unaudited pro forma condensed consolidated financial statements reflect adjustments, which are based upon preliminary estimates, to allocate the purchase price to STAR’s assets and liabilities.

In addition, the unaudited pro forma condensed consolidated financial statements do not reflect other future events that may occur after consummation of the Mergers, including the costs related to the planned integration of IRT and STAR and any future nonrecurring charges resulting from the Mergers and the transactions contemplated by the Merger Agreement, and do not consider potential impacts of current market conditions on revenues or expense efficiencies. The unaudited pro forma condensed consolidated financial statements contained herein are based in part on certain estimates and assumptions (including the estimated purchase price allocation described above) regarding the Mergers and the transactions contemplated by the Merger Agreement that IRT and STAR believe are reasonable under the circumstances. IRT and STAR cannot assure you that the estimates and assumptions will prove to be accurate.

Following consummation of the Mergers, the market price and trading volume of the IRT Common Stock may be volatile.

The United States stock markets, including the NYSE, on which the IRT Common Stock is and, after the Mergers, will continue to be listed under the symbol “IRT,” have experienced significant price and volume

 

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fluctuations. As a result, the market price of shares of IRT Common Stock is likely to be similarly volatile, and investors in shares of IRT Common Stock may experience a decrease, which could be substantial, in the value of their shares, including decreases unrelated to IRT’s operating performance or prospects. IRT and STAR cannot assure you that the market price of shares of IRT’s common stock will not fluctuate or decline significantly in the future.

In addition to the risks listed elsewhere in these “Risk Factors,” a number of factors could negatively affect IRT’s common stock price or result in fluctuations in the price or trading volume of IRT’s common stock, including:

 

   

the annual yield from distributions on IRT Common Stock as compared to yields on other financial instruments;

 

   

equity issuances by IRT (including issuances of IRT Common Stock in the Mergers), or future sales of shares of IRT Common Stock by its current or future stockholders, or the perception that such issuances or sales may occur;

 

   

increases in market interest rates or a decrease in IRT’s distributions to stockholders that lead prospective investors in IRT Common Stock to seek a higher yield;

 

   

changes in market valuations of similar companies;

 

   

fluctuations in stock market prices and volumes;

 

   

additions or departures of key management personnel;

 

   

IRT’s operating performance and the performance of other similar companies;

 

   

actual or anticipated differences in IRT’s quarterly operating results;

 

   

changes in expectations of future financial performance or changes in estimates of securities analysts;

 

   

publication of research reports about IRT or its industry by securities analysts;

 

   

failure of IRT to qualify as a REIT for federal income tax purposes;

 

   

adverse market reaction to any indebtedness IRT incurs in the future, including indebtedness to be assumed or incurred in connection with the Mergers;

 

   

strategic decisions by IRT or its competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

the passage of legislation or other regulatory developments that adversely affect IRT or its industry or any failure by IRT to comply with regulatory requirements;

 

   

the expiration or loss of local tax abatements, tax credit programs, or other governmental incentives;

 

   

the imposition of a penalty tax as a result of certain property transfers that may generate prohibited transaction income;

 

   

the inability of IRT to sell properties if and when it would be appropriate to do so;

 

   

speculation in the press or investment community;

 

   

changes in IRT’s results of operations, financial condition or prospects;

 

   

failure to satisfy the listing requirements of the NYSE;

 

   

failure to comply with the requirements of the Sarbanes-Oxley Act of 2002;

 

   

actions by institutional stockholders of IRT;

 

   

changes in accounting principles;

 

   

changes in environmental conditions or the potential impact of climate change;

 

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risks from cybersecurity breaches of information technology systems and the information technology systems of third party vendors and other third parties;

 

   

terrorist attacks or other acts of violence or war in areas in which IRT’s properties are located or markets on which IRT’s securities are traded; and

 

   

general economic and/or market conditions, including factors unrelated to IRT’s performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert IRT’s management’s attention and resources, which could have a material adverse effect on IRT’s cash flows, its ability to execute its business strategy and IRT’s ability to make distributions to its stockholders.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on IRT’s, STAR’s and the combined company’s business, results of operations, cash flows and financial condition.

In December 2019, COVID-19 was first reported, and in March 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has led governments and other authorities around the world, including federal, state and local authorities in the United States, including where IRT and STAR own properties and where IRT’s and STAR’s respective corporate headquarters are located, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, school closures, quarantines and shelter-in-place orders.

The impact of the COVID-19 pandemic and measures to prevent its spread could negatively impact IRT’s, STAR’s and the combined company’s businesses in a number of ways, including residents’ ability or willingness to pay rents. In some cases, IRT, STAR or the combined company may waive fees or restructure residents’ rent obligations including in the form of deferred payment arrangements, and may do so on terms less favorable than those currently in place. The Centers for Disease Control and Prevention (“CDC”) issued an Order under Section 361 of the Public Health Service Act to temporarily halt residential evictions to prevent the further spread of COVID-19 effective September 4, 2020. The CDC’s order materially restricted IRT’s and STAR’s ability to enforce tenants’ contractual rental obligations through evictions. In addition, violations of the CDC’s order could result in the imposition of fines, awards of damages to private litigants, and substantial litigation costs. The CDC’s order was extended on August 3, 2021 until October 3, 2021, in U.S. counties experiencing substantial and high levels of community transmission levels of COVID as defined by CDC, as of August 3, 2021. In addition, many local authorities have enacted measures imposing restrictions on IRT’s and STAR’s ability to enforce tenants’ contractual rental obligations. The CDC and local authorities may expand or extend these measures. When evictions are permitted, IRT, STAR or the combined company may incur costs in protecting their respective investments and re-leasing properties.

In addition, restrictions inhibiting employees’ ability to meet with existing and potential residents have disrupted and could in the future further disrupt IRT’s, STAR’s and the combined company’s ability to lease apartments, which could adversely impact rental rate and occupancy levels. Furthermore, social distancing efforts, including limiting contractors on-site and in residential apartment units, could reduce the ability to operate properties as effectively and efficiently as IRT and STAR have in the past.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. Neither IRT nor STAR can assure you that conditions will not continue to deteriorate as a result of the pandemic. In addition, the deterioration of global economic conditions as a result of the pandemic may ultimately decrease the demand for multifamily communities within the markets in which IRT and STAR operate and may adversely impact occupancy levels and rental rates across the combined company’s portfolio.

The extent of the COVID-19 pandemic’s effect on IRT’s, STAR’s and the combined company’s operational and financial performance will depend on future developments including the duration, spread and intensity of the

 

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outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, IRT and STAR are not able at this time to estimate the effect of these factors on their respective businesses, but the adverse impact on IRT’s, STAR’s and the combined company’s respective business, results of operations, financial condition and cash flows could be material.

IRT and STAR face other risks.

The risks listed above are not exhaustive, and you should be aware that, prior to and following consummation of the Mergers and the transactions contemplated by the Merger Agreement, IRT and STAR will face various other risks, including those discussed in reports filed by IRT and STAR with the SEC. For more information, see “Where You Can Find More Information.”

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus contain “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. These forward-looking statements, which are based on current expectations, estimates and projections about the industry and markets in which IRT, STAR and their respective subsidiaries operate and beliefs of and assumptions made by IRT’s management and STAR’s management, involve uncertainties that could significantly affect the financial or operating results of IRT, STAR or the combined company. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed transactions involving IRT and STAR, including future financial and operating results, plans, objectives, expectations and intentions. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to creating value for stockholders, benefits of the proposed transactions to clients, employees, stockholders and other constituents of the combined company, integrating our companies, cost savings, synergies and the expected timetable for consummating the proposed transactions — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although IRT and STAR believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, IRT and STAR can give no assurance that their expectations will be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to, those set forth under “Risk Factors” beginning on page 24 as well as the following:

 

   

adverse effects of the announcement, pendency or potential consummation of the pending Mergers and uncertainties regarding whether the anticipated benefits or results of the pending Mergers, if consummated, will be achieved;

 

   

non-consummation of the pending Mergers as a result of the failure of STAR stockholders to approve the Company Merger, or as the result of the failure of IRT stockholders to approve the IRT Issuance Proposal;

 

   

delay in the consummation of the pending Mergers, or non-consummation of the pending Mergers because one or more of the closing conditions to the Mergers are not satisfied or waived, including failure by STAR to receive lender consents covering an aggregate of approximately $2.13 billion of STAR debt;

 

   

loss of expected benefits under agreements that include change of control rights if IRT or STAR are unable to obtain consents of the counterparties under such agreements in connection with the pending Mergers;

 

   

the occurrence of an event that gives rise to termination of the Merger Agreement, including on account of a third-party acquisition proposal that results in the termination of the Merger Agreement and, potentially, payment of a termination fee by either the STAR parties or the IRT parties;

 

   

the risk that stockholder litigation in connection with the pending Mergers may affect the timing or occurrence of the Mergers or result in significant costs of defense, indemnification and liability;

 

   

IRT’s inability to invest the net proceeds from its recent equity offering at attractive yields in the event that the pending Mergers are not consummated, resulting, potentially, in significant economic dilution to IRT stockholders;

 

   

IRT’s and STAR’s incurrence of substantial costs, fees and expenses in connection with the pending Mergers, many of which IRT and STAR will be required to pay whether or not the pending Mergers are consummated;

 

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the combined company’s inability to realize, or a delay in the realization of, the cost savings, synergies and other benefits expected to result from the pending Mergers, including the possibility that the Mergers may not be accretive to IRT’s pro forma earnings and cash available for distribution to stockholders;

 

   

the combined company’s inability to generate cash flows following consummation of the pending Mergers sufficient to enable the combined company to continue to fund its debt service requirements and to continue to pay quarterly dividends at the current level of $0.12 per quarter, or at all;

 

   

IRT’s assumption of approximately $2.13 billion of STAR indebtedness upon consummation of the pending Mergers, which could decrease the combined company’s business flexibility, increase its borrowing and other capital costs and increase demands on its cash resources;

 

   

IRT’s inability to comply with financial covenants in its debt agreements and in the debt agreements it will assume upon consummation of the pending Mergers;

 

   

IRT’s failure to identify liabilities that it will assume, or underestimate the amount or significance of liabilities that IRT will assume, upon consummation of the pending Mergers;

 

   

failure to consummate the pending Mergers could negatively impact IRT’s stock price;

 

   

with respect to IRT Common Stock, fluctuations in stock market prices and volumes prior to the consummation of the Mergers;

 

   

limitations on IRT’s and STAR’s respective abilities to recover damages they may suffer on account of inaccurate representations and warranties of the STAR and IRT parties, respectively, in the Merger Agreement;

 

   

loss of management personnel and other key employees on account of uncertainties associated with the pending Mergers;

 

   

unexpected costs, delays and difficulties in integrating the operating systems, portfolios, benefit plans and administrative functions of IRT and STAR in connection with the pending Mergers;

 

   

unexpected costs associated with the failure to account for deferred maintenance expenses associated with STAR’s real estate portfolio;

 

   

risks associated with the geographic concentration of the combined company’s real estate portfolio following consummation of the pending Mergers;

 

   

lost opportunities associated with management’s devotion of time and resources to consummating the pending mergers and thereafter integrating the operating systems, portfolios, benefit plans and administrative functions of IRT and STAR after the consummation of the pending Mergers;

 

   

risks related to stock-for-stock mergers generally, including the substantial dilution to the ownership percentages of IRT and STAR stockholders in the combined company that will result from the consummation of the pending Mergers and the potential significant dilution to earnings per share and cash available for distribution to stockholders as a result of IRT’s issuance of a substantial number of shares of IRT Common Stock in the pending Mergers;

 

   

risks and uncertainties surrounding the COVID-19 pandemic, including limitations on IRT’s and STAR’s respective operations and increased costs, and the impact on IRT’s, STAR’s and the combined company’s employees, residents and prospective residents as well as on general economic conditions and IRT’s, STAR’s and the combined company’s financial condition, results of operations, cash flows and performance and those of their respective residents;

 

   

adverse changes in national, regional and local economic conditions;

 

   

unfavorable changes in apartment market conditions that could adversely affect occupancy levels and rental rates;

 

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competitive factors that may limit the combined company’s ability to lease its apartment communities or increase or maintain rental rates;

 

   

inability of residents to meet their rent and other lease obligations and charge-offs in excess of allowances for bad debt;

 

   

legislative restrictions, including on evictions, that may delay or limit collections of past due rents;

 

   

delays in completing, and cost overruns incurred in connection with, IRT’s value add initiatives and failure to achieve projected rent increases and occupancy levels on account of the initiatives;

 

   

uncertainty and volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital;

 

   

changing interest rates, which could increase borrowing costs and adversely affect the market price of IRT’s securities;

 

   

the imposition of federal taxes if IRT or STAR fail to qualify as a REIT under the Code in any taxable year;

 

   

unexpected costs of REIT qualification compliance;

 

   

unexpected liabilities that the combined company will inherit if either IRT or STAR failed to qualify as a REIT prior to consummation of the pending Mergers;

 

   

failure of recent and future acquisitions to achieve anticipated results;

 

   

illiquidity of real estate investments, including those assets the combined company will acquire through consummation of the pending Mergers, which could make it difficult for the combined company to sell assets at targeted levels and to respond to changing economic or financial conditions or changes in the operating performance of the combined company’s apartment communities;

 

   

impairments in the value of IRT’s and STAR’s respective real estate assets and those the combined company will acquire through consummation of the pending Mergers;

 

   

damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs;

 

   

adverse impacts on the combined company’s properties or operations from the effects of climate change;

 

   

potential liability for environmental contamination;

 

   

uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage;

 

   

costs and disruptions from cybersecurity breaches of information technology systems and the information technology systems of third party vendors and other third parties;

 

   

IRT’s or STAR’s internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in IRT’s and STAR’s respective financial reports, and in turn have an adverse effect on the market price of the combined company’s securities;

 

   

changes in laws and regulations that increase costs or otherwise adversely affect IRT’s, STAR’s or the combined company’s business, financial condition or results of operation, including but not limited to changes in income tax laws and rates;

 

   

other risks inherent in the real estate business;

 

   

the outcome of any legal proceedings to which IRT or STAR is a party or which may occur in the future;

 

   

acts of terrorism and war; and

 

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those additional risks and factors discussed in reports filed with the SEC by IRT and STAR from time to time, including those discussed under the heading “Risk Factors” in their respective most recently filed reports on Forms 10-K and 10-Q.

Neither IRT nor STAR undertakes any duty to update any forward-looking statements appearing in this document, except as may be required by applicable securities laws.

 

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INFORMATION ABOUT THE COMPANIES

Independence Realty Trust, Inc.

IRT, a Maryland corporation, is a self-administered and self-managed Maryland REIT, that acquires, owns, operates, improves and manages multifamily apartment communities across non-gateway U.S. markets. As of June 30, 2021, IRT owned a diversified portfolio of 58 multifamily apartment properties, totaling 16,261 units. IRT’s properties are located in Georgia, North Carolina, Tennessee, Kentucky, Ohio, Oklahoma, Indiana, Texas, Florida, South Carolina, Missouri, and Alabama. IRT does not have any foreign operations and its business is not seasonal.

IRT’s primary business objective is to maximize stockholder value through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. Its investment strategy is focused on the following:

 

   

gaining scale within key amenity rich submarkets of non-gateway cities that offer good school districts, high-quality retail and major employment centers and are unlikely to experience substantial new apartment construction in the foreseeable future;

 

   

increasing cash flows at our existing apartment properties through prudent property management and strategic renovation projects; and

 

   

acquiring additional properties that have strong and stable occupancies and support a rise in rental rates or that have the potential for repositioning through capital expenditures or tailored management strategies.

The principal offices of IRT are located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800. IRT has offices in Philadelphia, Pennsylvania and Chicago, Illinois.

IRT Common Stock is listed on the NYSE, trading under the symbol “IRT.”

Additional information about IRT and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. For more information, see “Where You Can Find More Information.”

Independence Realty Operating Partnership, LP

IRT owns all of its assets and conducts substantially all of its operations through Independence Realty Operating Partnership, LP, a Delaware limited partnership, of which IRT is the sole general partner. As of June 30, 2021, IRT owned a 99.5% interest in IRT OP. The remaining 0.5% consists of IROP Common Units issued to third parties in exchange for contributions of properties to IRT OP. The principal executive offices of IRT OP are located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800.

IRSTAR Sub, LLC

IRT Merger Sub, a Maryland limited liability company, is a direct, wholly owned subsidiary of IRT. IRSTAR Sub, LLC was formed by IRT solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. IRSTAR Sub, LLC, has not conducted any business activities, has no assets, liabilities or obligations and has conducted its operations solely as contemplated by the Merger Agreement. Its principal executive offices are located at c/o Independence Realty Trust, Inc., 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number is (267) 270-4800.

Steadfast Apartment REIT, Inc. and Steadfast Apartment REIT Operating Partnership, L.P.

STAR was formed on August 22, 2013, as a Maryland corporation that elected to be taxed as, and qualifies as, a real estate investment trust for U.S. federal income tax purposes commencing with its taxable year ended

 

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December 31, 2014. STAR owns and operates a diverse portfolio of real estate investments, primarily in the multifamily sector located throughout the United States.

As of June 30, 2021, STAR owned and managed 70 multifamily properties comprising a total of 21,936 apartment homes and three parcels of land held for the development of apartment homes.

Substantially all of STAR’s business is conducted through STAR OP, of which STAR is the sole general partner. As of June 30, 2021, STAR is the holder of 94% of the operating partnership units of STAR OP.

The principal offices of STAR and STAR OP are located at 18100 Von Karman Avenue, Suite 200, Irvine, CA 92612, and its telephone number is (949) 569-9700.

STAR Common Stock is not publicly traded.

For more information on STAR, please see STAR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Quarterly Report on Form 10-Q for the period ended June 30, 2021, copies of which are attached to this joint proxy statement/prospectus as Annex E and Annex F, respectively.

The Combined Company

Upon consummation of the pending Mergers, IRT will be the parent entity of the combined company, which will retain the name “Independence Realty Trust, Inc.” and will continue to trade on the NYSE under the ticker symbol “IRT.”

The Mergers will join together two high-quality portfolios with complementary geographic footprints in the highly desirable Sunbelt region of the United States. On a pro forma basis, the combined company will own a portfolio of 131 apartment communities comprising approximately 38,000 units across 16 states 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. Upon consummation of the Mergers, the combined company’s ten largest markets by unit count will be Atlanta, Dallas/Ft. Worth, Denver, Oklahoma City, Louisville, Columbus, Indianapolis, Raleigh/Durham, Houston and Memphis.

The business of the combined company will be operated through IRT OP and its subsidiaries and will be structured as a traditional UPREIT. On a pro forma basis giving effect to the pending Mergers, and assuming that IRT issues 99,720,869 shares of IRT Common Stock in the IRT Common Stock Offering, IRT will own approximately 96.7% of the partnership interests in IRT OP and, as its sole general partner, IRT will have the full, exclusive and complete responsibility for and discretion in the day-to-day management and control of IRT OP.

The combined company’s principal offices will be located at 1835 Market Street, Suite 2601, Philadelphia, Pennsylvania 19103, and its telephone number will be (267) 270-4800.

 

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THE MERGERS

The following is a description of the material aspects of the Mergers. While IRT and STAR believe that the following description covers the material terms of the Mergers, the description may not contain all of the information that is important to the IRT stockholders and the STAR stockholders. IRT and STAR encourage the IRT stockholders and the STAR stockholders to carefully read this entire joint proxy statement/prospectus, including the Merger Agreement and the other documents attached to this joint proxy statement/prospectus and incorporated herein by reference, for a more complete understanding of the Mergers.

General

The IRT Board has unanimously declared advisable, and unanimously approved, the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement, including the issuance of IRT Common Stock to the holders of STAR Common Stock in the Company Merger and the issuance of IROP Common Units to the holders of STAR OP Units in the Partnership Merger.

The STAR Board has unanimously declared advisable, and unanimously approved, the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, (i) at the Merger Effective Time, STAR will be merged with and into IRT Merger Sub, with IRT Merger Sub continuing as the surviving entity and as a wholly owned subsidiary of IRT, and (ii) immediately thereafter, STAR OP will be merged with and into IRT OP, with IRT OP continuing as the surviving entity. As a result of the Mergers, each share of STAR Common Stock (other than certain shares set forth in the Merger Agreement) will be automatically converted into the right to receive 0.905 shares of IRT Common Stock, with cash paid in lieu of fractional shares, and each STAR OP Unit will be automatically converted into the right to receive 0.905 IROP Common Units, as more fully described below under the section entitled “The Merger Agreement—Merger Consideration; Effects of the Mergers.”

Background of the Mergers

STAR was formed in August 2013 to acquire and own a diverse portfolio of multifamily assets located throughout the United States. STAR terminated its initial public offering (the “STAR Public Offering”) on March 24, 2016, and continued to issue shares of STAR Common Stock pursuant to its distribution reinvestment plan until its suspension in August 2021. STAR previously disclosed that, subject to then-existing market conditions, STAR expected the STAR Board to consider alternatives for providing liquidity to its stockholders beginning five years from the completion of the STAR Public Offering. However, there is no definitive date by which STAR must consider alternative liquidity events, and the STAR Board has the discretion to consider a liquidity transaction at any time if it determines that such event is then in the best interests of STAR.

On March 6, 2020, STAR completed its merger transactions with Steadfast Income REIT, Inc. and Steadfast Apartment REIT III, Inc. Through these mergers, STAR acquired 36 multifamily properties with 10,166 apartment homes and a ten percent interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes, all of which had a gross real estate value of approximately $1.5 billion.

Since 2017, the STAR Board has regularly evaluated STAR’s historical performance, current financial position, future growth prospects and long-term strategic plan. The STAR Board and management team, in the ordinary course of business, also have considered various potential strategic opportunities to enhance stockholder value and STAR’s performance, capital structure and prospects in light of the business, competitive, regulatory, financing and economic environment and developments in STAR’s industry as well as potential associated benefits and risks. These reviews have included discussions as to whether STAR should continue to execute on its strategy as a standalone company, list its stock on a national securities exchange, pursue various acquisitions, business combinations or joint ventures, seek to improve its capital structure, form strategic partnerships or pursue a sale of the entire company or certain of its assets.

 

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In pursuing strategies for enhancing stockholder value, the IRT Board regularly considers opportunities for acquisitions, joint ventures and other strategic investments.

Prior to 2020, Mr. Scott F. Schaeffer, Chairman of the Board and Chief Executive Officer of IRT, and Mr. Rodney F. Emery, Chairman of the Board and Chief Executive Officer of STAR, had occasional informal communications regarding conditions and trends in the multifamily real estate and capital markets and the strategic directions and prospects of their respective companies, including occasional discussions of possible opportunities and challenges arising from potential business combinations or other strategic alliances.

On April 7, 2020, Mr. Emery called Mr. Schaeffer to discuss industry conditions, particularly in light of the financial and regulatory conditions associated with the then emerging COVID-19 pandemic. In this call, Messrs. Schaeffer and Emery discussed whether to explore a possible strategic combination and agreed to have further informal exploratory discussions.

In April and May 2020, Messrs. Schaeffer and Emery engaged in high-level exploratory discussions regarding a potential three-way business combination among IRT, STAR and a multifamily REIT, which we refer to as “Party A”. No specific transaction terms were discussed. Messrs. Schaeffer and Emery agreed in principle that an exchange ratio should be based primarily on the relative net asset values per share of each company as a standalone entity. Mr. Schaeffer kept the IRT Board apprised of these exploratory discussions and, in an executive session of the IRT Board on May 13, 2020 without members of management (other than Mr. Schaeffer) present, the IRT Board discussed potential benefits, opportunities, risks and challenges associated with three-way business combinations. Mr. Schaeffer’s exploratory discussions with Mr. Emery regarding the potential three-way business combination ceased by the end of May 2020 without having advanced beyond a high-level exploratory phase.

During the balance of 2020, the IRT Board continued its regular review and evaluation of operational and strategic opportunities to enhance stockholder value, including through IRT’s value-add platform, acquisitions, joint ventures and other strategic investments.

During May and June 2020, Mr. Emery and Ms. Ella S. Neyland, STAR’s President, Chief Financial Officer and Treasurer, spoke with various other multifamily REITs generally regarding the potential for a strategic transaction.

In August 2020, Mr. Emery met with the Chief Executive Officer of Party A for a high-level meeting. No specific transaction terms were discussed.

On August 31, 2020, STAR completed its internalization transaction, which resulted in the internalization of the external management functions provided by Steadfast Apartment Advisor, LLC, STAR’s former external advisor (the “Internalization Transaction”), with the expectation that the Internalization Transaction would increase stockholder value by reducing costs, further aligning the interests of STAR management with STAR, and better position STAR for future strategic alternatives, including a listing.

In early September 2020, following completion of the Internalization Transaction, Mr. Emery and the Chief Executive Officer of Party A discussed proceeding with due diligence and negotiations with respect to a potential combination of STAR and Party A.

In September 2020, following completion of the Internalization Transaction, the STAR Board and management team, after consulting with legal counsel, determined to begin interviewing and selecting outside financial advisors to assist STAR with its review of possible strategic transactions, including a potential combination with Party A.

On September 23, 2020, after interviewing three investment banking firms, the STAR Board held a meeting with STAR management present and determined to proceed with engaging RBC Capital Markets as its lead financial

 

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advisor and to engage Robert A. Stanger & Co., Inc. (which we refer to as “Stanger”) to provide property-level due diligence and authorized the executive officers of STAR to begin negotiating engagement agreements. At this meeting of the STAR Board, Mr. Emery provided the STAR Board with a summary of his discussions with representatives of Party A, as a result of which discussions Mr. Emery expected that a non-binding proposal would be forthcoming shortly, but had not discussed with representatives of Party A the form, price or other terms of such proposal.

On September 30, 2020, at a regularly scheduled meeting of the STAR Board with STAR management and STAR’s legal counsel, Morrison & Foerster LLP (which we refer to as “MoFo”), in attendance, management updated the STAR Board regarding management’s discussions with RBC Capital Markets and Stanger and their respective proposed engagement terms. STAR subsequently engaged Stanger and RBC Capital Markets to serve as STAR’s financial advisors.

During September and October 2020, Mr. Emery had various communications with other multifamily REITs regarding various potential strategic transactions.

On October 6, 2020, Mr. Schaeffer called Mr. Emery and they discussed industry conditions, including challenges then facing owners and operators of multifamily apartment communities as a result of the ongoing COVID-19 pandemic. In this call, Messrs. Schaeffer and Emery did not discuss a strategic or other transaction between IRT and STAR.

On October 12, 2020, STAR’s management met with representatives of MoFo, RBC Capital Markets and Stanger. Mr. Emery provided an update regarding his discussions with Party A, as well as discussions with other multifamily REITs, including IRT.

On October 14, 2020, the STAR Board held a meeting, with STAR’s management and representatives of MoFo, RBC Capital Markets and Stanger present. A representative of MoFo reviewed the STAR directors’ legal duties generally and in the context of a potential strategic transaction. RBC Capital Markets provided a preliminary overview regarding a potential combination of STAR and Party A, and discussed other potential strategic alternatives for STAR, including remaining as a standalone company, a sale of STAR or a listing of STAR securities on a national securities exchange, and certain considerations with respect to such alternatives. RBC Capital Markets also discussed, based on publicly available information, the relative stock price and operating performance of Party A and certain other publicly traded multifamily REITs. The STAR Board discussed the roles of MoFo, Venable LLP (which we refer to as “Venable”), Maryland counsel to STAR, Stanger and RBC Capital Markets, respectively, in connection with the STAR Board’s evaluation of the proposal and the assistance of MoFo and Stanger in STAR’s legal and financial due diligence process. The STAR Board then discussed possible next steps and certain considerations with respect to a potential transaction with Party A, including that shares of Party A common stock were registered on a national securities exchange but that, given that STAR Common Stock was not publicly traded, a relative valuation would need to be negotiated. Following further discussions, the STAR Board indicated its support of continued discussion with Party A regarding a potential strategic transaction.

On October 20, 2020, STAR and Party A entered into a mutual non-disclosure agreement governing the exchange of information between the parties in connection with a potential transaction.

During October and November 2020, STAR’s management and Party A’s management, together with STAR’s and Party A’s respective legal and financial advisors, had numerous discussions regarding a potential transaction.

On November 5, 2020, the STAR Board held separate sessions with representatives of RBC Capital Markets and Stanger to receive updates on the status of negotiations with Party A and Stanger’s property-level due diligence review.

 

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On November 18, 2020 and November 25, 2020, the STAR Board held meetings with STAR’s management and representatives of MoFo, RBC Capital Markets and Stanger present, during which MoFo and Stanger provided updates regarding the status of due diligence efforts, including certain reciprocal site visits by Party A’s and STAR’s respective management teams, and the advisors discussed related considerations regarding STAR’s potential transaction with Party A.

On December 2, 2020, the STAR Board held a meeting with STAR’s management and representatives of MoFo in attendance, during which Mr. Emery briefed the STAR Board on certain key open items in the proposed transaction with Party A, and recommended against continuing to pursue a transaction with Party A at that time. After discussion, the STAR Board unanimously agreed to discontinue discussions with Party A.

On January 8, 2021, the STAR Board held a meeting with STAR’s management and representatives of MoFo, RBC Capital Markets and Stanger present. RBC Capital Markets and Stanger separately provided overviews of the multifamily REIT market and potential strategic alternatives for STAR. The STAR Board considered its prior discussions with Party A and other potential strategic alternatives and determined not to pursue such alternatives at that time. As a result of that determination, the engagements of RBC Capital Markets and Stanger terminated in January 2021.

On February 10, 2021, Mr. Emery called Mr. Schaeffer to discuss whether IRT would be interested in exploring a strategic combination. As part of this conversation, they discussed the potential strategic merits of such a transaction and the potential for an exchange ratio to be based primarily on the relative net asset values per share of each company as a standalone entity since each company was self-managed. This conversation was high-level and no specific transaction terms were discussed. Mr. Schaeffer indicated that he would discuss exploring a strategic combination with other members of the IRT Board, and he subsequently informed other members of the IRT Board of his conversation with Mr. Emery.

On February 17, 2021, Mr. Schaeffer called Mr. Emery to discuss the timing and general process for discussions between members of their respective senior management teams to allow each company to better understand the other company’s portfolio and operations. No specific transaction terms were discussed, and Messrs. Schaeffer and Emery understood that preliminary discussions would be limited to publicly available information.

On March 17, 2021, Messrs. Schaeffer and Emery met to discuss the possibility of a merger-of-equals transaction, which could bring to each of IRT and STAR and their respective stockholders benefits, including increased scale and complementary portfolios, greater presence in Sunbelt growth markets and the potential for cost savings and synergies. Following this meeting, Messrs. Schaeffer and Emery updated their respective boards regarding their discussion.

Over the next two months, Mr. Schaeffer, Farrell M. Ender, IRT’s President, and James J. Sebra, IRT’s Chief Financial Officer, held several calls with Mr. Emery and Ms. Neyland. In these calls, the representatives of IRT and STAR discussed each company’s portfolio and operations to assist both companies in understanding their respective business strategies and portfolios, potential operating and cost synergies, opportunities from increased scale and portfolio diversification, and other potential benefits and challenges of a strategic combination, including the benefits of merging certain highly experienced management members of two self-managed multifamily REITs. In addition, the representatives discussed potential reciprocal site visits by members of each company’s management to the other company’s property portfolio as part of their respective reviews and assessments. These site visits, which were arranged so as not to alert onsite personnel of a potential transaction, occurred during the second half of May 2021 and through June 2021.

On May 6, 2021, the STAR Board held a meeting with STAR’s management and representatives of RBC Capital Markets and Stanger present. RBC Capital Markets and Stanger again discussed with the STAR Board potential strategic alternatives for STAR, including remaining as a standalone company, a sale of STAR, a listing of STAR securities on a national securities exchange or a merger with another public multifamily REIT, and certain considerations with respect to such alternatives.

 

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On May 11, 2021, at a regularly scheduled meeting of the STAR Board with STAR’s management and representatives of MoFo in attendance, management discussed with the STAR Board the possibility of pursuing a transaction with IRT. Mr. Emery briefed the STAR Board of his discussions with IRT and indicated that he would like to continue the discussions with IRT. After a discussion, the STAR Board directed Mr. Emery to continue his discussions with IRT.

On May 12, 2021, at a meeting of the IRT Board, the directors met in executive session without members of management (other than Mr. Schaeffer) present. A representative of IRT’s outside counsel, Troutman Pepper Hamilton Sanders LLP (which we refer to as “Troutman Pepper”), was also present. Mr. Schaeffer provided an update on his discussions with Mr. Emery and IRT management’s preliminary high-level financial modeling (based on publicly available information) of a stock-for-stock business combination with STAR. The IRT Board discussed the strategic rationale and advantages and disadvantages of a merger-of-equals transaction with STAR, and alternatives, including to continue to execute on IRT’s strategic plans as a standalone company. The IRT Board also discussed its expectation that the exchange ratio in any such transaction would be based primarily on relative net asset values per share of each company as a standalone entity and its view that Mr. Schaeffer should lead the executive team of the combined company and that Mr. Sebra should serve as chief financial officer of the combined company. The representative of Troutman Pepper reviewed the legal duties of directors generally and in connection with the exploration and evaluation of a business combination with STAR. The IRT Board also discussed the role of management in the exploration and evaluation process and determined that IRT management would engage in discussions regarding executive composition and compensation matters through Mr. Schaeffer and consistent with direction from the IRT Board. The IRT Board also discussed the potential engagement of each of Barclays and BMO as financial advisors to IRT in light of their respective qualifications, experience, reputations and relationships, including with IRT. The IRT Board directed Mr. Schaeffer to continue to pursue the transaction and to speak with Barclays and BMO about their potential roles as financial advisors to IRT.

On May 18, 2021, Mr. Schaeffer spoke with representatives of each of Barclays and BMO to discuss their potential engagement as financial advisors to IRT.

On May 19, 2021, Messrs. Schaeffer and Emery had a telephone conversation to discuss, among other things, the current state of markets, STAR’s property-level agreements and their respective companies’ portfolios.

On May 20, 2021, Messrs. Schaeffer and Emery had a telephone conversation regarding the status of IRT’s and STAR’s ongoing mutual due diligence review and the agenda for the upcoming visit by Mr. Emery and Ms. Neyland to IRT’s executive offices in Philadelphia, Pennsylvania.

On May 26 and May 27, 2021, Mr. Emery and Ms. Neyland visited IRT’s executive offices in Philadelphia, Pennsylvania, during which members of IRT management provided a high-level overview of IRT’s portfolio and operations based on publicly available information.

On June 1 and June 2, 2021, Messrs. Schaeffer, Ender and Sebra visited STAR’s executive offices in Irvine, California, during which members of STAR management provided a high-level overview of STAR’s portfolio and operations based on publicly available information.

On June 4, 2021, Messrs. Schaeffer and Sebra discussed with representatives of Barclays a potential equity offering by IRT to reduce the pro forma leverage of the combined company.

On June 7, 2021, the IRT Board held a meeting with members of IRT management and a representative of Troutman Pepper present. Mr. Schaeffer provided an update on discussions regarding the transaction with STAR, including the discussions at the May 26 and May 27, 2021 meetings in Philadelphia and the June 1 and June 2, 2021 meetings in Irvine. Members of IRT management reviewed preliminary internal financial modeling of a stock-for-stock transaction based on publicly available information. The IRT Board discussed potential benefits,

 

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opportunities, challenges and risks associated with the transaction as well as possible alternatives to the transaction, including to continue to execute IRT’s long-term plans as a standalone company. In addition, Mr. Schaeffer reported on his discussions with Barclays and BMO. After discussing the qualifications, experience and reputation of each of these firms, their knowledge and involvement in transactions in the REIT industry generally and with IRT specifically, the services previously provided by each of these firms to IRT and the fees associated with the engagements, the IRT Board requested Mr. Schaeffer to formalize engagements with each firm. A representative of Troutman Pepper reviewed an indicative timeline for the transaction. The IRT Board reaffirmed its support for continued discussions with STAR of an all-stock merger-of-equals transaction.

Also on June 7, 2021, following the IRT Board meeting, Mr. Schaeffer called Mr. Emery to inform him that the IRT Board supported continued discussions with STAR regarding the transaction.

On June 8, 2021, the STAR Board held a meeting with STAR’s management and representatives of MoFo in attendance, during which management and the STAR Board discussed the transaction with IRT, including the proposed structure as a stock-for-stock merger in which STAR would merge with and into a subsidiary of IRT. Mr. Emery provided an update on discussions regarding the proposed transaction with IRT, including discussions at the meetings on May 26 and May 27, 2021 in Philadelphia and the meetings on June 1 and June 2, 2021 in Irvine. The STAR Board discussed potential benefits, opportunities, challenges and risks associated with the transaction as well as possible alternatives to the transaction, including a listing of STAR Common Stock on a national securities exchange. A representative of MoFo reviewed the STAR directors’ legal duties generally and in the context of a potential strategic transaction, provided legal advice regarding how the STAR Board and management might structure the transaction with IRT and discussed with the STAR Board appropriate next steps in considering the proposed transaction. Mr. Emery also suggested that STAR re-engage RBC Capital Markets and Stanger as STAR’s financial advisors in connection with the proposed transaction with IRT, and both firms were subsequently re-engaged. In connection with such reengagement, RBC Capital Markets provided the STAR Board with certain disclosures regarding RBC Capital Markets’ material relationships with STAR and IRT.

Later on June 8, 2021, IRT and STAR entered into a mutual non-disclosure agreement to facilitate the sharing of additional due diligence information between the companies. Thereafter, each company received access to the other company’s electronic data room, and the parties engaged in mutual due diligence through the execution of the Merger Agreement on July 26, 2021.

On June 14, 2021, the IRT Board held a meeting with members of IRT management and a representative of Troutman Pepper. Mr. Schaeffer reported on IRT’s due diligence review and discussions with STAR since the IRT Board meeting on June 7, 2021. In addition, IRT management provided an update on its internal financial modeling of the transaction, and the IRT Board discussed the mutual exchange of nonpublic projections and other financial information with STAR as part of each company’s valuation and financial modeling. The IRT Board also discussed potential benefits, opportunities, challenges and risks associated with the transaction. IRT management also confirmed that discussions with each of Barclays and BMO were proceeding consistent with the IRT Board’s discussion at the June 7, 2021 meeting and summarized the expected engagement terms with each firm. The IRT Board subsequently authorized IRT to enter into an engagement agreement with each of Barclays and BMO to serve as a financial advisor to IRT. Prior to its authorization, the IRT Board reviewed a customary relationship disclosure letter from each of Barclays and BMO.

Also on June 14, 2021, members of the respective management teams of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, held calls to discuss, among other subjects, IRT’s and STAR’s expectations that any transaction would be an all-stock transaction based on a fixed exchange ratio that would qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. The participants also discussed timing and processes for continuing due diligence, transaction structure, documentation and the potential for IRT to complete an equity offering shortly following public announcement of a definitive agreement. The representatives of Troutman Pepper and MoFo confirmed their respective expectations that due

 

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diligence efforts would generally be reciprocal and that representations, warranties, covenants and restrictions in the merger agreement would generally be reciprocal given that STAR stockholders would own approximately 50% of the combined company.

On June 15, 2021, consistent with prior discussions with and directives from the IRT Board, Messrs. Schaeffer and Sebra held a call with Mr. Emery and Ms. Neyland to discuss potential retention bonuses that STAR might provide to certain of its employees.

On June 17, 2021, representatives of Troutman Pepper and MoFo discussed timing objectives, due diligence and transaction documents.

On June 18, 2021, Messrs. Schaeffer, Sebra and Ender spoke with Mr. Emery and Ms. Neyland to discuss integration of senior management and other corporate personnel at the combined company and to coordinate upcoming site visits.

Also on June 18, 2021, members of the respective management teams of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, held a call to discuss, among other things, ongoing due diligence, financial modeling, tax and accounting, transaction structure and transaction documents and the targeted timeline.

On June 21, 2021, the STAR Board held a meeting with STAR’s management and representatives of MoFo, RBC Capital Markets and Stanger present. RBC Capital Markets provided a status update on the proposed strategic transaction with IRT, including the anticipated timeline and process for such transaction, and certain preliminary financial metrics based on financial information provided by the managements of STAR and IRT regarding STAR, IRT and the proposed transaction. The STAR Board discussed certain advantages to a potential transaction with IRT, including the similarities of the two portfolios and geographic profiles, and the pro forma debt and equity capitalization of the combined company reflecting the transaction. The STAR Board also discussed certain considerations with respect to an all-stock transaction, noting that accepting IRT Common Stock as consideration in the transaction was attractive given that the transaction was expected to be tax-free to STAR stockholders and that it would provide immediate liquidity to STAR stockholders while allowing them to participate in the potential growth of the combined company led by the experienced IRT management team that would also include certain members of the experienced management team of STAR. The STAR Board also discussed the potential impact of IRT’s proposed equity offering, the proposed suspension of STAR’s share repurchase plan and distribution reinvestment plan in connection with the announcement of the transaction, IRT’s redevelopment program, the potential impact of the transaction on IRT Common Stock, and employee matters. In addition, Mr. Emery discussed management’s view of other potential strategic transaction options. Following discussion, the STAR Board directed STAR management, with the assistance of RBC Capital Markets and Stanger, to prepare additional financial and other information to facilitate a more detailed review and evaluation of the proposed transaction with IRT and other potential strategic alternatives, and agreed to reconvene in the coming weeks to discuss such information.

On June 23, 2021, consistent with prior discussions with and directives from the IRT Board, Mr. Schaeffer called Mr. Emery to discuss executive integration at the combined company.

On June 25, 2021, members of the respective management teams of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, held a call during which they discussed the timing of second quarter earnings announcements of each company, the accounting acquiror in the transaction, financial modeling and projections, the pro forma capital structure of the combined company, transaction documents and due diligence.

On June 27, 2021, IRT management held a call with representatives of Barclays, BMO and Troutman Pepper to discuss transaction objectives, structure and timing as well as SEC filings in connection with IRT’s execution of definitive transaction agreements and commencement of an underwritten equity offering promptly thereafter.

 

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On June 28, 2021, the IRT Board held a meeting with members of IRT management and a representative of Troutman Pepper. Messrs. Schaeffer and Sebra provided an update on due diligence and negotiations, and reported that the parties had reached a general consensus to a fixed exchange ratio structure, with no collar or other adjustment tied to the market price of IRT shares; dividend continuation and coordination during the interim period between execution of the merger agreement and closing of the merger transaction; reciprocal operating restrictions on each company during the interim period; and reciprocal termination provisions and break-up fees. The IRT Board also addressed third party consents and closing conditions; personnel matters; and post-merger board size, with equal representation. The IRT Board also considered updated financial modeling and timing and structure of an underwritten equity offering promptly following announcement of the merger transaction.

On June 29, 2021, consistent with prior discussions with and directives from the IRT Board, Mr. Schaeffer called Mr. Emery to discuss executive integration and social issues as well as to discuss financial projections and modeling.

Also on June 29, 2021, Messrs. Emery and Schaeffer discussed, among other things, their views on the framework of setting an exchange ratio. Mr. Emery expressed his view that, given that the net asset value of STAR was outdated and did not reflect the positive fundamentals of the multifamily market and the similarities in the portfolio mix, quality and geography, the value per share of STAR and the exchange ratio should be reflective of, among other things, IRT’s current trading prices, and the parties agreed to instruct the financial advisors to engage in discussions on that basis.

On June 30, 2021, Messrs. Schaeffer and Sebra held a call with representatives of Barclays and BMO to review preliminary financial information and analyses bearing on the exchange ratio.

Also on June 30, 2021, in accordance with STAR’s directives, representatives of RBC Capital Markets held discussions with representatives of Barclays and BMO to discuss STAR’s perspective on the framework for the exchange ratio and, on behalf of STAR, relayed a proposed exchange ratio of 0.947.

On July 1, 2021, the STAR Board held a meeting, with STAR’s management and representatives of MoFo, Venable, RBC Capital Markets and Stanger present, to discuss developments since its meeting on June 12, 2021, and Mr. Emery provided an update on the June 30, 2021 discussions among RBC Capital Markets, Barclays and BMO, on behalf of STAR and IRT, respectively, and scheduled discussions with IRT representatives regarding the exchange ratio. Stanger provided its observations with respect to the latest proposed transaction terms. In addition, STAR management and a representative of MoFo reported on due diligence and document negotiations, as well as the proposed suspension of STAR’s share repurchase plan and distribution reinvestment plan in connection with the proposed Mergers and employee matters. A representative of Venable reminded the members of the STAR Board of their legal duties in a strategic transaction.

Later on July 1, 2021, at the direction of IRT, representatives of Barclays and BMO had discussions with representatives of RBC Capital Markets to discuss IRT’s perspective on the framework for the exchange ratio and proposed, on behalf of IRT, an exchange ratio of 0.880.

Also on July 1, 2021, the IRT Board met to discuss developments since its meeting on June 28, 2021.

Mr. Schaeffer provided an update on financial modeling and reported on the June 30, 2021 discussions with Barclays and BMO and scheduled discussions with Mr. Emery and STAR representatives regarding the exchange ratio. In addition, IRT management and a representative of Troutman Pepper reported on due diligence and document negotiations.

On July 2, 2021, and as discussed at the IRT Board meeting on July 1, 2021, Mr. Schaeffer called Mr. Emery and they discussed the bases for their respective views of the relative value of each company and agreed to present a 0.905 exchange ratio to their respective boards of directors.

 

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Also on July 2, 2021, members of the respective management teams of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, held a call to discuss various work streams.

On July 5, 2021, MoFo circulated a draft of the merger agreement to Troutman Pepper. The draft agreement reflected a stock-for stock merger, at a fixed exchange ratio, of STAR with and into a wholly owned subsidiary of IRT, with the IRT subsidiary surviving the merger, followed by a unit-for-unit merger, at the same fixed exchange ratio, of STAR OP with and into IRT OP, with IRT OP surviving the merger. The actual exchange ratio was left blank in the draft pending resolution between the parties. The draft agreement restricted each party from soliciting alternative proposals, subject to customary exceptions that would permit a party to terminate the merger agreement and enter into an agreement providing for a superior proposal from a third party upon payment to the other party of a termination fee, the amount of which was left blank in the draft agreement, subject to the other party’s right to match the superior proposal. The draft agreement also contained reciprocal representations and warranties, interim covenants, closing conditions and termination rights and provided that each party would be obligated to pay a termination fee or an expense reimbursement amount to the other party if the agreement were terminated under other circumstances. The amount of the termination fee and the expense reimbursement amount, as well as the composition of the combined company’s board of directors and senior management, were left open for further discussion between the parties. The draft permitted each party to continue to pay regular dividends between signing and closing of the merger agreement, and to pay additional dividends to the extent required for continuing REIT qualification or to avoid an excise tax.

On July 7, 2021, the IRT Board held a meeting with members of IRT management and a representative of Troutman Pepper. IRT management provided an update on IRT’s year-to-date financial performance and 2021 earnings outlook. Mr. Schaeffer reported on recent discussions with Mr. Emery and STAR’s financial advisors regarding the exchange ratio. The IRT Board reviewed and discussed potential benefits from the transaction, including increased scale and diversification in Sunbelt markets, synergies and earnings-based accretion and expansion of IRT’s value-add platform. The IRT Board also considered the pro forma leverage of the combined company and the potential to reduce the pro forma leverage through an IRT equity offering. The IRT Board also considered uncertainties associated with equity offerings generally as well as the potential dilutive effect of a consummated equity offering if the merger transaction were not to close.

Also on July 7, 2021, the STAR Board held a meeting, with STAR’s management and representatives of MoFo, Venable, RBC Capital Markets and Stanger present. STAR management provided an update on STAR’s year-to-date financial performance and 2021 earnings outlook and an analysis of a liquidation scenario involving the sale of STAR’s portfolio assets over a two-year period in order to compare the potential returns in a liquidation scenario to the proposed transaction. Mr. Emery and RBC Capital Markets reported on the discussions with IRT and its financial advisors regarding the exchange ratio. The STAR Board reviewed and discussed key terms of, and potential benefits from, the potential transaction, including increased scale and diversification in Sunbelt markets, synergies and earnings-based accretion.

On July 8, 2021, MoFo sent to Troutman Pepper a draft of a proposed amendment to the agreement of limited partnership of IRT OP (the “IRT OP Agreement”) to provide for rights of limited partners of STAR OP upon conversion of their STAR OP Units into IROP Common Units in the transaction.

Also on July 8, 2021, IRT management held a call with representatives of Troutman Pepper, Barclays, BMO and Fried, Frank, Harris, Shriver & Jacobson LLP (which we refer to as “Fried Frank”), counsel to Barclays and BMO, to discuss the SEC filings that would be required upon IRT’s execution of definitive transaction agreements with STAR followed promptly by an underwritten offering of IRT Common Stock.

On July 9, 2021, members of the respective management teams of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, held a call to review the progress in various work streams.

Also on July 9, 2021, Messrs. Schaeffer and Emery had a call to discuss an in-person meeting of Messrs. Schaeffer and Sebra with the STAR Board and also to discuss post-merger integration planning.

 

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On July 10, 2021, Troutman Pepper sent to MoFo a revised draft of the merger agreement, which proposed, among other things, a termination fee equal to 3.75% of each party’s equity value and a unified expense reimbursement amount approximating 0.5% of each party’s equity value, additional triggers for payment of a termination fee relating to a party’s material breach of its covenant to hold its stockholder meeting or its covenant not to solicit alternative proposals, and the payment of a termination fee plus the expense reimbursement amount under certain circumstances. The draft also proposed that the parties would coordinate record and payment dates for all pre-closing dividends and that if a party decided to make additional pre-closing dividends to maintain its REIT status, then the other party would be entitled to declare a similar pre-closing dividend in an amount to be calculated based on the exchange ratio. The draft indicated that the board of directors of the combined company would consist of ten members, comprised of five IRT members and five STAR members, with Mr. Schaeffer continuing as the Chairman of the combined board of directors and Ms. Melinda H. McClure continuing as the lead independent director of the combined board of directors. The draft further provided for Mr. Emery to enter into a lock-up agreement (which we refer to as the “Emery Lock-Up Agreement”) concurrently with the execution of the merger agreement pursuant to which Mr. Emery would agree not to sell or assign his equity in STAR and STAR OP before closing of the merger transaction, or the IRT equity he would receive in the merger during the six months following closing of the merger transaction. The draft also provided for STAR to suspend its distribution reinvestment plan and share repurchase plan as soon as practicable after execution of the merger agreement and to terminate such plans at the closing of the merger. The draft also provided for receipt of certain consents from STAR lenders as an additional closing condition.

On July 12 and July 13, 2021, Messrs. Schaeffer and Sebra met with members of the STAR Board and STAR management in Irvine, California to discuss pre-closing activities and post-merger integration matters in connection with the transaction.

Also on July 12 and July 13, 2021, Troutman Pepper and MoFo discussed amendments to the IRT OP Agreement to carry forward certain rights and restrictions applicable to limited partners in STAR OP upon their receipt of IROP Common Units in the transaction. Following these discussions, on July 13, 2021, Troutman Pepper sent to MoFo a draft exchange rights agreement, a revised draft of an amendment to the IRT OP Agreement, and a revised merger agreement.

On July 13, 2021, the STAR Board held a meeting with members of management of STAR and representatives of MoFo, Venable, RBC Capital Markets and Stanger present. A representative of MoFo provided an update on due diligence and legal analyses, the terms of the draft merger agreement and related documents, including issues regarding the proposed termination fee amount. Also at this meeting, RBC Capital Markets reviewed and discussed with the STAR Board certain financial aspects of the proposed transaction. Afterwards, representatives of Stanger discussed Stanger’s observations of the potential transaction.

On July 14, 2021, members of IRT management and Troutman Pepper held a call with MoFo to discuss the draft merger agreement. MoFo indicated that STAR considered the amount of the termination fee plus the expense reimbursement proposed by IRT to be too high and the participants also discussed the draft amendments to the IRT OP Agreement to carry forward certain rights and restrictions applicable to limited partners in STAR OP upon their receipt of IROP Common Units in the transaction.

Later on July 14, 2021, members of management of IRT and STAR, together with IRT’s and STAR’s respective legal and financial advisors, and a representative of Fried Frank held a call to discuss SEC filings that would be required upon IRT’s execution of definitive transaction agreements with STAR followed promptly by an underwritten offering of IRT Common Stock.

Also on July 14, 2021, the IRT Board held a meeting during which IRT management and a representative of Troutman Pepper provided an update on due diligence, financial modeling, accounting and legal analyses, the terms of the draft merger agreement and related documents. In addition, Mr. Schaeffer reported on the meetings that he and Mr. Sebra had on July 12 and July 13, 2021 at STAR executive offices in Irvine, California with

 

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STAR directors and executives to address pre-closing activities and post-merger integration, contemplated executive management of the combined company consistent with prior directives from the IRT Board, and preparations for an underwritten IRT Common Stock offering, structured as a forward sale, promptly following the public announcement of the merger transaction.

On July 15, 2021, consistent with prior discussions with and directives from the IRT Board, Mr. Schaeffer called Mr. Emery to discuss social and governance matters, including the composition of the committees of the board of directors of the combined company and integration plans for executive management and other employees of the two companies.

Also on July 15, 2021, Troutman Pepper sent to MoFo a draft of a form of amendment to the respective employment agreements of certain members of STAR’s executive management team who were expected to continue their employment with IRT following the transaction. The draft provided that the changes in such executive’s title and reporting line resulting from the transaction would not constitute “Good Reason” as that term is defined in the executive’s employment agreement. After July 15, 2021, members of IRT management and representatives of Troutman Pepper had multiple discussions with members of STAR management and representatives of MoFo with respect to the proposed amendment to employment agreements. On July 22, 2021, Mr. Sebra advised Ms. Neyland that IRT would expect only Ms. Neyland to enter into such an amendment (which we refer to as the “Neyland Amendment to Employment Agreement”).

On July 16, 2021, MoFo circulated a revised draft of the merger agreement, and Troutman Pepper circulated a draft of the Emery Lock-Up Agreement.

Also on July 16, 2021, STAR received a stockholder demand letter seeking an investigation and remedial action relating to the Internalization Transaction (the “Demand Letter”).

On July 20, 2021, the IRT Board held a meeting with representatives of Barclays, BMO and Troutman Pepper. Mr. Schaeffer provided an update on negotiations and discussions with STAR since the IRT Board meeting on July 14, 2021. Representatives of Barclays discussed its preliminary financial analysis of the potential transaction with STAR, and indicated the expectation of Barclays that it would be in a position to render to the IRT Board, upon request, the opinion of Barclays that the proposed exchange ratio of 0.905 was fair, from a financial point of view, to IRT, subject to various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Barclays. After the presentation by representatives of Barclays, representatives of BMO discussed BMO’s preliminary financial analysis of the potential transaction, and communicated the expectation of BMO that it would be in a position to render to the IRT Board, upon request, the opinion of BMO that the proposed exchange ratio of 0.905 was fair, from a financial point of view, to IRT, subject to various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by BMO. In connection with these presentations, the IRT Board reviewed continuing alignment of the potential transaction with STAR with IRT’s strategic objectives, including objectives linked to increased size and scale, increased portfolio diversification, expansion of value-add opportunities, synergies and earnings-based accretion.

At the meeting, representatives of Troutman Pepper gave a detailed presentation of the terms and structure of the draft merger agreement. In addition, the IRT Board discussed with IRT management and representatives of Barclays, BMO and Troutman Pepper the status of the underwritten public equity offering contemplated to be launched immediately following announcement of the merger transaction.

Later on July 20, 2021, Mr. Emery informed Mr. Schaeffer that the STAR Board had received the Demand Letter. Over the course of July 20 through July 26, 2021, at the direction of the IRT Board, members of IRT management and representatives of Troutman Pepper negotiated the Letter Agreement with Mr. Emery and SRI and their legal counsel in connection with the stockholder demand letter.

 

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Also on July 20, 2021, Messrs. Schaeffer and Emery, together with representatives of Troutman Pepper and MoFo, held a call to discuss the parameters of an IRT equity raise that would be launched immediately after the announcement of the proposed transaction.

On July 21, 2021, Troutman Pepper sent a first draft of IRT’s disclosure schedules to MoFo. Later on July 21, Mr. Bahn sent a first draft of STAR’s disclosure schedules to Troutman Pepper.

Also on July 21, 2021, a representative of MoFo informed representatives of Troutman Pepper that Mr. Emery had accepted the draft of the Emery Lock-Up Agreement previously proposed by Troutman Pepper.

On July 22, 2021, the STAR Board held a meeting to review and discuss the merger agreement with members of STAR management and representatives of MoFo, Venable, RBC Capital Markets and Stanger in attendance. At the meeting, representatives of MoFo discussed a potential covenant regarding the IRT equity offering and summarized the discussions that Messrs. Emery and Schaeffer had, together with representatives of Troutman Pepper and MoFo during the telephone conversation on July 20, 2021, regarding the parameters of such IRT equity offering. The STAR Board also discussed the proposed cap on the D&O tail policy premium, the potential IRT OP Agreement amendment, certain employee matters and the Demand Letter.

On July 24, 2021, the STAR Board held a meeting to review and discuss the merger agreement with members of STAR management and representatives of MoFo, Venable, RBC Capital Markets and Stanger in attendance. RBC Capital Markets discussed with the STAR Board certain financial aspects of the potential transaction, including RBC Capital Markets’ preliminary financial analysis of the Exchange Ratio. Prior to such meeting, RBC Capital Markets provided the STAR Board with updated disclosures regarding RBC Capital Markets’ material relationships with STAR and IRT. The STAR Board engaged in a discussion regarding the Mergers and the benefits the Mergers afforded to STAR and its stockholders. The STAR Board also discussed with representatives of MoFo and Venable the status of discussions among IRT, STAR, Mr. Emery and SRI regarding the Letter Agreement, pursuant to which SRI would indemnify STAR for a portion of costs and expenses relating to any stockholder litigation in connection with the Internalization Transaction. Representatives of MoFo and Venable noted to the STAR Board that Mr. Emery and SRI had engaged separate counsel to represent them in connection with the Letter Agreement, and that any Letter Agreement would remain in effect if the Mergers were consummated, and that the Letter Agreement would not survive should the merger agreement terminate for any reason other than consummation of the Mergers.

Over the course of July 16 through July 26, 2021, representatives of Troutman Pepper and MoFo and members of the respective management teams of IRT and STAR, including Messrs. Schaeffer, Sebra and Emery and Ms. Neyland, worked to finalize the draft merger agreement and the draft disclosure schedules, and representatives of Troutman Pepper and MoFo exchanged drafts reflecting these discussions. The parties agreed on a framework whereby each party would be permitted to terminate the merger agreement under certain specified circumstances subject to reciprocal termination fees of $74 million, which as of July 23, 2021 represented approximately 3.5% of the equity value of each party, and expense reimbursement amounts of up to $10 million which would be deducted from the termination fee. The parties also agreed that IRT and STAR would determine whether an amendment of the IRT OP Agreement would be made by the closing of the merger transaction, and that the merger agreement would not provide for the execution of any agreements between IRT OP and the third-party limited partners of STAR OP. MoFo sent an updated draft of the merger agreement reflecting this framework to Troutman Pepper on July 24, 2021. This draft also reflected the 0.905 exchange ratio. In addition, representatives of Troutman Pepper and MoFo worked with members of the respective management teams of IRT and STAR to finalize IRT’s and STAR’s disclosure schedules on July 26, 2021.

On July 26, 2021, the STAR Board held a meeting to further review and potentially approve the merger agreement with members of STAR management and representatives of MoFo, Venable and RBC Capital Markets in attendance. Mr. Emery and representatives of MoFo reviewed with the STAR Board certain open points identified at the previous meeting that had been resolved, and reported that the merger agreement and other

 

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definitive transaction documentation, including the Letter Agreement, were in agreed form. Representatives of Venable discussed with the STAR Board various legal matters, including the directors’ duties under Maryland law. Also at this meeting and at the request of the STAR Board, RBC Capital Markets reviewed its financial analysis of the Exchange Ratio with the STAR Board and rendered an oral opinion, confirmed by delivery of a written opinion dated July 26, 2021, to the STAR Board to the effect that, as of that date and based on and subject to the procedures followed, assumptions made, factors considered and qualifications and limitations described in the opinion, the Exchange Ratio provided for pursuant to the Merger Agreement was fair, from a financial point of view, to holders of STAR Common Stock (other than, as applicable, IRT, IRT OP, IRT Merger Sub and their respective affiliates).The STAR Board engaged in a discussion regarding the Mergers and the benefits the Mergers afforded to STAR and its stockholders, and following their discussion, pursuant to a written consent, unanimously (1) approved the Merger Agreement and declared the Merger Agreement and the Mergers to be advisable and in the best interests of STAR and its stockholders, (2) directed the submission of the Company Merger for consideration and approval by the STAR stockholders at the STAR special meeting and (3) resolved to recommend to STAR stockholders the approval of the Company Merger. For further information concerning the factors considered by the STAR Board in reaching its decision to approve the Merger Agreement and the other transactions contemplated by the Merger Agreement, including the Mergers, and in making its recommendation to the STAR stockholders to approve the Company Merger, see the section entitled “—STAR’s Reasons for the Mergers; Recommendations of the STAR Board.”

Also on July 26, 2021, the IRT Board held a meeting with members of IRT management and representatives of Barclays, BMO and Troutman Pepper. Prior to this meeting, each of Barclays and BMO provided the IRT Board with an updated customary relationship disclosure letter.

At this meeting on July 26, 2021, at the request of the IRT Board, representatives of Barclays reviewed Barclays’ financial analyses supporting its opinion to the IRT Board as to the fairness, from a financial point of view, to IRT of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement. Barclays then rendered an oral opinion to the IRT Board, subsequently confirmed by delivery of a written opinion dated July 26, 2021, to the effect that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Barclays as set forth in its written opinion, the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement was fair, from a financial point of view, to IRT.

At the request of the IRT Board, representatives of BMO reviewed BMO’s financial analyses supporting its opinion to the IRT Board as to the fairness, from a financial point of view, to IRT of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement. BMO then rendered an oral opinion to the IRT Board, subsequently confirmed by delivery of a written opinion dated July 26, 2021, to the effect that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by BMO as set forth in its written opinion, the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement was fair, from a financial point of view, to IRT.

Representatives of Troutman Pepper then reviewed a summary of the Merger Agreement previously provided to the IRT Board and confirmed that, other than the finalization of the reciprocal termination fees of $74 million and expense reimbursement amount of up to $10 million which would be deducted from the termination fee, there had not been any material changes to the terms of the Merger Agreement since the terms were reviewed with the IRT Board at its meeting on July 20, 2021. Representatives of Troutman Pepper also reviewed the duties of the IRT directors under Maryland law.

Following further discussion by the IRT Board of the proposed transaction, including of potential benefits, opportunities, risks and challenges, representatives of Troutman Pepper summarized the process for the approval of the transaction and reviewed resolutions for consideration by the IRT Board to approve the proposed Mergers and related matters. The IRT Board, following discussion and by a unanimous vote of all directors, then

 

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(i) determined that the Merger Agreement and Mergers were advisable and in the best interests of IRT and its stockholders, (ii) approved the Mergers, the Merger Agreement and the other transactions contemplated by the Merger Agreement, (iii) authorized and approved the issuance of IRT Common Stock to the holders of STAR Common Stock in the Company Merger and the issuance of IROP Common Units to the holders of STAR OP Units in the Partnership Merger, (iv) directed that the issuance of IRT Common Stock be submitted for approval at a meeting of IRT stockholders, (v) recommended the approval of the issuance of IRT Common Stock in the Company Merger by IRT stockholders, (vi) authorized an amendment to the IRT charter to increase the number of authorized shares of IRT Common Stock from 300,000,000 shares to 500,000,000 shares and (vii) authorized the IRT Common Stock Offering. In connection with the foregoing, the IRT Board also approved, among other things, the preparation and filing of this joint proxy statement/prospectus. For further information concerning the factors considered by the IRT Board in reaching its decision to approve the Merger Agreement and the other transactions contemplated by the Merger Agreement and in making its recommendation to the IRT stockholders to approve the issuance of IRT Common Stock in the Company Merger, see the section entitled “—IRT’s Reasons for the Mergers; Recommendations of the IRT Board.”

On July 26, 2021, following each of the STAR Board meeting and IRT Board meeting, IRT and STAR executed the Merger Agreement, Mr. Emery and IRT executed the Emery Lock-Up Agreement, Mr. Emery, SRI and STAR executed the Letter Agreement, and STAR and Ms. Neyland executed the Neyland Amendment to Employment Agreement.

Thereafter, on July 26, 2021, IRT and STAR issued a joint press release announcing the Mergers.

IRT’s Reasons for the Mergers; Recommendations of the IRT Board

At its meeting on July 26, 2021, after careful consideration, the IRT Board unanimously (i) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Mergers, were advisable and in the best interests of IRT and its stockholders, (ii) authorized and approved the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement, including the issuance of IRT Common Stock to the holders of STAR Common Stock in the Company Merger and the issuance of IROP Common Units to the holders of STAR OP Units in the Partnership Merger, (iii) directed that the issuance of IRT Common Stock be submitted for approval at a meeting of IRT stockholders, and (iv) recommended the approval of the issuance of IRT Common Stock in the Company Merger by IRT stockholders.

In reaching its determination, the IRT Board consulted with and received the advice of IRT’s management and its outside financial and legal advisors and, at its July 26, 2021 meeting and at other meetings at which it considered the proposed transaction, carefully considered a number of factors that the IRT Board viewed as supporting its decision, including the following material factors:

 

 

Strategic Benefits. The IRT Board expected that the Mergers will provide a number of significant strategic opportunities and benefits, including the following:

 

   

the combination of IRT and STAR will join together two high-quality portfolios with complementary geographic footprints in the highly desirable Sunbelt region of the United States and on a pro forma basis, the combined company will own a portfolio of 131 apartment communities comprising approximately 38,000 units across 16 states, increasing IRT’s exposure to core markets including Atlanta and Dallas, expanding its presence into attractive new markets including Denver and Nashville, and adding to the portfolio’s Class B mid-market communities that continue to demonstrate strong resident demand throughout all points of economic and real estate cycles;

 

   

the combined company is expected to have a pro forma equity market capitalization of approximately $4 billion and a pro forma total enterprise value of approximately $7 billion (based on IRT’s closing

 

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share price as of July 23, 2021), which should provide the combined company with greater access to multiple forms of debt and equity capital at a lower cost of capital over the long term than IRT on a standalone basis and offer financial flexibility to capture opportunities across business cycles;

 

   

the combination of IRT and STAR will significantly advance a number of strategic priorities underway at IRT, including by improving operating efficiencies and strengthening the operating platform through integration of best practices from both companies, thereby allowing the combined company to be more competitive in the markets in which it operates;

 

   

the combination of IRT and STAR will provide improved efficiencies, including annual gross synergies estimated to be approximately $28 million, which consist of $20 million of annual general, administrative and property management synergies through the elimination of duplicative costs associated with back-office functions and property management administration, and $8 million in annual operational synergies;

 

   

the combined company will have a pipeline of approximately 20,000 units available for future redevelopment through IRT’s proven and robust value add program that has generated a historical weighted average return on investment in excess of 17%, and the continued execution of this expanded redevelopment opportunity is expected to enable IRT to deliver greater net operating income (“NOI”) and earnings growth over time;

 

   

the combined company will provide improved liquidity for IRT stockholders as a result of the increased equity capitalization and the increased stockholder base of the combined company;

 

   

the combined company will be well-positioned to increase cash flow at the property level due to economies of scale, including enhanced pricing leverage with strategic partners and vendors;

 

   

the combination of IRT and STAR will accelerate brand recognition in the multifamily industry, better allowing the combined company to attract and retain residents and top talent; and

 

   

the benefits of greater operating efficiencies and lower cost of capital, if realized, would allow the combined company to compete more effectively for acquisition opportunities, while improving the financial impact of those transactions.

 

 

Accretion to Core FFO. The IRT Board expects that the transaction will be immediately accretive to IRT’s Core funds from operations (“FFO”) and provide the combined company with an attractive growth profile. Core FFO is a non-GAAP financial measure that IRT calculates by adjusting FFO, which is also a non-GAAP financial measure, to remove the effect of items that IRT believes do not reflect its ongoing property operations, including depreciation and amortization of items not included in the computation of FFO, and other non-cash or non-operating gains or losses related to items such as casualty losses, abandoned deal costs and debt extinguishment costs. IRT defines FFO in accordance with the definition published by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common shares, excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles. Neither FFO nor Core FFO should be considered as an alternative to net income as a measure of operating performance.

 

 

Fixed Exchange Ratio. The IRT Board considered that the fixed Exchange Ratio, which will not fluctuate as a result of changes in the trading price of IRT Common Stock, provides certainty as to the pro forma ownership of IRT stockholders in the combined company.

 

 

Opinions of Financial Advisors.

 

   

The oral opinion of Barclays rendered to the IRT Board on July 26, 2021, which opinion was subsequently confirmed by delivery of a written opinion the same day, to the effect that, based upon and subject to the qualifications, limitations and assumptions set forth therein, as of the date of such opinion, the Exchange Ratio was fair, from a financial point of view, to IRT.

 

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The oral opinion of BMO rendered to the IRT Board, which was subsequently confirmed by delivery of a written opinion dated July 26, 2021, to the effect that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by BMO as set forth in its written opinion, the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement was fair, from a financial point of view, to IRT.

As more fully described below in the section titled “—Opinions of IRT’s Financial Advisors” beginning on page 64.

 

 

Familiarity with Businesses. The IRT Board considered its knowledge of the business, operations, financial condition, earnings and prospects of IRT and STAR, taking into account the results of IRT’s due diligence review of STAR, as well as its knowledge of the current and prospective environment in which IRT and STAR operate, including economic and market conditions.

 

 

Governance. The IRT Board considered that the following governance arrangements will enable continuity of management and an effective and timely integration of the two companies’ operations:

 

   

five of the ten members of the Board of the combined company will be members of the current IRT Board; and

 

   

Scott F. Schaeffer, will continue to serve as Chairman of the Board and Chief Executive Officer of the combined company, James J. Sebra will continue to serve as Chief Financial Officer of the combined company, Farrell M. Ender will continue to serve as President of the combined company, Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company and Ella S. Neyland, currently STAR’s President, Chief Financial Officer and Treasurer, will serve as Chief Operating Officer of the combined company.

 

 

Likelihood of Consummation. The IRT Board considered the commitment on the part of both parties to consummate the Mergers as reflected in their respective obligations under the terms of the Merger Agreement, and the likelihood that the stockholder approvals needed to consummate the Mergers would be obtained in a timely manner.

 

 

Tax Treatment. The IRT Board considered that the transaction is anticipated to qualify as a tax-free transaction to both IRT and its stockholders, as well as STAR and its stockholders, for U.S. federal income tax purposes.

 

 

Maintenance of REIT Status. The IRT Board considered that following the consummation of the Mergers and the other transactions contemplated by the Merger Agreement, the combined company will be expected to qualify as a REIT for U.S. federal income tax purposes under the Code.

 

 

Merger Agreement. The IRT Board considered the overall terms of the Merger Agreement, including, among other things, the following:

 

   

the fact that the Merger Agreement, under certain limited circumstances, permits IRT, prior to the time IRT stockholders approve the issuance of IRT Common Stock to the holders of STAR Common Stock in the Company Merger, to consider and respond to an unsolicited bona fide alternative proposal or engage in discussions or negotiations with a third party making such a proposal if the IRT Board determines in good faith (after consultation with its outside legal counsel and financial advisors) that such alternative proposal either constitutes or could reasonably be expected to lead to a superior proposal (see the section entitled “The Merger Agreement—Covenants and Agreements—No Solicitation of Transactions by IRT” beginning on page 114);

 

   

the fact that the Merger Agreement, under certain limited circumstances, permits the IRT Board to withdraw or modify its recommendation that IRT stockholders vote in favor of the IRT Issuance Proposal (see the section entitled “The Merger Agreement—Covenants and Agreements—No Solicitation of Transactions by IRT” beginning on page 114);

 

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the fact that the issuance of IRT Common Stock in the Company Merger requires the affirmative vote of a majority of the votes cast by IRT stockholders; and

 

   

the fact that the material terms and conditions of the Merger Agreement, including the representations, warranties, covenants and termination provisions, are generally reciprocal in nature or proportionate to the relative size of each company.

The IRT Board also considered a variety of risks and other potentially negative factors concerning the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement. These factors included:

 

 

the potential that the fixed Exchange Ratio under the Merger Agreement could result in IRT delivering greater value to STAR stockholders than had been anticipated by IRT;

 

 

the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Mergers;

 

 

the terms of the Merger Agreement placing limitations on the ability of IRT to initiate, solicit or knowingly encourage or knowingly facilitate any inquiries or the making of any proposal or offer by or with a third party with respect to an acquisition proposal, or engage in discussions or negotiations with a third party interested in pursuing an alternative business combination transaction;

 

 

that, under the terms of the Merger Agreement, in certain circumstances, the STAR Board can withdraw or modify its recommendation that STAR stockholders vote in favor of the Company Merger, if failure to take such action would be inconsistent with STAR directors’ duties under applicable law and after compliance with the other requirements set forth in the Merger Agreement;

 

 

that, under the terms of the Merger Agreement, IRT must pay STAR a termination fee of $74.0 million or reimburse up to $10.0 million of expenses incurred by STAR in connection with the Mergers if the Merger Agreement is terminated under certain circumstances, which may deter other parties from proposing an alternative transaction that may be more advantageous to IRT stockholders;

 

 

the risk that, notwithstanding the likelihood of the Mergers being consummated, the Mergers may not be consummated, or that consummation may be unduly delayed, including the effect of the pendency of the Mergers and the effect that such failure to consummate may have on the trading price of IRT Common Stock and IRT’s operating results, particularly in light of the costs incurred in connection with the transaction;

 

 

the risk that the anticipated strategic and financial benefits of the Mergers may not be realized;

 

 

the risk that the cost savings, operational synergies and other benefits to the IRT stockholders expected to result from the Mergers might not be fully realized or not realized at all, including as a result of possible changes in the real estate market or the multifamily industry affecting the markets in which the combined company will operate;

 

 

the risk of other potential difficulties in integrating the two companies and their respective operations;

 

 

the substantial costs to be incurred in connection with the transaction, including the transaction expenses arising from the Mergers and the costs of integrating the businesses of IRT and STAR;

 

 

the restrictions on the conduct of IRT’s business prior to the consummation of the Mergers, which could delay or prevent IRT from undertaking certain business opportunities that may arise or other actions it would otherwise take with respect to the operations of IRT absent the pending consummation of the Mergers;

 

 

the risk of potential stockholder litigation resulting from the announcement of the Mergers; and

 

 

other matters described under the section “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

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The IRT Board also considered the interests that certain executive officers and directors of IRT may have with respect to the Mergers that may be different from, or in addition to, the interests of IRT stockholders generally. See the section entitled “The Mergers—Interests of IRT Directors and Executive Officers in the Mergers” beginning on page 93 of this joint proxy statement/prospectus.

This discussion of the information and factors considered by the IRT Board in reaching its conclusion and recommendations is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the IRT Board in evaluating the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the IRT Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the IRT Board may have given different weight to different factors. The IRT Board did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall review of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement.

The explanation of the reasoning of the IRT Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 of this joint proxy statement/prospectus.

For the reasons set forth above, the IRT Board unanimously determined that the Merger Agreement, the Mergers and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of IRT and its stockholders and unanimously authorized and approved the Merger Agreement. The IRT Board unanimously recommends to IRT stockholders that they vote “FOR” the IRT Issuance Proposal.

STAR’s Reasons for the Mergers; Recommendations of the STAR Board

At a meeting on July 26, 2021, the STAR Board (with the unanimous vote of the independent directors) adopted resolutions declaring that the Mergers are advisable and in the best interests of STAR and its stockholders and directed that the Company Merger be submitted for consideration at a special meeting of the stockholders of STAR. In making its determination, the STAR Board considered a variety of factors, including the following (in no particular order):

 

 

the STAR Board’s understanding of the business, operations, financial condition, earnings and prospects of STAR, including STAR’s prospects as an independent entity and the fact that STAR expected to consider alternatives for providing liquidity to STAR stockholders beginning five years from the completion of its primary offering, which was completed on March 24, 2016;

 

 

STAR stockholders will have the opportunity to participate in the potential future growth of the combined company and any future appreciation of the combined company’s shares after the Company Merger, because they will own approximately 47% of the combined company upon consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date, and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of the IRT Forward Sale Agreements prior to consummation of the Mergers;

 

 

the fact that no public trading market currently exists for the STAR Common Stock and that STAR stockholders will benefit from the liquidity of owning shares of a significantly larger company, the shares of which will be listed on the NYSE;

 

 

the proposed Company Merger will result in the creation of a leading publicly-traded multifamily REIT, with a larger, more diversified portfolio than STAR and the expectation that the combined company will have a lower cost of capital on a go-forward basis, which may result in improved return on equity and the ability to utilize additional leverage capacity;

 

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the combined company is expected to be well-positioned to increase cash flow at the property level due to economies of scale, including enhanced pricing leverage with strategic partners and vendors; and

 

   

as a result of its larger size and access to capital, the combined company is expected to have a lower cost of capital than STAR on a standalone basis.

 

 

the transaction is expected to be immediately accretive to IRT’s Core FFO per share and provide the combined company with an attractive growth profile, and is expected to allow IRT to maintain one of the lowest payout ratios amongst peers;

 

 

the combined company will have a pipeline of approximately 20,000 units available for future redevelopment through IRT’s value add program that has generated an historical weighted average return on investment in excess of 17%, the continued execution of this expanded redevelopment opportunity is expected to enable the combined company to deliver greater net operating income and earnings growth over time;

 

 

the Mergers are expected to result in annual gross synergies of approximately $28 million, including $20 million of annual general, administrative and property management synergies through the elimination of duplicative costs associated with back-office functions and property management administration; in addition, through enhanced scale and leveraging of the combined company’s technology and operating systems, the combined company is expected to capture $8 million in operational synergies annually;

 

 

the fact that the Exchange Ratio was based, in part, on a valuation of each party’s assets and liabilities performed by a third party on a consistent basis and that no premium will be paid for the assets of STAR and IRT;

 

 

the fact that, because the merger consideration is based on a fixed Exchange Ratio, STAR stockholders will benefit from any increase in the trading price of IRT Common Stock between the announcement and the closing of the Mergers;

 

 

the ability to complete the Mergers on the anticipated schedule (including the likelihood of receiving the STAR stockholder approval and the IRT stockholder approval necessary to complete the Company Merger) given the commitment of the parties to complete the Mergers pursuant to their respective obligations under the Merger Agreement;

 

 

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 fact that up to an aggregate of $10.0 million of expense reimbursement would be payable by STAR if the Merger Agreement is terminated in certain circumstances, which would be set off against any termination fee if the termination fee later becomes payable;

 

 

the restrictions on the conduct of IRT’s business between the date of the Merger Agreement and the date of the consummation of the Mergers;

 

 

the post-closing governance structure of the combined company, including that the combined company board of directors will include a majority of independent directors:

 

 

that under the Merger Agreement, STAR is permitted to continue to pay regular dividends prior to the closing of the Mergers;

 

 

the Company Merger is expected to qualify as a tax-free transaction to STAR stockholders, except with respect to cash received in lieu of fractional shares;

 

 

the ability of STAR to pursue other strategic alternatives or remain a standalone entity in the event of the failure to consummate the Mergers;

 

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the opinion, dated July 26, 2021, of RBC Capital Markets to the STAR Board as to the fairness, from a financial point of view and as of such date, of the Exchange Ratio provided for pursuant to the Merger Agreement, which opinion was based on and subject to the procedures followed, assumptions made, factors considered and qualifications and limitations on the review undertaken as more fully described in the section entitled “—Opinion of STAR’s Financial Advisor” beginning on page 78 of this joint proxy statement/prospectus; and

 

 

the fact that the Company Merger is subject to approval of the holders of a majority of the outstanding shares of STAR Common Stock entitled to vote on those matters, and that such stockholders can reject the Company Merger by voting against the Company Merger for any reason.

In addition, the STAR Board identified and considered various risks and other potentially negative factors weighing against the combined company, including:

 

 

the possible disruption to STAR’s business that may result from the announcement and pendency of the Mergers (including the possibility of litigation brought by or on behalf of STAR or IRT stockholders challenging the Mergers);

 

 

the fact that, while STAR expects that the Mergers will be consummated, there can be no assurance that all conditions to the parties’ obligations to consummate the Mergers will be satisfied, and, as a result, the Mergers may not be consummated;

 

 

that because part of the merger consideration is IRT Common Stock and the Exchange Ratio is fixed, STAR stockholders will be adversely affected by any decrease in the trading price of IRT Common Stock between the announcement of and consummation of the Mergers, which would not have been the case had the consideration been based solely on a fixed value (that is, a fixed dollar amount of value per share in all cases);

 

 

the fact that the holders of STAR Common Stock might not receive value for their shares of STAR Common Stock in connection with the Company Merger equal to or greater than either the most recently disclosed estimated value per share of $15.55, and that greater value for the shares of STAR Common Stock might have been received if a different liquidity event had been pursued, either currently or in the future;

 

 

the right of the IRT Board to terminate the Merger Agreement in order to accept a superior proposal, subject to certain conditions (including the payment to STAR of a $74.0 million termination fee);

 

 

the right of the IRT Board to change its recommendation to the IRT stockholders, upon the occurrence of certain intervening events, subject to certain conditions (including the payment to STAR of a $74.0 million termination fee);

 

 

the risk that, under the terms of the Merger Agreement, STAR may be obligated to pay a termination fee of $74.0 million in certain circumstances, which may discourage other parties that may otherwise have an interest in a business combination with STAR;

 

 

the restrictions in the Merger Agreement on the conduct of STAR’s business between the date of the Merger Agreement and the effective time of the Mergers, which could delay or prevent STAR from undertaking acquisition, disposition and other business opportunities that may arise pending consummation of the Mergers and generally change the manner in which STAR has conducted its business and operations in the past;

 

 

the substantial costs to be incurred in connection with the transaction, including the costs of integrating the businesses of STAR and IRT and the transaction expenses arising from the Mergers;

 

 

the risk that the Mergers might not be completed in a timely manner or at all, and the effect of the resulting public announcement of termination of the Merger Agreement on (i) STAR’s operating results, particularly in light of the costs incurred in connection with the transaction and (ii) STAR’s ability to attract and retain tenants;

 

 

that forecasts of future financial and operational results of the combined company are necessarily estimates based on assumptions and may vary significantly from future performance;

 

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the potential risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Mergers;

 

 

the risk that the cost savings, operational synergies and other benefits expected to result from the combined company might not be fully realized or not realized at all;

 

 

the fact that each STAR stockholder currently receives $0.525 of annual distributions per share, representing an annual distribution of approximately 3.4% on STAR’s most recent estimated net asset value per share, but following the Company Merger, each STAR stockholder will receive $0.434 annually in distributions with respect to 0.905 shares of STAR Common Stock, representing an annual distribution of approximately 2.8% on STAR’s most recent NAV per share;

 

 

the absence of appraisal rights or rights of an objecting stockholder for STAR stockholders under the MGCL and the STAR Articles (as defined below); and

 

 

various other risks associated with the Mergers and the combined company described in the section entitled “Risk Factors” beginning on page 24 of this joint proxy statement/prospectus and the matters described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 of this joint proxy statement/prospectus.

The STAR Board considered these and other factors as a whole.

The foregoing discussion of certain information and factors considered by the STAR Board is not exhaustive but is intended to reflect the principal factors considered by the STAR Board in its consideration of the Merger Agreement and the transactions contemplated by the Merger Agreement. In light of the complexity and numerous factors considered, the STAR Board did not assign any relative or specific weight to those various factors. Rather, the STAR Board based its recommendations on the totality of the information presented to and considered by the STAR Board. In addition, individual members of the STAR Board may have given weight to different factors not mentioned above. The foregoing discussion of the information and factors considered by the STAR Board utilized forward-looking information. This information should be read in light of the factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 of this joint proxy statement/prospectus.

After carefully considering the various potentially positive and negative factors, including the potentially negative factors, the STAR Board unanimously recommends that you vote “FOR” the STAR Merger Proposal, “FOR” the STAR Compensation Proposal and “FOR” the STAR Adjournment Proposal.

Opinions of IRT’s Financial Advisors

Opinion of Barclays Capital Inc.

IRT engaged Barclays to act as one of its two financial advisors with respect to the Mergers. On July 26, 2021, Barclays rendered its oral opinion (which opinion was subsequently confirmed in writing) to the IRT Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio was fair, from a financial point of view, to IRT, as more fully described in this section of the joint proxy statement/prospectus. The summary of Barclays’ opinion set forth below is qualified in its entirety by reference to the full text of Barclays’ written opinion.

The full text of Barclays’ written opinion, dated as of July 26, 2021, is attached as Annex B to this joint proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety.

Barclays’ opinion was addressed to the IRT Board and addressed only the fairness, from a financial point of view, of the Exchange Ratio to IRT and does not constitute a recommendation to any IRT stockholder

 

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as to how such stockholder should vote with respect to the Mergers or any other matter. Barclays did not recommend any specific form of consideration to IRT or that any specific form of consideration constituted the only appropriate consideration for the Mergers. Barclays was not requested to opine as to, and its opinion does not in any manner address, IRT’s underlying business decision to proceed with or effect the Mergers, the likelihood of the consummation of the proposed transaction, or the relative merits of the Mergers as compared to any other transaction in which IRT may engage. In addition, Barclays expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the Mergers, or any class of such persons, relative to the consideration paid in the Mergers or otherwise.

In arriving at its opinion, Barclays, among other things:

 

   

reviewed and analyzed a draft of the Merger Agreement, dated as of July 24, 2021, and the specific terms of the Mergers;

 

   

reviewed and analyzed publicly available information concerning IRT and STAR that Barclays believed to be relevant to its analysis, including IRT’s and STAR’s respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2020, and Quarterly Reports on Form 10-Q of IRT and STAR for the fiscal quarters ended March 31, 2021;

 

   

reviewed and analyzed financial and operating information with respect to the business, operations and prospects of IRT furnished to Barclays by IRT, including unaudited prospective financial information of IRT prepared by management of IRT and approved for Barclays’ use by IRT (summarized under the heading “—Certain IRT Unaudited Prospective Financial Information” and referred to as the IRT financial projections);

 

   

reviewed and analyzed financial and operating information with respect to the business, operations and prospects of STAR furnished to Barclays by STAR, including financial projections of STAR prepared by management of STAR and approved for Barclays’ use by IRT (referred to as the STAR financial projections as defined and summarized under the heading “—Certain STAR Unaudited Prospective Financial Information” and, together with IRT’s unaudited prospective financial information, the “Projections”);

 

   

reviewed and analyzed a comparison of the historical financial results and present financial condition of IRT and STAR with each other and with those of other companies that Barclays deemed relevant;

 

   

reviewed and analyzed a comparison of the financial terms of the Mergers with the financial terms of certain other transactions that Barclays deemed relevant;

 

   

reviewed and analyzed published estimates of independent research analysts with respect to the future financial performance and price targets of IRT;

 

   

reviewed and analyzed the pro forma impact of the Mergers on the future financial performance of the combined company, including cost savings, operating synergies and other strategic benefits expected by the management of the IRT to result from a combination of the businesses (referred to as the Expected Synergies);

 

   

compared the relative contributions of IRT and STAR to certain financial statistics of the combined company; and

 

   

reviewed and analyzed IRT management’s estimates with respect to sales of assets expected by IRT’s management to occur subsequent to the announcement of the proposed Transaction (referred to as the Asset Sales Estimates) and assumptions approved by IRT management with respect to a public offering of shares of IRT Common Stock (referred to as the Public Offering) expected by the management of IRT to occur in connection with the announcement of the proposed transaction (referred to as the Public Offering Assumptions).

 

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In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and Barclays did not assume responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of management of IRT that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the IRT financial projections and the STAR financial projections, upon the advice of IRT, Barclays assumed that such projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of IRT and STAR, as applicable, as to the future financial performance of IRT and STAR and that IRT and STAR would perform substantially in accordance with such projections. Furthermore, upon the advice of IRT, Barclays assumed that the Expected Synergies had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of IRT and that the Expected Synergies will be realized in accordance with such estimates. In addition, upon the advice of IRT, Barclays assumed that the Asset Sale Estimates had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of IRT as to the asset sales reflected therein and that such asset sales will occur in accordance with such estimates and had assumed, with the consent of IRT, that the Public Offering would occur in accordance with the Public Offering Assumptions. Barclays assumed no responsibility for and expressed no view as to any such projections or estimates or the assumptions on which they are based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of IRT or STAR and did not make or obtain any evaluations or appraisals of the assets or liabilities of IRT or STAR. Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, July 26, 2021. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may occur after July 26, 2021. Barclays expressed no opinion as to the prices at which shares of IRT Common Stock would trade following the announcement of the Mergers. The issuance of Barclays’ opinion was approved by Barlcays’ fairness opinion committee.

Barclays assumed that the executed Merger Agreement would conform in all material respects to the last draft reviewed by Barclays. In addition, Barclays assumed the accuracy of the representations and warranties contained in the Merger Agreement and all agreements related thereto. Barclays also assumed, upon the advice of IRT, that all material governmental, regulatory and third party approvals, consents and releases for the Mergers would be obtained within the constraints contemplated by the Merger Agreement and that the Mergers would be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays does not express any opinion as to any tax or other consequences that might result from the Mergers, nor does Barclays’ opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understood IRT had obtained such advice as it deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to the shares of IRT Common Stock but rather made its determination as to fairness, from a financial point of view, of the Exchange Ratio to IRT in connection with the Mergers on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

 

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Summary of Material Financial Analyses

The following is a summary of the material financial analyses used by Barclays in preparing its opinion to the IRT Board. The summary of Barclays’ analyses and reviews provided below is not a complete description of the analyses and reviews underlying Barclays’ opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description.

For the purposes of its analyses and reviews, Barclays made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of IRT or any other parties to the Mergers. No company, business or transaction considered in Barclays’ analyses and reviews is identical to IRT, STAR or the Mergers, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions considered in Barclays’ analyses and reviews. None of IRT, STAR, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the companies, businesses or securities do not purport to be appraisals or reflect the prices at which the companies, businesses or securities may actually be sold. Accordingly, the estimates used in, and the results derived from, Barclays’ analyses and reviews are inherently subject to substantial uncertainty.

The summary of the financial analyses and reviews summarized below include information presented in tabular format. In order to fully understand the financial analyses and reviews used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Barclays’ analyses and reviews.

Summary of Analyses

The following is a summary of the principal financial analyses performed by Barclays with respect to IRT and STAR in preparing Barclays’ opinion:

 

   

comparable company analysis;

 

   

discounted cash flow analysis; and

 

   

precedent transactions analysis (with respect to STAR only).

Each of these methodologies was used to generate reference equity value ranges, as applicable, for each of IRT and STAR. The implied equity value ranges for each of IRT and STAR were then divided by diluted shares outstanding, consisting of primary shares and incorporating the dilutive effect of outstanding options or other dilutive securities, as appropriate, as provided by IRT and STAR, respectively, in order to derive implied equity value ranges per share for each company.

In addition to analyzing the value of IRT Common Stock and STAR Common Stock and the implied exchange ratios, Barclays also analyzed and reviewed: (i) the publicly available Net Asset Value (which we refer to as “NAV”) estimates of IRT published by independent equity research analysts associated with various Wall Street firms; (ii) the publicly available NAV estimate of STAR published in STAR’s Form 10-K for the fiscal year ended December 31, 2020; and (iii) the publicly available price targets of IRT published by independent equity

 

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research analysts associated with various Wall Street firms. These analyses were not considered part of Barclays financial analyses in connection with rendering its advice, but were references for informational purposes.

Selected Comparable Company Analysis

In order to assess how the public market values shares of similar publicly traded companies, Barclays reviewed and compared specific financial and operating data relating to IRT and STAR, respectively, with selected companies that Barclays, based on its experience in the real estate industry, deemed comparable to IRT and STAR, respectively:

 

   

Mid-America Apartment Communities

 

   

Camden Property Trust

 

   

NexPoint Residential Trust, Inc.

 

   

Investors Real Estate Trust (d/b/a Centerspace)

In addition to the companies listed above, Barclays added IRT to the list of selected companies for the STAR analysis.

Barclays calculated and compared various financial multiples and ratios of IRT, STAR and the selected comparable companies. As part of its comparable company analysis, Barclays calculated and analyzed (i) each company’s ratio of its current stock price to its calendar year 2022 estimated funds from operations per share (which we refer to as “2022 FFO per share”) and (ii) each company’s implied cap rate (which we refer to as “Implied Cap Rate”), in each case, based on Wall Street research consensus estimates. This resulted in a range of 23.1x to 26.6x 2022E FFO multiple with a mean of 25.0x and a median of 24.6x, including IRT, and a mean of 25.1x and a median of 25.3x, excluding IRT, and a range of Implied Cap Rate from 3.8% to 5.2% with a mean of 4.4% and median of 4.3%, including IRT, and a mean of 4.3% and a median of 4.1%, excluding IRT.

All of these calculations were performed, and based on publicly available financial data and closing prices, as of July 23, 2021 the last trading date prior to the delivery of Barclays’ opinion. Barclays selected the comparable companies listed above because their businesses and operating profiles are reasonably similar to that of IRT and STAR, as all the selected companies are REITs with operations that, for the purposes of the analysis of Barclays, may be considered similar to those of IRT and STAR, but none of the selected companies is identical to IRT or STAR. However, because of the inherent differences between the business, operations and prospects of IRT, STAR and those of the selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of IRT and STAR and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels, leverage and degree of operational risk between IRT, STAR and the companies included in the selected company analysis. Based upon these judgments, Barclays selected (i) a range of 22.0x to 26.0x multiples of 2022E FFO per share for each of IRT and STAR, which were applied to estimates of 2022 FFO of IRT and STAR respectively, as provided in Projections, and (ii) a range of Implied Cap Rates from 4.25% to 5.00% for each of IRT and STAR, which were applied to estimates of 2022 cash net operating income (net of estimated property management fees) of IRT and STAR respectively, as provided in Projections. The following summarizes the result of these calculations (amounts in dollars rounded to the nearest $0.10):

Based on FFO Multiples:

 

  Implied Price Per Share
  IRT        $   19.40 – $22.90
  STAR    $   16.40 – $19.40

 

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Based on Implied CAP Rate:
  Implied Price Per Share
  IRT        $   17.90 – $22.80
  STAR    $   15.70 – $21.80

Using the ranges of implied equity values of IRT and STAR resulting from the foregoing analysis, Barclays calculated a range of implied exchange ratios by (1) dividing the lowest implied total price per share of IRT Common Stock by the highest implied price per share of STAR Common Stock to arrive at the low end of the implied exchange ratio range and (2) dividing the highest implied total price per share of IRT Common Stock by the lowest implied price per share of STAR Common Stock to arrive at the high end of the implied exchange ratio range for such valuation method.

Based on the implied per share equity value range for IRT and STAR derived using FFO multiples, Barclays calculated an implied exchange ratio range of 0.716x to 1.000x, which Barclays compared to the Exchange Ratio of 0.905 shares of STAR Common Stock per share of IRT Common Stock pursuant to the Merger Agreement.

Based on the implied per share equity value range for IRT and STAR derived using Implied Cap Rates, Barclays calculated an implied exchange ratio range of 0.689x to 1.218x, which Barclays compared to the Exchange Ratio of 0.905 shares of STAR Common Stock per share of IRT Common Stock pursuant to the Merger Agreement.

Discounted Cash Flow Analysis

In order to estimate the present value of the IRT Common Stock and the STAR Common Stock, Barclays performed a discounted cash flow analysis of IRT and STAR. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

To calculate the estimated enterprise value of IRT and STAR using the discounted cash flow method, Barclays added each of IRT’s and STAR’s respective (i) projected unlevered free cash flows for fiscal years 2022 through 2026 based on the IRT financial projections (excluding unidentified transactions) or the STAR financial projections (excluding unidentified transactions), as applicable, to (ii) the “terminal value” as of 2026 for each of IRT and STAR, and discounted such amounts to their respective present value using a range of selected discount rates. The projected unlevered free cash flows were calculated by taking the projected earnings before interest, tax expense, depreciation and amortization, subtracting projected capital expenditures, development spend (with respect to STAR) and planned acquisitions, and, with respect to IRT, adding planned dispositions and other items. The residual value of IRT and STAR, respectively, at the end of the forecast period, or “terminal value,” was estimated by selecting perpetuity growth rates of 4.0% to 4.5% for each of IRT and STAR, which was based on Barclays’ professional judgment and experience, and which were applied to the estimated 2026 unlevered free cash flows. The cash flows and terminal values were then discounted to present value as of December 31, 2021 using discount rates of 8.0% to 8.5% for each of IRT and STAR. The range of discount rates was selected based on an analysis of the weighted average cost of capital of IRT and STAR, respectively. Barclays then calculated a range of implied prices per share of IRT and STAR, respectively, by subtracting estimated net debt from the estimated enterprise value using the discounted cash flow method and dividing such amount by the diluted number of shares of IRT Common Stock and STAR Common Stock, respectively. The following summarizes the result of these calculations (amounts in dollars rounded to the nearest $0.10):

 

  Implied Price Per Share
  IRT        $   15.10 – $21.80
  STAR    $  

11.30 – $19.10

 

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Using the ranges of implied equity values of IRT and STAR resulting from the foregoing analysis, Barclays calculated a range of implied exchange ratios by (1) dividing the lowest implied total price per share of IRT Common Stock by the highest implied price per share of STAR Common Stock to arrive at the low end of the implied exchange ratio range and (2) dividing the highest implied total price per share of IRT Common Stock by the lowest implied price per share of STAR Common Stock to arrive at the high end of the implied exchange ratio range for such valuation method.

Based on this implied per share equity value range for IRT and STAR, Barclays calculated an implied exchange ratio range of 0.518x to 1.265x, which Barclays compared to the Exchange Ratio of 0.905 shares of STAR Common Stock per share of IRT Common Stock pursuant to the Merger Agreement.

Selected Precedent Transaction Analysis

Barclays reviewed and compared the purchase prices and implied valuation metrics in selected transactions that Barclays, based on its experience with merger and acquisition transactions, deemed relevant. Barclays chose such transactions based on, among other things, the similarity of the applicable targets in the transactions to STAR with respect to asset type and other characteristics that Barclays deemed relevant. The selected precedent transactions were:

 

Month and Year Announced

  

Acquiror

  

Target

July 2017    Greystar Real Estate Partners LLC, APG Asset Management NV, GIC Pte Ltd., Ivanhoe Cambridge, Inc.    Monogram Residential Trust, Inc.
October 2015    Starwood Capital Group Global LLC & Milestone Apartments REIT    Landmark Apartment Trust, Inc.
December 2013    Essex Property Trust, Inc.    BRE Properties, Inc.
August 2016    Mid-America Apartment Communities, Inc.    Post Properties, Inc.
April 2015    Brookfield Asset Management, Inc.    Associated Estates Realty Corp.
July 2019    Cortland Partners LLC    Pure Multi-Family REIT LP
June 2013    Mid-America Apartment Communities, Inc.    Colonial Properties Trust
May 2015    Independence Realty Trust, Inc.    Trade Street Residential, Inc.
June 2015    Lone Star Funds    Home Properties, Inc.
January 2017    Starwood Capital Group Global LLC    Milestone Apartments REIT

Using publicly available information, Barclays analyzed the ratio of the price to forward FFO per share multiples. The following summarizes the result of these calculations:

FFOx

 

  Low   13.3x
  High  

29.5x

  Mean   20.5x

 

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The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of STAR and the companies included in the selected precedent transaction analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transaction analysis would not be particularly meaningful in the context of considering the merger. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the merger which would affect the acquisition values of the selected target companies and STAR. Based upon these judgments, Barclays selected a range of 18.0x to 25.0x forward FFO multiples and applied such range to estimates of 2022 FFO of STAR, as reflected in the STAR financial projections. The following summarizes the result of this calculation (amounts in dollars rounded to the nearest $0.10):

 

Implied Price Per Share
  STAR   $13.50 – $18.70

Other Factors

Barclays also reviewed and considered other factors, which were not considered part of its financial analyses in connection with rendering its advice, but were references for informational purposes, including, among other things, Research Price Targets and Research NAV Estimates.

Equity Research Analyst Price Targets Analysis

Barclays evaluated the publicly available price targets of IRT published by independent equity research analysts associated with various Wall Street firms. The range of undiscounted analyst price targets for IRT Common Stock was $14.00 to $21.00 per share as of July 23, 2021.

Equity Research Analyst NAV Analysis

Barclays evaluated the publicly available NAV estimates of IRT published by independent equity research analysts associated with various Wall Street firms. The range of undiscounted analyst price targets for IRT Common Stock was $15.00 to $17.80 per share as of July 23, 2021.

STAR Published NAV Estimate

Barclays evaluated the publicly available NAV estimate of $15.55 per share published in STAR’s Form 10-K for the year ended December 31, 2020.

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The IRT Board selected Barclays because of its familiarity with IRT and its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the Mergers.

Barclays is acting as financial advisor to IRT in connection with the Mergers. As compensation for its services in connection with the Mergers, IRT paid Barclays $1,500,000 upon the delivery of Barclays’ opinion (which we refer to as the “Opinion Fee”). The Opinion Fee was not contingent upon the conclusion of Barclays’ opinion or the consummation of the Mergers. Compensation of approximately $11 million plus up to $2 million in

 

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discretionary fees will be payable on completion of the Mergers against which the amounts paid for the opinion will be credited. In addition, IRT has agreed to reimburse Barclays for a portion of its expenses incurred in connection with the Mergers and to indemnify Barclays for certain liabilities that may arise out of its engagement by IRT and the rendering of Barclays’ opinion. Barclays has performed various investment banking services for IRT, in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, Barclays acted as an underwriter for IRT’s Common Stock Offering. In connection with IRT’s Common Stock Offering, Barclays received underwriting discounts and commissions of approximately $2,500,000 and received customary indemnification in connection therewith.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of each of IRT and STAR for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

Opinion of BMO Capital Markets Corp.

The IRT Board retained BMO to act as its financial advisor in connection with the Mergers. In connection with the Mergers, at the meeting of the IRT Board on July 26, 2021, BMO rendered to the IRT Board its oral opinion, subsequently confirmed by delivery of a written opinion dated July 26, 2021, as to the fairness, from a financial point of view, to IRT as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by BMO as set forth in its written opinion, of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement.

The full text of BMO’s written opinion, dated July 26, 2021, is attached to this proxy statement as Annex C and is incorporated into this proxy statement by reference. You should read BMO’s opinion carefully and in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by BMO in rendering its opinion. This summary is qualified in its entirety by reference to the full text of the opinion. BMO’s opinion was directed to the IRT Board in its capacity as such and addressed only the fairness, from a financial point of view, to IRT as of the date of the opinion, of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement. The opinion did not address any other aspects or implications of the Mergers and did not address the relative merits of the Mergers contemplated by the Merger Agreement as compared to other business or financial strategies that might have been available, nor did it address the underlying business decision to enter into the Merger Agreement or proceed with any other transaction contemplated by the Merger Agreement. BMO’s opinion was not intended to, and does not, constitute advice or a recommendation as to how any holder of IRT Common Stock should vote at the special meeting or take any other action with respect to the Mergers.

In connection with its opinion, BMO made such reviews, analyses and inquiries as BMO deemed necessary and appropriate under the circumstances. Among other things, BMO:

 

   

reviewed the draft dated July 24, 2021 of the Merger Agreement;

 

   

reviewed certain publicly available business and financial information relating to each of IRT and STAR that BMO deemed to be relevant, including IRT’s and STAR’s respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2020, and Quarterly Reports on Form 10-Q of IRT and STAR for the fiscal quarters ended March 31, 2021;

 

   

reviewed certain information relating to the historical, current and future operations, financial condition and prospects of each of IRT and STAR made available to BMO by IRT and STAR, respectively, including (1) the STAR financial projections as defined and summarized under the heading “—Certain STAR Unaudited Prospective Financial Information”), and (2) the IRT financial projections, and

 

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together with the STAR financial projections, the Projections as defined and summarized under the heading “—Certain IRT Unaudited Prospective Financial Information”);

 

   

reviewed the strategic rationale for, and the potential cost savings and operating synergies anticipated by the management of IRT to result from, the Mergers;

 

   

reviewed IRT management’s estimates with respect to sales of assets expected by the management of IRT to occur subsequent to the Mergers, and assumptions approved by IRT management with respect to a public offering of shares of IRT Common Stock, which is referred to herein as the Public Offering, expected by the management of IRT to occur in connection with the announcement of the Mergers (referred to as the Public Offering Assumptions);

 

   

conducted discussions with members of senior management of each of IRT and STAR and certain of their respective representatives and advisors concerning their views of IRT’s and STAR’s businesses, operations, financial condition and prospects, the Mergers and related matters;

 

   

reviewed certain financial and stock market information for IRT and certain financial information for STAR and selected publicly traded companies that BMO deemed to be relevant;

 

   

reviewed the financial terms, to the extent publicly available, of selected acquisitions of real estate assets which BMO deemed to be relevant;

 

   

performed a discounted cash flow analysis for each of IRT and STAR based on the IRT financial projections and STAR financial projections, respectively;

 

   

reviewed the current and historical stated NAVs for IRT and STAR;

 

   

reviewed certain potential pro forma financial effects of the Mergers on earnings per share, cash flow, capitalization and financial ratios of IRT;

 

   

reviewed an email addressed to BMO from senior management of IRT which contains, among other things, representations regarding the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, BMO by or on behalf of IRT; and

 

   

performed other studies and analyses, and conducted such discussions as BMO deemed appropriate.

BMO assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to BMO by the IRT, STAR, or their respective representatives or advisors, or obtained by BMO from other sources. BMO did not independently verify (and has not assumed any obligation to verify) any information, undertake an independent valuation or appraisal of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of IRT or STAR, nor was BMO furnished with any such valuation or appraisal. BMO did not evaluate the solvency or fair value of IRT, IRT Merger Sub, IRT OP, STAR or STAR OP under any state or federal laws relating to bankruptcy, insolvency or similar matters. BMO also assumed that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the Transaction would be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, no restrictions, terms, or conditions would be imposed that would be material to BMO’s analysis. BMO assumed that the final Merger Agreement would not differ in any material respect from the draft of the Merger Agreement it reviewed. BMO also assumed that the Mergers would be consummated in accordance with the terms of the Merger Agreement, without any waiver, modification or amendment of any terms, condition or agreement that would be material to its analysis, that the representations and warranties of each party contained in the Merger Agreement would be true and correct in all material respects, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the Transaction would be satisfied without waiver or modification. With respect to the IRT financial projections, BMO were advised by IRT, and BMO assumed, without independent investigation, that they have been reasonably prepared and reflect the best currently available estimates and good faith judgment of IRT management of the expected future competitive, operating and regulatory environments and related financial performance of IRT. With respect to STAR financial

 

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projections, at the direction of IRT management, BMO assumed, without independent investigation, that they have been reasonably prepared and reflect the best currently available estimates and good faith judgment of STAR management of the expected future competitive, operating and regulatory environments and related financial performance of STAR. With respect to the Expected Synergies, BMO were advised by IRT, and BMO assumed, without independent investigation, that they have been reasonably prepared and reflect the best currently available estimates and good faith judgment of IRT management as to the potential cost savings and operating synergies anticipated by the management of IRT to result from the Mergers. With respect to the Asset Sales Estimates, BMO were advised by IRT, and BMO assumed, without independent investigation, that they have been reasonably prepared and reflect the best currently available estimates and good faith judgment of IRT management as to sales of assets expected by the management of IRT to occur subsequent to the Mergers. With respect to the Public Offering Assumptions, BMO assumed that the Public Offering would occur in accordance with such assumptions. BMO expressed no opinion with respect to the Projections, the Expected Synergies, the Asset Sales Estimates or Public Offering Assumptions or the assumptions on which they are based. BMO relied upon and assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of either IRT or STAR since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to BMO that would be material to its analyses or its written opinion, and that there is no information or any facts that would make any of the information reviewed by BMO incomplete or misleading. Furthermore, BMO did not assume any obligation to conduct, and did not conduct, any physical inspection of the properties or facilities of IRT, IRT OP, IRT Merger Sub, STAR or STAR OP.

BMO had been advised by the management of IRT and STAR that IRT and STAR have each operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes for all taxable years commencing with its taxable year ended December 31, 2011 and December 31, 2014, respectively, through December 31, 2020, and BMO assumed, at the direction of IRT, that the Mergers would not adversely affect the status or operations of IRT or STAR. BMO also assumed, at the direction of IRT, that the Mergers would qualify as a tax-free reorganization transaction.

BMO’s opinion was necessarily based upon financial, economic, market and other conditions and circumstances as they existed and could be evaluated, and the information made available to BMO, as of the date of its opinion. BMO did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion, including potential changes in U.S. trade, tax or other laws, regulations and government policies and the enforcement thereof as had been or may be proposed or effected, and the potential effects such changes may have on the Mergers or the participants in the Mergers or their respective businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects.

BMO’s opinion does not constitute a recommendation as to any action the IRT Board or any other party should take in connection with the Mergers or the other transactions contemplated by the Merger Agreement or any aspect thereof and is not a recommendation to any director of IRT, any security holder or any other party on how to act or vote with respect to the Mergers or related transactions and proposals or any other matter. BMO’s opinion relates solely to the fairness of the Exchange Ratio, from a financial point of view, to IRT as of the date of its opinion. BMO expressed no opinion as to the relative merits of the Mergers and any other transactions or business strategies discussed by the IRT Board as alternatives to the Mergers or the decision of the IRT Board to proceed with the Mergers, nor did BMO express any opinion on the structure, terms or effect of any other aspect of the Mergers or the other transactions contemplated by the Merger Agreement. In addition, BMO did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of IRT’s officers, directors, employees, advisors, or any class of such persons, in connection with the Mergers relative to the Exchange Ratio. BMO is not an expert in, and BMO’s opinion did not address, any of the legal, tax or accounting aspects of any portion or aspect of the Mergers. With the IRT Board’s consent, BMO relied upon the fact that IRT received legal, tax, and accounting advice and BMO relied upon and assumed that all such advice was correct. BMO’s opinion letter did not express

 

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any opinion as to the likely value or trading range of the IRT Common Stock following announcement of the Mergers, or the IRT Common Stock issued pursuant to the consummation of the Mergers, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of IRT at that time.

The summary set forth below does not purport to be a complete description of the financial analyses performed by BMO, but describes, in summary form, the material elements of the presentation that BMO made to the IRT Board on July 26, 2021, in connection with BMO’s opinion. The following is a summary of the material financial analyses performed by BMO in arriving at its opinion. These summaries of financial analyses alone do not constitute a complete description of the financial analyses BMO employed in reaching its conclusion.

None of the analyses performed by BMO were assigned a greater significance by BMO than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by BMO. The summary text describing each financial analysis does not constitute a complete description of BMO’s financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses performed by BMO. BMO made its determination as to the fairness, from a financial point of view, to IRT of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement on the basis of its experience and professional judgment after considering the results of all of the analyses performed.

Except as otherwise noted, the information utilized by BMO in its analyses, to the extent that it is based on market data, is based on market data as it existed on or before July 23, 2021, the last trading day prior to the date of BMO’s opinion, and is not necessarily indicative of current market conditions. The analyses described below do not purport to be indicative of actual future results, or to reflect the prices at which any securities may trade in the public markets, which may vary depending upon various factors, including changes in interest rates, dividend rates, market conditions, economic conditions, and other factors that influence the price of securities.

In conducting its analysis, BMO used three primary methodologies (see the section entitled “Summary of Financial Analysis of BMO Capital Markets Corp.”) to review the valuation of IRT on a standalone basis and STAR on a pro forma basis after and giving effect to the Mergers, to assess the fairness, from a financial point of view, to IRT of the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement. Specifically, BMO conducted net asset value analyses of underlying real estate properties, discounted cash flow analyses and selected publicly traded companies analysis. No individual methodology was given a specific weight, nor should any methodology be viewed individually. Additionally, no company, real estate asset or transaction used in any analysis as a comparison is identical to IRT, STAR or the Mergers, and they all differ in material ways. Accordingly, an analysis of the results described below is not merely mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the selected companies or net asset valuations to which they are being compared. As a consequence, mathematical derivations (such as the high, low, mean and median) of financial data are not by themselves meaningful and in selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. BMO used these analyses to determine the impact of various operating metrics on the implied value per common share of each of IRT and STAR (pro forma for the Mergers). Each of these analyses yielded a range of implied values, and therefore, those implied value ranges developed from these analyses were viewed by BMO collectively and not individually.

 

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Summary of Financial Analysis of BMO Capital Markets Corp.

Selected Publicly Traded Companies Analysis

BMO reviewed and compared certain publicly available financial information, ratios and market multiples relating to each of IRT and STAR with equivalent publicly available data for selected publicly traded companies that share similar business characteristics with them to derive an implied per share value reference range for each of IRT and STAR. BMO reviewed five publicly traded North American multifamily REITs. BMO analyzed the ratio of price to funds from operations (which is referred to herein as FFO) for estimated calendar year 2022 based on consensus Wall Street analyst research (which is referred to herein as Street consensus) for each of these companies for comparison purposes. The multiples for each of the selected companies were calculated using their respective closing prices on July 23, 2021 and were based on the most recent publicly available information and Street consensus estimates. The selected companies were as follows:

 

   

Mid-America Apartment Communities, Inc.

 

   

Camden Property Trust

 

   

Investors Real Estate Trust (d/b/a Centerspace)

 

   

NexPoint Residential Trust, Inc.

 

   

BSR Real Estate Investment Trust

For purposes of this analysis, BMO derived a range of FFO multiples using the 1st and 3rd quartile multiples from the selected publicly traded companies.

The following table reflects the results of this analysis:

 

     Price/2022E
FFO
 

3rd Quartile

     26.5x  

1st Quartile

     23.1x  

This analysis indicated the following implied per share equity value reference ranges for each share of IRT Common Stock and each share of STAR Common Stock:

Implied Per Share Equity Value Reference Range

 

     Price/2022E
FFO
 

IRT

   $ 20.32 – $23.36    

STAR

   $ 17.26 – $19.83    

This analysis indicated a range of implied exchange ratios of 0.739 – 0.976 based on FFO, as compared to the Exchange Ratio provided in the Mergers pursuant to the Merger Agreement of 0.905.

No company utilized in the selected publicly traded companies analysis is identical to IRT or STAR. In evaluating selected publicly traded companies, BMO made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond IRT’s control, such as the impact of competition on IRT, STAR and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects IRT, STAR or the industry, or in the financial markets in general.

Analysis of Net Asset Values

BMO performed an analysis of cap rates for selected real estate asset transactions in the geographic locations in the United States in which each of IRT and STAR, respectively, have real estate properties, that shared certain

 

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characteristics with IRT and STAR, respectively. Based on publicly available information, for IRT, BMO identified precedent real estate asset transaction in 16 markets with publicly available financial information, and for STAR, BMO identified precedent real estate asset transactions in 22 markets with publicly available financial information.

For IRT, the nominal cap rate ranged from 4.5% – 5.0%, and for STAR, the nominal cap rate ranged from 4.4% – 4.9%. This analysis indicated the following implied per share equity value reference ranges for each share of IRT Common Stock and STAR Common Stock:

 

     Implied Per Share Equity
Value Reference Range
 

IRT

   $ 17.85 – $20.91    

STAR

   $ 16.96 – $20.90    

This analysis indicated a range of implied exchange ratios of 0.811 – 1.171 as compared to the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement of 0.905.

No company, real estate asset or transaction utilized as a comparison in the analysis of net asset values is identical to IRT or STAR or any of their respective assets or directly comparable to the Mergers in business mix, timing and size. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that would affect the value of the assets to which IRT or STAR is respectively being compared. In evaluating the selected net asset values, BMO made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond IRT’s control, such as the impact of competition on IRT, STAR and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of IRT, STAR or the industry or the financial markets in general.

Discounted Cash Flow Analysis

BMO performed a discounted cash flow analysis to calculate the estimated present value of the unlevered free cash flows that (1) IRT’s management forecasted IRT would generate for the fiscal years 2022 through fiscal year 2026 in the IRT financial projections and (2) STAR’s management forecasted STAR would generate for the fiscal years 2022 through fiscal year 2026 in the STAR financial projections. BMO calculated terminal values for each of IRT and STAR by applying ranges of terminal capitalization rates of 4.8% – 5.3% for IRT and 4.7% – 5.2% for STAR, and estimates of weighted average cost of capital for each of IRT and STAR ranging from 6.3% – 7.0% for IRT and from 6.4% – 7.1% for STAR. This analysis indicated the following implied per share equity value reference ranges for each share of IRT Common Stock and STAR Common Stock:

 

     Implied Per Share Equity
Value Reference Range
 

IRT

   $ 19.21 – $22.74    

STAR

   $ 16.17 – $20.43    

this analysis indicated a range of implied exchange ratios of 0.711 – 1.063 as compared to the Exchange Ratio provided for in the Mergers pursuant to the Merger Agreement of 0.905.

Miscellaneous

In connection with BMO’s services as IRT’s financial advisor, IRT will pay BMO an aggregate fee of approximately $5 million, $1.5 million of which was paid upon delivery of BMO’s opinion and the remainder and majority of which is payable upon consummation of the Mergers. IRT has agreed to reimburse BMO for certain of its expenses and to indemnify BMO and certain related parties against certain potential liabilities arising out of or in connection with its engagement.

 

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In the two years prior to the date of this opinion, BMO and/or certain of its affiliates have provided, currently are providing and in the future may provide certain financial advisory, investment banking, commercial banking, corporate finance and other services unrelated to the Mergers to IRT, STAR and/or certain of their respective affiliates for which BMO and such affiliates have received and may receive compensation. Specifically, from November 2018 to the date of its opinion, BMO and certain of its affiliates provided financial advisory, investment and corporate banking services to IRT and certain of its affiliates unrelated to the Mergers, for which services BMO received and/or expected to receive compensation, including having acted as (i) Joint Bookrunner on a follow-on equity transaction in February 2020, (ii) agent on IRT’s ATM program beginning in November 2020, (iii) a lending participant in IRT’s $200.0 million Term Loan beginning May 2021, and (iv) a lending participant in IRT’s $350.0 million senior unsecured revolving credit facility beginning April 2019, for which services described in clauses (i) through (iv) above BMO and/or certain of its affiliate received during such period aggregate fees of approximately $2.0 million from IRT. In addition, BMO acted as an underwriter for IRT’s Common Stock Offering. In connection with IRT’s Common Stock Offering, BMO received underwriting discounts and commissions of approximately $2.5 million and received customary indemnification in connection therewith.

Further, from November 2018 to the date of its opinion, BMO and certain of its affiliates provided financial advisory, investment and corporate banking services to STAR and certain of its affiliates unrelated to the Mergers, for which services BMO received and/or expected to receive compensation, including having acted as sell-side advisor to the special committee of Steadfast Income REIT, Inc. in its sale to STAR in March 2020, for which BMO and/or certain of its affiliates received during such period a fee of approximately $6.0 million from STAR.

BMO, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of business, certain of BMO’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, IRT, STAR or any other party that may be involved in the Mergers and their respective affiliates or any currency or commodity that may be involved in the Mergers. BMO or its affiliates may provide investment and corporate banking services to IRT or STAR and their respective affiliates in the future, for which BMO or its affiliates may receive customary fees. BMO provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold securities, including, without limitation, derivative securities, of IRT or STAR or their respective affiliates for its own account and for the accounts of customers.

Opinion of STAR’s Financial Advisor

STAR engaged RBC Capital Markets as a financial advisor to STAR in connection with the Mergers. As part of this engagement, the STAR Board requested that RBC Capital Markets evaluate the fairness, from a financial point of view, of the Exchange Ratio provided for pursuant to the Merger Agreement. At a July 26, 2021 meeting of the STAR Board held to evaluate the Mergers, RBC Capital Markets rendered an oral opinion, confirmed by delivery of a written opinion dated July 26, 2021, to the STAR Board to the effect that, as of that date and based on and subject to the procedures followed, assumptions made, factors considered and qualifications and limitations described in the opinion, the Exchange Ratio provided for pursuant to the Merger Agreement was fair, from a financial point of view, to holders of STAR Common Stock (other than, as applicable, IRT, IRT OP, IRT Merger Sub and their respective affiliates).

The full text of RBC Capital Markets’ written opinion, dated July 26, 2021, is attached as Annex D to this joint proxy statement/prospectus and is incorporated herein by reference. The written opinion sets forth, among other things, the procedures followed, assumptions made, factors considered and qualifications and limitations on the review undertaken by RBC Capital Markets in connection with its opinion. The following summary of RBC Capital Markets’ opinion is qualified in its entirety by reference to the full text of the opinion. RBC Capital

 

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Markets delivered its opinion to the STAR Board for the benefit, information and assistance of the STAR Board (in its capacity as such) in connection with its evaluation of the Mergers. RBC Capital Markets’ opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, of the Exchange Ratio (to the extent expressly specified in such opinion) and did not address any other aspect of the Mergers. RBC Capital Markets’ opinion also did not address the underlying business decision of STAR to engage in the Mergers or the relative merits of the Mergers compared to any alternative business strategy or transaction that may be available to STAR or which STAR might engage in or consider. RBC Capital Markets did not express any opinion and does not make any recommendation to any securityholder as to how such securityholder should vote or act with respect to the Mergers or any proposal to be voted upon in connection with the Mergers or otherwise.

For purposes of rendering its opinion, RBC Capital Markets undertook such review, inquiries and analyses as it deemed necessary or appropriate under the circumstances and, among other things:

 

   

reviewed the financial terms of an execution version, dated July 26, 2021, of the Merger Agreement;

 

   

reviewed certain publicly available financial and other information, and certain historical operating data, relating to STAR and IRT made available to RBC Capital Markets from published sources and internal records of STAR and IRT, respectively;

 

   

reviewed certain financial projections and other estimates and data relating to STAR and IRT prepared by the respective managements of STAR and IRT and certain estimates as to the potential cost savings and other benefits anticipated by the managements of STAR and IRT to be realized from the Mergers (collectively referred to as the Cost Savings), which projections and other estimates and data RBC Capital Markets was directed by STAR to utilize for purposes of its analyses and opinion;

 

   

held discussions with members of the senior managements of STAR and IRT with respect to the respective businesses, prospects and financial outlook of STAR and IRT;

 

   

reviewed the estimated value per share of STAR Common Stock as of December 31, 2020 as publicly reported by STAR, and reviewed the reported prices and trading activity for IRT Common Stock;

 

   

compared certain financial metrics of STAR and IRT with those of selected publicly traded companies that RBC Capital Markets considered generally relevant in evaluating STAR and IRT;

 

   

reviewed the relative contributions of STAR and IRT to certain financial metrics of the pro forma combined company based on the financial projections and other estimates and data relating to STAR and IRT referred to above;

 

   

reviewed, for informational purposes, certain financial terms of the Company Merger with those of selected precedent transactions that we considered generally similar to the Company Merger;

 

   

reviewed, for informational purposes, certain potential pro forma financial effects of the Mergers on STAR and IRT based on financial projections and other estimates and data relating to STAR and IRT provided to us by the respective managements of STAR and IRT; and

 

   

considered other information and performed other studies and analyses as RBC Capital Markets deemed appropriate.

In rendering its opinion, RBC Capital Markets assumed and relied upon the accuracy and completeness of all information that was reviewed by RBC Capital Markets, including all financial, legal, tax, accounting, operating and other information provided to or discussed with RBC Capital Markets by or on behalf of STAR and IRT (including, without limitation, financial statements and related notes), and upon the assurances of the respective managements and other representatives of STAR and IRT that they were not aware of any relevant information that was omitted or that remained undisclosed to RBC Capital Markets. RBC Capital Markets did not assume responsibility for independently verifying and did not independently verify such information. RBC Capital Markets assumed that the financial projections and other estimates and data (including as to potential Cost Savings) that RBC Capital Markets was directed to utilize in its analyses were reasonably prepared reflecting the

 

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best currently available estimates and good faith judgments of the respective managements of STAR and IRT, as the case may be, as to the future financial performance of, and were a reasonable basis upon which to evaluate, STAR, IRT, the potential Cost Savings, potential pro forma effects of the Mergers and the other matters covered thereby and RBC Capital Markets further assumed that the financial results reflected therein, including the potential Cost Savings, would be realized in the amounts and at the times projected. RBC Capital Markets expressed no opinion as to any such financial projections or other estimates and data utilized in RBC Capital Markets’ analyses or the assumptions upon which they were based.

RBC Capital Markets relied upon the assessments of the managements of STAR and IRT as to, among other things, (i) the potential impact on STAR and IRT of market, competitive, macroeconomic and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or affecting, the residential real estate industry, including the multifamily sector thereof, related credit and financial markets and the geographic regions in which STAR and IRT operate, (ii) implications for STAR and IRT of the global COVID-19 pandemic, (iii) existing and future agreements and arrangements involving, and the ability to attract, retain and/or replace, key employees, residents, third-party vendors, service providers and other commercial relationships of, STAR and IRT, and (iv) the ability to integrate the operations of STAR and IRT. RBC Capital Markets assumed that there would be no developments with respect to any of the foregoing that would have an adverse effect on STAR, STAR OP, IRT, IRT OP or the Mergers (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to its analyses or opinion.

In connection with its opinion, RBC Capital Markets did not assume any responsibility to perform, and it did not perform, an independent valuation or appraisal of any of the assets or liabilities (contingent, off-balance sheet, accrued, derivative or otherwise) of or relating to STAR, STAR OP, IRT, IRT OP or any other entity and, except for certain third-party appraisals, RBC Capital Markets was not furnished with any such valuations or appraisals. RBC Capital Markets did not assume any obligation to conduct, and it did not conduct, any physical inspection of the property or facilities of STAR, STAR OP, IRT, IRT OP or any other entity. RBC Capital Markets was not requested to make, and did not make, an independent evaluation of, and expressed no opinion or view as to, any pending or potential litigation, claims, governmental, regulatory or other proceedings or investigations or possible unasserted claims or other contingent liabilities affecting STAR, STAR OP, IRT, IRT OP or any other entity. RBC Capital Markets did not evaluate the solvency or fair value of STAR, STAR OP, IRT, IRT OP or any other entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters.

RBC Capital Markets assumed that the Mergers would be consummated in accordance with the terms of the Merger Agreement and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, permits, waivers and agreements for the Mergers, no delay, limitation, restriction or condition would be imposed or occur, including any divestiture or other requirements, that would have an adverse effect on STAR, STAR OP, IRT, IRT OP or the Mergers (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to its analyses or opinion. RBC Capital Markets also assumed that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of Code, for U.S. federal income tax purposes and the Company Merger and the Partnership Merger otherwise will qualify for the intended tax treatment contemplated by the Merger Agreement. RBC Capital Markets was advised by STAR, and RBC Capital Markets assumed, that each of STAR and IRT has operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes since its election to be taxed as a REIT and that the Mergers will not adversely affect such REIT status or operations of the pro forma combined entity resulting from the Mergers. In addition, RBC Capital Markets assumed that the final executed Merger Agreement would not differ in any respect meaningful to its analyses or opinion from the execution version that RBC Capital Markets reviewed.

RBC Capital Markets’ opinion spoke only as of the date of the opinion, was based on conditions as they existed and information supplied or reviewed as of the date of the opinion, and is without regard to any market, economic, financial, legal, regulatory or other circumstances or event of any kind or nature which may exist or

 

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occur after such date. RBC Capital Markets did not undertake and has no obligation to reaffirm, revise or update its opinion or otherwise comment upon events occurring after the date of its opinion with respect to its opinion. RBC Capital Markets’ opinion related to the relative values of STAR and IRT before giving effect to any underwritten public offering of shares of IRT Common Stock or asset sales contemplated to be undertaken prior to or following consummation of the Mergers. RBC Capital Markets did not express any opinion as to the actual value of IRT Common Stock when issued in connection with the Mergers or the price or range of prices at which STAR Common Stock, IRT Common Stock or any other securities of STAR or IRT, or any securities of STAR OP or IRT OP, may trade or otherwise be transferable at any time, including following announcement or consummation of the Mergers. As the STAR Board was aware, the credit, financial and stock markets, the industry in which STAR and IRT operate and the securities of IRT have experienced and may continue to experience volatility and disruptions, including from the COVID-19 pandemic, and RBC Capital Markets expressed no opinion or view as to any potential effects of such volatility or disruptions on STAR, STAR OP, IRT, IRT OP or the Mergers (including the contemplated benefits thereof).

RBC Capital Markets’ opinion addressed the fairness, from a financial point of view and as of the date of the opinion, of the Exchange Ratio (to the extent expressly specified in the opinion), without regard to individual circumstances of specific holders that may distinguish such holders (whether by virtue of control, voting or consent, liquidity, contractual arrangements or otherwise) or the securities of STAR held by such holders nor did RBC Capital Markets’ opinion address proportionate allocation or relative fairness. RBC Capital Markets’ opinion did not in any way address any other terms, conditions, implications or other aspects of the Mergers or the Merger Agreement, including, without limitation, the form or structure of the Mergers, any governance arrangements, underwritten public offering or asset sales, lock-up agreement, indemnification arrangements or any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the Mergers or otherwise. RBC Capital Markets did not express any opinion or view with respect to, and RBC Capital Markets relied upon the assessments of STAR and STAR’s representatives regarding, legal, regulatory, tax, accounting and similar matters, including, without limitation, tax or other consequences resulting from the Mergers or otherwise or changes in, or the impact of, accounting standards or tax or other laws, regulations and governmental and legislative policies affecting STAR, STAR OP, IRT, IRT OP or the Mergers (including the contemplated benefits thereof), as to which RBC Capital Markets understood that STAR obtained such advice as STAR deemed necessary from qualified professionals. Further, in rendering its opinion, RBC Capital Markets did not express any view on, and its opinion did not address, the fairness of the amount or nature of the compensation (if any) or other consideration to any officers, directors or employees of any party, or class of such persons, relative to the Exchange Ratio or otherwise. In connection with its engagement, RBC Capital Markets was not requested to, and RBC Capital Markets did not, undertake a third-party solicitation process on STAR’s behalf with respect to the acquisition of all or a portion of STAR. The issuance of RBC Capital Markets’ opinion was approved by RBC Capital Markets’ fairness opinion committee.

In preparing its opinion to the STAR Board, RBC Capital Markets performed various financial and comparative analyses, including those described below. The summary below of RBC Capital Markets’ material financial analyses provided to the STAR Board in connection with RBC Capital Markets’ opinion is not a comprehensive description of all analyses undertaken or factors considered by RBC Capital Markets in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. RBC Capital Markets believes that the analyses and factors summarized below must be considered as a whole and in context.

In arriving at its opinion, RBC Capital Markets employed several analytical methodologies and considered various financial matters and no one method of analysis should be regarded as critical to the overall conclusion reached by RBC Capital Markets. Each analytical technique and financial consideration has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusion reached by RBC Capital Markets was based on all analyses and factors presented, taken

 

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as a whole, and also on application of RBC Capital Markets’ experience and judgment. Such conclusion may have involved significant elements of subjective judgment and qualitative analysis and no opinion was given as to the value or merit standing alone of any one or more portions of such analyses or factors.

In performing its analyses, RBC Capital Markets considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of STAR and IRT. The estimates of the future performance of STAR and IRT in or underlying RBC Capital Markets’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by RBC Capital Markets’ analyses. The analyses do not purport to be appraisals or to reflect the prices at which a company or business might actually be sold or acquired or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the implied reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as RBC Capital Markets’ view of the actual value of STAR or IRT.

The Exchange Ratio was determined through negotiations between STAR and IRT and the decision of STAR to enter into the Merger Agreement was solely that of the STAR Board. RBC Capital Markets’ opinion and analyses were only one of many factors considered by the STAR Board in its evaluation of the Exchange Ratio and should not be viewed as determinative of the views of the STAR Board, STAR’s management or any other party with respect to the Mergers or the consideration payable in the Mergers.

Financial Analyses

The summary of the financial analyses described below under this heading “—Financial Analyses” is a summary of the material financial analyses provided by RBC Capital Markets to the STAR Board in connection with RBC Capital Markets’ opinion, dated July 26, 2021. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by RBC Capital Markets, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Selecting portions of RBC Capital Markets’ financial analyses or factors considered or focusing on the data set forth in the tables below without considering all analyses or factors or the full narrative description of such analyses or factors, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of RBC Capital Markets’ financial analyses. Future results may differ from those described and such differences may be material. The order in which the financial analyses summarized below appear does not necessarily reflect the relative importance or weight given to such analyses. In calculating low-ends (or high-ends, as the case may be) of the implied Exchange Ratio reference ranges reflected in the financial analyses described below, RBC Capital Markets divided the low-ends (or high-ends, as the case may be) of the implied per share equity value reference ranges derived for STAR from such analyses by the high-ends (or low-ends, as the case may be) of the implied per share equity value reference ranges derived for IRT from such analyses.

Selected Public Companies Analyses. RBC Capital Markets performed separate selected public companies analyses of STAR and IRT in which RBC Capital Markets reviewed and compared financial and operating data relating to STAR, IRT and the selected publicly traded companies listed below.

STAR. RBC Capital Markets reviewed certain financial information of STAR and certain financial and stock market information of the following six selected companies that RBC Capital Markets considered generally relevant as publicly traded companies with operations in the multifamily REIT industry, having equity market capitalizations of greater than $500 million (as of July 23, 2021) and a primary focus on non-gateway U.S. markets, collectively referred to as the STAR selected companies:

 

   

BSR Real Estate Investment Trust

 

   

Camden Property Trust

 

   

Independence Realty Trust, Inc.

 

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Investors Real Estate Trust (d/b/a Centerspace)

 

   

Mid-America Apartment Communities, Inc.

 

   

NexPoint Residential Trust, Inc.

In its selected public companies analysis of STAR, RBC Capital Markets reviewed, among other things, closing stock prices of the STAR selected companies on July 23, 2021 (the last full trading day prior to execution of the Merger Agreement) as multiples of calendar year 2021 and calendar year 2022 estimated funds from operations, referred to as FFO, per share. RBC Capital Markets also reviewed enterprise values of the STAR selected companies, calculated as equity values based on closing stock prices on July 23, 2021 plus debt (including pro rata share of any joint venture debt), preferred stock at liquidation value and non-controlling interests and less cash and cash equivalents, as multiples of calendar year 2021 and calendar year 2022 estimated earnings before interest, taxes, depreciation and amortization, referred to as EBITDA. Financial data of the STAR selected companies were based on publicly available research analysts’ estimates and other publicly available information. Financial data of STAR was based on financial projections and other estimates of STAR management.

The overall low to high (and mean and median) calendar years 2021 and 2022 estimated FFO per share and estimated EBITDA multiples observed for the STAR selected companies were as follows:

 

   

FFO per share multiples:

 

   

Calendar year 2021 estimated FFO per share multiples: low to high of 23.9x to 28.8x (with a mean of 26.5x and a median of 26.4x)

 

   

Calendar year 2022 estimated FFO per share multiples: low to high of 19.7x to 26.6x (with a mean of 24.1x and a median of 24.3x)

 

   

EBITDA multiples:

 

   

Calendar year 2021 estimated EBITDA multiples: low to high of 23.5x to 28.5x (with a mean of 27.2x and a median of 27.9x)

 

   

Calendar year 2022 estimated EBITDA multiples: low to high of 18.8x to 26.9x (with a mean of 24.7x and a median of 26.0x)

RBC Capital Markets then applied selected ranges derived from the STAR selected companies of calendar year 2021 and calendar year 2022 estimated FFO per share multiples of 24.0x to 28.5x and 23.0x to 26.5x, respectively, and selected ranges derived from the STAR selected companies of calendar year 2021 and calendar year 2022 estimated EBITDA multiples of 23.5x to 28.5x and 24.0x to 26.5x, respectively, to corresponding data of STAR. This analysis indicated implied per share equity value reference ranges for STAR based on calendar year 2021 and calendar year 2022 estimated FFO per share of $15.31 to $18.18 and $17.18 to $19.80, respectively, and based on calendar year 2021 and calendar year 2022 estimated EBITDA of $14.45 to $21.11 and $17.43 to $21.01, respectively.

IRT. RBC Capital Markets performed a selected public companies analysis in which RBC Capital Markets reviewed certain financial and stock market information of IRT and the following five selected companies that RBC Capital Markets considered generally relevant as publicly traded companies with operations in the multifamily REIT industry, having equity market capitalizations of greater than $500 million (as of July 23, 2021) and a primary focus on non-gateway U.S. markets, collectively referred to as the IRT selected companies:

 

   

BSR Real Estate Investment Trust

 

   

Camden Property Trust

 

   

Investors Real Estate Trust (d/b/a Centerspace)

 

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Mid-America Apartment Communities, Inc.

 

   

NexPoint Residential Trust, Inc.

In its selected public companies analysis of IRT, RBC Capital Markets reviewed, among other things, closing stock prices of the IRT selected companies on July 23, 2021 as multiples of calendar year 2021 and calendar year 2022 estimated FFO per share. RBC Capital Markets also reviewed enterprise values of the IRT selected companies, calculated as equity values based on closing stock prices on July 23, 2021 plus debt (including pro rata share of any joint venture debt), preferred stock at liquidation value and non-controlling interests and less cash and cash equivalents, as multiples of calendar year 2021 and calendar year 2022 estimated EBITDA. Financial data of the IRT selected companies were based on publicly available research analysts’ estimates and other publicly available information. Financial data of IRT was based on financial projections and other estimates of IRT management.

The overall low to high (and mean and median) calendar years 2021 and 2022 estimated FFO per share and estimated EBITDA multiples observed for the IRT selected companies were as follows:

 

   

FFO per share multiples:

 

   

Calendar year 2021 estimated FFO per share multiples: low to high of 23.9x to 28.8x (with a mean of 26.5x and a median of 26.3x)

 

   

Calendar year 2022 estimated FFO per share multiples: low to high of 19.7x to 26.6x (with a mean of 24.0x and a median of 23.9x)

 

   

EBITDA multiples:

 

   

Calendar year 2021 estimated EBITDA multiples: low to high of 23.5x to 28.5x (with a mean of 27.1x and a median of 27.8x)

 

   

Calendar year 2022 estimated EBITDA multiples: low to high of 18.8x to 26.9x (with a mean of 24.4x and a median of 25.9x)

RBC Capital Markets then applied selected ranges derived from the IRT selected companies of calendar year 2021 and calendar year 2022 estimated FFO per share multiples of 24.0x to 28.5x and 23.0x to 26.5x, respectively, and selected ranges derived from the IRT selected companies of calendar year 2021 and calendar year 2022 estimated EBITDA multiples of 23.5x to 28.5x and 24.0x to 26.5x, respectively, to corresponding data of IRT. This analysis indicated implied per share equity value reference ranges for IRT based on calendar year 2021 and calendar year 2022 estimated FFO per share of $18.45 to $21.91 and $20.24 to $23.32, respectively, and based on calendar year 2021 and calendar year 2022 estimated EBITDA of $15.68 to $21.14 and $19.23 to $22.27, respectively.

Utilizing the implied per share equity value reference ranges derived for STAR and IRT described above, RBC Capital Markets calculated the following implied exchange ratio reference ranges, as compared to the Exchange Ratio provided for in the Merger:

 

Implied Exchange Ratio Reference Ranges Based on:

  

Exchange Ratio

CY2021E FFO    CY2022E FFO    0.905x
0.6987x – 0.9852x    0.7367x – 0.9780x
CY2021E EBITDA    CY2022E EBITDA
0.6836x – 1.3464x    0.7829x – 1.0925x

No company or business used in these analyses is identical to STAR or IRT. Accordingly, an evaluation of the results of these analyses is not entirely mathematical. Rather, these analyses involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies or businesses to which STAR or IRT were compared.

 

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Discounted Cash Flow Analyses. RBC Capital Markets performed separate discounted cash flow analyses of STAR and IRT as described below.

STAR. RBC Capital Markets performed a discounted cash flow analysis of STAR by calculating the estimated present values of the standalone unlevered, after-tax free cash flows that STAR was forecasted to generate during the second half of the fiscal year ending December 31, 2021 through the full fiscal year ending December 31, 2025 based on financial projections and other estimates of STAR management. RBC Capital Markets calculated terminal values for STAR by applying to the terminal year estimated EBITDA of STAR a selected range of one-year forward EBITDA multiples of 20.0x to 25.0x. The unlevered, after-tax free cash flows and terminal values were then discounted to present value (as of June 30, 2021) using a selected range of discount rates of 7.75% to 8.75%. This analysis indicated an implied per share equity value reference range for STAR of $11.22 to $18.48.

IRT. RBC Capital Markets performed a discounted cash flow analysis of IRT by calculating the estimated present values of the standalone unlevered, after-tax free cash flows that IRT was forecasted to generate during the second half of the fiscal year ending December 31, 2021 through the full fiscal year ending December 31, 2025 based on financial projections and other estimates of IRT management. RBC Capital Markets calculated terminal values for IRT by applying to the terminal year estimated EBITDA of IRT a selected range of one-year forward EBITDA multiples of 20.0x to 25.0x. The unlevered, after-tax free cash flows and terminal values were then discounted to present value (as of June 30, 2021) using a selected range of discount rates of 7.75% to 8.75%. This analysis indicated an implied per share equity value reference range for IRT of $15.38 to $21.94.

Utilizing the overall implied per share equity value reference ranges derived for STAR and IRT described above, RBC Capital Markets calculated the following implied exchange ratio reference range, as compared to the Exchange Ratio provided for in the Merger:

 

Implied Exchange Ratio Reference Range

   Exchange Ratio
0.5114x – 1.2019x    0.905x

Relative Contributions Analysis. RBC Capital Markets reviewed the relative contributions of STAR and IRT to the combined company’s equity value based on calendar years 2021 and 2022 estimated EBITDA and estimated FFO. Financial data of STAR was based on financial projections and other estimates of STAR management and financial data of IRT was based on financial projections and other estimates of IRT management. This analysis indicated the following overall implied exchange ratio reference range, as compared to the Exchange Ratio provided for in the Merger:

 

Implied Exchange Ratio Reference Range

   Exchange Ratio
0.842x – 0.986x    0.905x

Certain Additional Information

RBC Capital Markets observed certain factors that were not considered part of RBC Capital Markets’ financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:

 

   

the historical trading performance of IRT Common Stock during the 52-week period ended July 23, 2021, which indicated low and high intraday prices for IRT Common Stock during such 52-week period of $10.40 and $20.27 per share, respectively, and the estimated value per share of STAR Common Stock of $15.55 as of December 31, 2020 as publicly reported by STAR; and

 

   

publicly available research analysts’ forward stock price targets for IRT Common Stock, which indicated a target stock price range for IRT Common Stock of $17.00 to $21.50 per share (with a mean of $19.50 per share and a median of $20.00 per share).

 

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Miscellaneous

STAR has agreed to pay RBC Capital Markets for its services as a financial advisor to STAR a fee of $12.75 million, of which a portion was payable upon delivery of RBC Capital Markets’ opinion and $11.25 million is contingent upon consummation of the Mergers. STAR also has agreed to reimburse RBC Capital Markets for expenses incurred in connection with RBC Capital Markets’ services and to indemnify RBC Capital Markets and related persons against certain liabilities, including liabilities under federal securities laws, arising out of RBC Capital Markets’ engagement.

As the STAR Board was aware, during the two-year period prior to the date of RBC Capital Markets’ opinion, RBC Capital Markets provided financial advisory services unrelated to the Mergers to STAR in connection with a potential transaction which was not consummated. RBC Capital Markets and certain of its affiliates in the future may provide investment banking, commercial banking and/or financial advisory services to STAR, STAR OP, IRT, IRT OP and/or certain of their respective affiliates, for which services RBC Capital Markets and its affiliates would expect to receive customary compensation.

RBC Capital Markets, as part of its investment banking services, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, corporate restructurings, underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of business, RBC Capital Markets and/or certain of its affiliates may act as a market maker and broker in the publicly traded securities of IRT and/or other entities involved in the Mergers or their respective affiliates and receive customary compensation in connection therewith, and may also actively trade or hold securities or financial instruments (including loans and other obligations) of such entities for RBC Capital Markets’ or its affiliates’ account or for the account of customers and, accordingly, RBC Capital Markets and its affiliates may hold long or short positions or otherwise effect transactions in such securities or financial instruments.

RBC Capital Markets is an internationally recognized investment banking firm which is regularly engaged in providing financial advisory services in connection with mergers and acquisitions. STAR selected RBC Capital Markets as STAR’s financial advisor in connection with the Mergers on the basis of RBC Capital Markets’ experience in similar transactions, reputation in the investment community and familiarity with STAR’s and IRT’s businesses and industry.

Financial Advisory Services of Robert A. Stanger & Co., Inc.

In connection with the proposed Mergers, STAR retained Stanger to render certain financial advisory services to the STAR Board that included a review and evaluation of the real estate assets of STAR and IRT and other financial analyses and general financial advice in connection with the transaction. Stanger was not engaged to render a fairness opinion in connection with the Mergers.

Experience of Stanger

Stanger, founded in 1978, has provided information, research, financial advisory and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and REITs. The financial advisory activities of Stanger include mergers and acquisitions, advisory and fairness opinion services, asset and securities valuations, industry and company analysis, and litigation support and expert witness services in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its financial advisory business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, and reorganizations and for estate, tax, corporate and other purposes. In particular, Stanger’s valuation practice principally involves REITs and partnerships and the assets typically owned through such entities including, but not limited to, real properties and property interests.

 

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Financial Advisory Services of Stanger

On July 1, 2021, Stanger presented its analysis of the STAR and IRT real estate portfolios (the “Portfolios”) to the STAR Board. In the course of Stanger’s analysis, Stanger: (i) conducted site visits to each of the IRT real estate assets and noted that Stanger had visited each of the STAR assets in connection with assignments completed during the past two years; (ii) reviewed historical and budgeted property level income statements for the properties in the Portfolios; (iii) reviewed property rent rolls for the Portfolios; (iv) reviewed property tax bills for the Portfolios; (v) reviewed deferred maintenance estimates for the Portfolios, as provided by STAR and IRT; (vi) reviewed loan agreements, note agreements and amendments for both STAR and IRT; (vii) reviewed demographic information for each of the properties in the Portfolios; (viii) reviewed the December 31, 2020 net asset value (“NAV”) and appraisals for the STAR real estate portfolio; (ix) reviewed over $42 billion of sale transaction data in the STAR portfolio markets; (x) reviewed over $38 billion of sale transaction data in the IRT portfolio markets; (xi) reviewed survey data and sale comparable transactions for each of the Portfolios; (xii) considered the impact of tax resets on the real estate assets in each of the Portfolios; (xiii) considered the impact of debt mark-to-market adjustments on both STAR and IRT; and (xiv) considered the balance sheet of STAR and IRT.

Stanger advised the STAR Board that the key benefits of the proposed Mergers would be: (i) expansion of the existing portfolio of STAR from 69 properties aggregating 22,045,000 square feet and 21,577 units by an additional 60 properties of IRT aggregating 15,905,000 square feet and 16,261 units; would provide substantial growth and diversification of a combined portfolio; (ii) the average age of the IRT portfolio of 20 years is consistent with the average age of the STAR Portfolio of 20 years; (iii) the population and median household income within a three mile radius of each property in the IRT Portfolio averages 67,220 and $70,266, respectively versus 77,387 and $75,053, respectively for the STAR portfolio; (iv) overall the IRT Portfolio is consistent with the STAR Portfolio in terms of: unit sizes, age, and demographics and would be valued using comparable valuation metrics as compared to the STAR portfolio; and (v) improved access to liquidity for the STAR shareholders in public markets while retaining the option to hold an interest in a larger more diversified company. Stanger estimated the NAV per share range of IRT at $16.09 to $18.57, exclusive of any value for its management company, and estimated the NAV per share range of STAR on a comparable basis at $15.63 to $18.42. Stanger did not render an opinion on the fairness of the Exchange Ratio from a financial point of view.

Limitations and Qualifications

Stanger was not requested to, and therefore did not: (i) appraise STAR’s or IRT’s assets or liabilities; (ii) make any recommendation to the STAR stockholders with respect to whether or not to approve the Merger Agreement or the impact, tax or otherwise, of approving the Merger Agreement; (iii) select the method of determining the Exchange Ratio used in the Mergers; (iv) express any opinion as to: (a) the business decision to pursue the Mergers or alternatives to the Mergers; (b) the amount or allocation of expenses relating to the Mergers; (c) any legal, tax, regulatory or accounting matters, which Stanger understood that we obtained advice with respect to such matters, as we deemed necessary, from qualified professionals; or (d) any terms of the Mergers or (v) opine as to the fairness of the Exchange Ratio or the amount or the nature of any compensation or consideration to any of STAR’s officers, directors, or employees, or any class of such persons, relative to the compensation or consideration to the STAR stockholders.

Compensation and Material Relationships

Stanger has been paid a fee of $350,000 in connection with this engagement (the “Financial Advisory Fee”). STAR has agreed to pay Stanger a fee of approximately $1.45 million contingent upon the consummation of the Mergers. Stanger will also be reimbursed for certain out-of-pocket expenses, including legal fees, and will be indemnified against liabilities arising under any applicable federal or state law or otherwise related to or arising out of Stanger’s engagement or performance of its services to STAR. During the past three years, STAR paid Stanger approximately $2,656,000 in connection with financial advisory services, including the Financial Advisory Fee.

 

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Certain IRT Unaudited Prospective Financial Information

IRT does not as a matter of course make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, IRT is including certain non-public unaudited prospective financial information that was made available to the IRT Board and the STAR Board in connection with their respective evaluations of the Mergers. This information also was provided to IRT’s and STAR’s respective financial advisors for their use and reliance in connection with their respective financial analyses and opinions described above under the sections entitled “—Opinions of IRT’s Financial Advisors,” “—Opinion of STAR’s Financial Advisor,” and “—Financial Advisory Services of Robert A. Stanger & Co., Inc.” The inclusion of this information should not be regarded as an indication that any of IRT, STAR, their respective affiliates, advisors or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results or events.

These internal financial projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with GAAP, published guidelines of the SEC, including with respect to non-GAAP financial measures, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled GAAP measures in IRT’s historical GAAP financial statements. Neither IRT’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on the information or its achievability, and they assume no responsibility for, and disclaim any association with, the prospective financial information.

The unaudited prospective financial information was, in general, prepared solely for internal use and is subjective in many respects. As a result, the prospective results may not be realized and the actual results may be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, that information by its nature becomes less predictive with each successive year. You are encouraged to review the risks and uncertainties described under the headings “Risk Factors—Risks Relating to the Mergers” beginning on page 24 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and the risks described in the periodic reports filed by IRT with the SEC, which reports can be found as described under the heading “Where You Can Find More Information” beginning on page 210.

The report of IRT’s independent registered public accounting firm contained in IRT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which is incorporated by reference into this joint proxy statement/prospectus, relates to IRT’s historical financial information. It does not extend to the unaudited prospective financial information and should not be read to do so. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared.

The following table presents selected unaudited prospective financial data for the fiscal years ending 2021 through 2026 for IRT on a standalone basis (amounts reflect rounding).

 

     Fiscal Year Ending December 31,  

($ in millions)

   2021E      2022E      2023E      2024E      2025E      2026E  

NOI(1)

   $ 141.2      $ 155.2      $ 166.7      $ 177.8      $ 186.6      $ 194.0  

EBITDA(2)

   $ 115.4      $ 128.7      $ 139.6      $ 150.2      $ 158.4      $ 165.2  

FFO(3)

   $ 80.2      $ 93.5      $ 104.0      $ 115.3      $ 123.8      $ 130.8  

 

(1)

IRT defines NOI, which is a non-GAAP financial performance measure, as total property revenues less total property operating expenses, excluding depreciation and amortization, casualty related costs, property management expenses, general administrative expenses, interest expense, and net gains on sale of assets. NOI should not be considered as an alternative to net income as a measure of operating performance.

 

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(2)

IRT defines EBITDA, which is a non-GAAP financial performance measure, as net income before interest expense including amortization of deferred financing costs, income tax expense, and depreciation and amortization expenses. EBITDA should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity.

(3)

IRT defines FFO, which is a non-GAAP financial performance measure, in accordance with the definition published by NAREIT as net income or loss allocated to common shares, excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles. FFO should not be considered as an alternative to net income as a measure of operating performance.

IRT and STAR calculate certain non-GAAP financial metrics, including NOI, EBITDA and FFO, using different methodologies. Consequently, the financial metrics presented in each company’s prospective financial information disclosures and the financial metrics derived from such prospective financial information and presented in other sections of this joint proxy statement/prospectus with respect to the financial analyses of the financial advisors to IRT and STAR may not be directly comparable to one another.

In preparing the foregoing unaudited projected financial information, IRT made a number of assumptions regarding, among other things, interest rates, corporate financing activities, annual dividend levels, occupancy and tenant retention levels, changes in rent, the amount, timing and cost of existing and planned capital expenditures, the amount and timing of asset sales, asset acquisitions and developments and the amount of general and administrative costs.

Among the particular assumptions made available to the IRT Board, the STAR Board and IRT’s and STAR’s respective financial advisors, IRT assumed that it would consummate an approximately $260.0 million sale of IRT Common Stock following announcement of the transactions and that for the fiscal years ending 2021 through 2026, IRT, on a standalone basis, would have total capital expenditures, excluding acquisition capital expenditures and including capital expenditures associated with IRT’s value add renovations, as set forth on the following table (amounts reflect rounding):

 

     Fiscal Year Ending December 31,  

($ in millions)

   2021E      2022E      2023E      2024E      2025E      2026E  

Capital Expenditures

   $ 41.3      $ 41.5      $ 41.9      $ 42.4      $ 27.2      $ 25.3  

The assumptions set forth in the preceding table are only representative of a small number of the assumptions and estimates made by IRT’s management in preparing the foregoing unaudited projected financial information. As described above, IRT made numerous other assumptions and estimates in preparing the foregoing unaudited projected financial information.

The assumptions made in preparing the foregoing unaudited projected financial information may not necessarily reflect actual future conditions. The estimates and assumptions underlying the foregoing unaudited projected financial information involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, risks and uncertainties described under the headings “Risk Factors” beginning on page 24 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and the risks described in the periodic reports filed by IRT with the SEC, which reports can be found as described under the heading “Where You Can Find More Information” beginning on page 210, all of which are difficult to predict and many of which are beyond the control of IRT and/or STAR and will be beyond the control of the combined company. The underlying assumptions and projected results may not be realized, and actual results likely will differ, and may differ materially, from those reflected in the foregoing unaudited projected financial information, whether or not the Mergers are consummated.

 

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In addition, although presented with numerical specificity, the foregoing unaudited projected financial information reflect numerous assumptions and estimates as to future events made by IRT management that IRT management believes were reasonably prepared. The above unaudited projected financial information does not give effect to the Mergers. IRT stockholders and STAR stockholders are urged to review the most recent SEC filings of IRT for a description of the reported and anticipated results of operations and financial condition and capital resources during 2021, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IRT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference into this joint proxy statement/prospectus.

Readers of this joint proxy statement/prospectus are cautioned not to place undue reliance on the unaudited prospective financial information set forth above. No representation is made by IRT, STAR or any other person to any IRT stockholder or any STAR stockholder regarding the ultimate performance of IRT compared to the information included in the above unaudited prospective financial information. The inclusion of unaudited prospective financial information in this joint proxy statement/prospectus should not be regarded as an indication that the prospective financial information will be necessarily predictive of actual future events, and such information should not be relied on as such.

IRT DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.

Certain STAR Unaudited Prospective Financial Information

STAR does not, as a matter of course, publicly disclose long-term projections as to future revenues, earnings or other results given, among other reasons, the inherent uncertainty and subjectivity underlying assumptions and estimates. In connection with the STAR Board’s consideration of the Mergers, STAR’s management prepared certain non-public unaudited financial projections, derived from STAR’s property level projections, regarding STAR’s anticipated future performance on a standalone basis for fiscal years 2021 through 2026 (the “STAR financial projections”), which are summarized below. The STAR financial projections were provided, in whole or in part, to the STAR Board and IRT’s and STAR’s respective financial advisors for their use and reliance in connection with their respective financial analyses and opinions described above under the sections entitled “ —Opinions of IRT’s Financial Advisors,” “ —Opinion of STAR’s Financial Advisor,” and “ —Financial Advisory Services of Robert A. Stanger & Co., Inc.”

The STAR financial projections are summarized in this joint proxy statement/prospectus solely to give STAR stockholders access to information that was made available to the STAR Board and STAR’s financial advisor in connection with the Mergers, and are not included in this joint proxy statement/prospectus in order to influence any STAR stockholder to make any investment or voting decision with respect to the Mergers.

The STAR financial projections were prepared solely for internal use and are subjective in many respects. The inclusion of a summary of the STAR financial projections in this joint proxy statement/prospectus should not be regarded as an indication that any of STAR, IRT or their officers, directors, affiliates, or other representatives considered, or now considers, this information to be necessarily predictive of actual future results or events. There can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than estimated.

The STAR financial projections were not prepared with a view toward public disclosure or soliciting proxies, nor were they prepared with a view toward compliance with GAAP or with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and

 

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presentation of prospective financial information. In addition, neither STAR’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any audit or other procedures with respect to the STAR financial projections contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm of STAR contained in STAR’s Annual Report on Form 10-K for the year ended December 31, 2020, which is attached as Annex E, relates to STAR’s historical financial statements. It does not extend to the STAR financial projections and should not be read to do so.

Furthermore, the STAR financial projections do not necessarily reflect STAR’s current estimates and do not take into account any circumstances or events occurring after the date they were prepared. In particular, the STAR financial projections set forth below do not give effect to the Mergers nor do they take into account the effect of any failure of the Mergers to occur.

The STAR financial projections reflect numerous assumptions and estimates as to future events. The STAR financial projections were based on assumptions and estimates that STAR’s management believed were reasonable at the time the STAR financial projections were prepared, taking into account relevant information available to STAR’s management at the time, but these assumptions and estimates may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, the risks and uncertainties described under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” beginning on pages 24 and 38, respectively, and in STAR’s Annual Report on Form 10-K for the year ended December 31, 2020, which is attached as Annex E to this joint proxy statement/prospectus and STAR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, which is attached as Annex F to this joint proxy statement/prospectus. All of these uncertainties and contingencies are difficult to predict and many are beyond the control of STAR and will be beyond the control of the combined company. As a result, neither IRT, STAR nor any of their respective affiliates, officers, directors, advisors or other representatives can provide any assurance that actual results will not differ materially from the STAR financial projections, and neither STAR nor any of its affiliates undertakes any obligation to update or otherwise revise or reconcile the STAR financial projections to reflect circumstances existing after the date such financial projections were generated or to reflect the occurrence of future events.

The inclusion of a summary of the STAR financial projections herein should not be deemed an admission or representation by IRT or STAR that such financial projections are viewed by IRT or STAR as material information of STAR. The STAR financial projections should be evaluated in conjunction with STAR’s reported financial results and the risk factors with respect to the business of STAR. See the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and “Where You Can Find More Information” on page 210.

The following summarizes the STAR financial projections (amounts reflect rounding):

 

     Yr. 1      Yr. 2      Yr. 3      Yr. 4      Yr. 5      Yr. 6  
     12 Mos.
Jan. 2021
Dec. 2021
     12 Mos.
Jan. 2022
Dec. 2022
     12 Mos.
Jan. 2023
Dec. 2023
     12 Mos.
Jan. 2024
Dec. 2024
     12 Mos.
Jan. 2025
Dec. 2025
     12 Mos.
Jan. 2026
Dec. 2026
 

Net Operating Income(1)

   $ 198.1      $ 211.2      $ 220.1      $ 232.8      $ 243.3      $ 251.2  

EBITDA(2)

   $ 156.5      $ 167.8      $ 175.4      $ 186.8      $ 195.9      $ 202.3  

Funds From Operations (FFO)(3)

   $ 74.9      $ 87.7      $ 96.2      $ 107.8      $ 118.0      $ 125.4  

 

(1)

STAR defines NOI, a non-GAAP financial measure, as total property revenues less total property operating expenses, excluding depreciation and amortization, casualty related costs, property management expenses, general administrative expenses, interest expense, and net gains on sale of assets. NOI should not be considered as an alternative to net income as a measure of operating performance.

(2)

STAR defines EBITDA, a non-GAAP financial measure, as net income before interest expense including amortization of deferred financing costs, income tax expense and depreciation and amortization expenses.

 

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  EBITDA includes third-party management fees. EBITDA should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity.
(3)

STAR defines FFO, a non-GAAP financial measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in December 2018 (the “White Paper”). The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash impairment charges of real estate related investments, plus real estate related depreciation and amortization, cumulative effects of accounting changes and after adjustments for unconsolidated partnerships and joint ventures. For more information regarding how STAR calculates FFO, see STAR’s Annual Report on Form 10-K for the year ended December 31, 2020, which is attached as Annex E to this joint proxy statement/prospectus.

IRT and STAR calculate certain non-GAAP financial metrics including NOI, EBITDA and FFO using different methodologies. Consequently, the financial metrics presented in each company’s prospective financial information disclosures and the financial metrics derived from such prospective financial information and presented in other sections of this joint proxy statement/prospectus with respect to the financial analyses of the financial advisors to IRT and STAR may not be directly comparable to one another.

In preparing the foregoing unaudited projected financial information, STAR made a number of assumptions regarding, among other things, interest rates, corporate financing activities, annual distribution levels, occupancy and tenant retention levels, changes in rent, the amount, timing and cost of existing and planned capital expenditures, the amount and timing of asset sales, asset acquisitions and developments and the amount of general and administrative costs.

Among the particular assumptions made available to the STAR Board, the IRT Board and STAR’s and IRT’s respective financial advisors, STAR assumed that for the fiscal years ending 2021 through 2026, STAR, on a standalone basis, would have total capital expenditures as set forth on the following table (amounts reflect rounding):

 

     Fiscal Year Ending December 31,  

($ in millions)

   2021(E)      2022(E)      2023(E)      2024(E)      2025(E)      2026(E)  

Capital Expenditures(1)

   $ 140.9      $ 59.4      $ 16.7      $ 17.5      $ 18.0      $ 18.8  

 

(1)

Capital expenditures for fiscal years ending 2021 and 2022, include, in addition to recurring and maintenance capital expenditures, redevelopment capital expenditures and acquisition capital expenditures. Capital expenditures for fiscal years ending 2023, 2024, 2025, and 2026, include only recurring capital expenditures.

The assumptions set forth in the preceding table are only representative of a small number of the assumptions and estimates made by STAR’s management in preparing the foregoing unaudited projected financial information. As described above, STAR made numerous other assumptions and estimates in preparing the foregoing unaudited projected financial information.

 

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STAR DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW

Interests of IRT Directors and Executive Officers in the Mergers

In addition to their interests in the Mergers as stockholders, the directors and executive officers of IRT have interests in the Mergers that may be different from, or in addition to, those of IRT stockholders generally. The IRT Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement.

Upon consummation of the Mergers, Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, will continue in these positions for the combined company; James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company; Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company; and Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company. In addition, upon consummation of the Mergers, the board of directors of the combined company will be comprised of the following five incumbent directors of the IRT Board and the following five incumbent directors of the STAR Board: Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington; and Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell, respectively.

The Mergers are expected to constitute a “change in control” for purposes of Mr. Schaeffer’s employment agreement. Under that agreement, upon a termination without cause or a resignation with good reason (and subject to execution of a release), Mr. Schaeffer will become entitled to severance benefits, including a cash payment equal to a multiple of his annual base salary and his average annual bonus received for the three years preceding his termination. Ordinarily, that severance multiple would be 2.25. However, if the termination without cause or resignation with good reason occurs within 18 months following a change in control, the severance multiple will increase from 2.25 to 3.0. Mr. Schaeffer’s other severance benefits would be the same, whether or not the severance event occurs proximate to a change in control. Based on Mr. Schaeffer’s current base salary level and annual bonus history, the increase in the severance multiple from 2.25 to 3.0 represents an incremental increase in Mr. Schaeffer’s potential severance benefits of $1,459,577.

For purposes of Mr. Schaeffer’s employment agreement:

“Cause” means Mr. Schaeffer’s (a) conviction of, or plea of guilty or no contest to, a felony, any crime of moral turpitude or any crime involving IRT; (b) engagement in fraud, misappropriation or embezzlement; (c) material breach of any published code of conduct or code of ethics of IRT or its affiliates; (d) gross negligence or willful misconduct in the performance of his duties; (e) continual failure to substantially perform his duties to IRT (other than a failure resulting from illness), which failure has continued for at least 30 days after written notice; or (f) breach of the restrictive covenants contained in his employment agreement.

“Good reason” means (a) a significant adverse alteration in the nature or status of Mr. Schaeffer’s authority, duties or responsibilities; (b) a reduction in Mr. Schaeffer’s base salary; (c) IRT’s material and willful breach of Mr. Schaeffer’s employment agreement; or (d) a relocation (without Mr. Schaeffer’s written consent) of his principal place of employment by more than 35 miles.

While the occurrence of the Mergers will have the effect of increasing (for 18 months following the closing of the Mergers) the level of severance benefits payable under Mr. Schaeffer’s employment agreement in the event

 

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of a termination without cause or a resignation with good reason, IRT has no present plan or intent to terminate Mr. Schaeffer’s employment or to take any action that would constitute a basis for Mr. Schaeffer to resign from employment with good reason.

Interests of STAR Directors and Executive Officers in the Mergers

In considering the recommendation of the STAR Board to approve the STAR Merger Proposal, STAR stockholders should be aware that STAR’s directors and executive officers have interests in the Company Merger that may be different from, or in addition to, the interests of STAR stockholders generally. The STAR Board was aware of these interests and considered them, among other matters, in evaluating and negotiating the Merger Agreement, in reaching its decision to approve the Merger Agreement and the transactions contemplated by the Merger Agreement (including the Company Merger), and in recommending to STAR stockholders that the STAR Merger Proposal be approved. Such interests are described below.

STAR’s executive officers for purposes of the discussion below are Rodney F. Emery (Chief Executive Officer), Ella S. Neyland (President, Chief Financial Officer and Treasurer); Tim Middleton (Chief Investment Officer), Gustav F. Bahn (Chief Legal Officer and Corporate Secretary), Jason Stern (Chief Strategy Officer and Administrative Officer), David Miller (Chief Accounting Officer) and Tiffany Stanley (Executive Vice President, Property Management). As noted below, however, Mr. Emery did not enter into an Employment Agreement (as defined below) with STAR.

Treatment of Outstanding Equity Awards

STAR Restricted Shares of Common Stock

The Merger Agreement provides that, at the Company Merger Effective Time, each award of STAR Restricted Shares that is outstanding immediately prior to the Company Merger Effective Time will be converted into a number of IRT Restricted Shares (rounded to the nearest whole number of shares) equal to the product obtained by multiplying (A) the number of shares of STAR Common Stock subject to such restricted stock award immediately prior to the Company Merger Effective Time by (B) the Exchange Ratio.

Except as noted below, each IRT Restricted Share will be subject to the same terms and conditions as applied to the corresponding STAR Restricted Share immediately prior to the Company Merger Effective Time.

Accelerated Vesting of STAR Equity Awards

The Merger Agreement provides that any STAR Restricted Share held by a grantee who is a non-employee member of the STAR Board immediately prior to the Company Merger Effective Time and who does not become a member of the IRT Board at the Company Merger Effective Time will vest upon the Company Merger Effective Time so that each such converted share will be fully vested and non-forfeitable.

Pursuant to the terms of the Employment Agreements described below and the award agreements for the STAR Restricted Shares held by STAR’s executive officers, if an executive officer’s employment is terminated by STAR without “cause,” or due to the executive officer’s resignation for “good reason,” (each as defined in such executive officer’s Employment Agreement), and subject to execution of an effective release of claims, such executive officer’s STAR Restricted Shares will accelerate and become fully vested. These accelerated vesting provisions applicable to the STAR Restricted Shares held by the executive officers will continue to apply to such awards after such awards are converted into IRT Restricted Shares.

For this purpose, “good reason” includes a material diminution in title, authority or responsibilities, a 10% or greater reduction in base salary or target bonus opportunity, a continuous, willful and material breach by the employer of the Employment Agreement, or a relocation of the principal place of employment by more than

 

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50 miles. Ms. Neyland has already agreed that the Mergers, the related changes in the business, ownership and management of STAR, and the associated changes to her title, authority and/or responsibilities will not constitute good reason for her to resign.

The following table includes the number of STAR Restricted Shares held by STAR’s executive officers and directors as of the date of this joint proxy statement/prospectus and the estimated value of such restricted shares, assuming vesting were to be accelerated on the date of the closing of the Mergers. As noted above, except for non-employee directors who will not continue as members of the IRT board of directors, the accelerated vesting of restricted shares will not occur automatically upon the closing of the Mergers. For accelerated vesting to occur, an executive officer must also experience a termination without cause or resignation with good reason.

 

Name

   Outstanding
STAR
Restricted Shares
     Estimated Value of
Accelerated Vesting
of Unvested

Restricted Shares(1)
 

Executive Officer:

     

Rodney F. Emery

     —        $ —    

Ella S. Neyland

     44,016.41        757,082  

Tim Middleton

     44,016.41        757,082  

Gustav Bahn

     32,559.70        560,027  

Jason Stern

     25,993.72        447,092  

David Miller

     16,922.94        291,075  

Tiffany Stanley

     20,849.03        358,603  

Director:

     

Ana Marie del Rio

     —          —    

Kerry D. Vandell

     23,076.64        181,987  

G. Brian Christie

     23,076.64        181,987  

Thomas H. Purcell

     23,076.64        181,987  

Ned W. Brines

     13,080.64        196,323  

Stephen R. Bowie

     13,080.64        196,323  

 

(1)

Estimates are based on the Exchange Ratio and assume a price per share of $17.20, which represents the average closing market price of the shares of IRT Common Stock over the first five business days following the first public announcement of the entry into the Merger Agreement. The actual value received by the executive officers and directors may be greater or less than those provided above.

Officer Employment Agreements

Under the terms of each Employment Agreement, if the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason” within 12 months following a “change in control” (as each term is defined in the Employment Agreements) and the executive executes a release of claims, the executive will be entitled to (1) a series of cash payments over a period of 18 months totaling one and one half times the sum of his or her then-current base salary and target annual cash incentive opportunity (currently, 75% of each executive’s annual base salary) for the then-current calendar year (the “Severance Payment”); (2) vesting of all outstanding equity-based awards that are subject solely to time-based vesting conditions and (3) if the executive elects continuation of coverage under STAR’s group health plan, continuation of subsidized health care coverage for 18 months or, if earlier, until the executive becomes eligible for health care coverage from another employer or eligibility for continuation of coverage under any Company group health plan ends. The Company Merger will constitute a “change in control” for purposes of the Employment Agreement.

For purposes of the Employment Agreements, if STAR terminates such employee’s employment without “cause” immediately prior to the closing of the Company Merger after IRT and STAR have jointly determined that such

 

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employee will not continue with IRT following the Company Merger, then such termination will be deemed to have occurred within 12 months following a “change in control.”

See the section entitled “—Treatment of Outstanding Equity Awards—Accelerated Vesting of STAR Equity Awards” above for a description of the STAR equity awards held by each executive officer.

The executive officers’ Employment Agreements provide that, if the compensation and benefits payable to the executive officer would be subject to an excise tax under Sections 280G and 4999 of the Code, such amounts will either be paid in full or reduced to the level that would avoid application of the excise tax, whichever would place the executive officer in a better after-tax position.

Each Employment Agreement also contains covenants relating to the treatment of confidential information and intellectual property matters and restrictions on the ability of each of the executive officers on the one hand and STAR on the other hand to disparage the other.

See the section entitled “—Quantification of Potential Payments and Benefits to STAR’s Named Executive Officers in Connection with the Company Merger” beginning on page 97 of this joint proxy statement/prospectus for the estimated severance amounts that each of STAR’s named executive officers would receive under his or her employment agreement upon a qualifying termination of employment following a change in control of STAR.

Cash LTIP Amounts

In addition, subject to continued employment through the Company Merger Effective Time, STAR may make cash payments to the executive officers with Employment Agreements immediately prior to the closing of the Company Merger, in lieu of the issuance of additional long-term incentive awards (each, a “Cash LTIP Amount”). If the Company Merger is consummated, Mses. Neyland and Stanley and Messrs. Middleton, Bahn, Stern and Miller may be paid Cash LTIP Amounts of up to $562,500, $375,000, $562,500, $500,000, $500,000 and $343,750, respectively, subject to each executive remaining employed by STAR until the closing date of the Company Merger.

2021 Annual Bonuses

Subject to the executive officer remaining employed by STAR until the closing date of the Company Merger, each executive officer will be eligible to earn an annual cash bonus for 2021. The amounts earned will be based in part on the level of achievement of specified performance metrics and in part in the discretion of STAR. If performance is achieved below specified threshold levels, no bonus is earned and the bonuses are capped at specified maximum levels. The executive officers threshold, target and maximum bonus opportunities are as follows:

 

Executive Officers

   Threshold      Target      Maximum  

Ella S. Neyland

   $ 225,000      $ 337,500      $ 450,000  

Tim Middleton

   $ 225,000      $ 337,500      $ 450,000  

Gustav Bahn

   $ 200,000      $ 300,000      $ 400,000  

Jason Stern

   $ 200,000      $ 300,000      $ 400,000  

David Miller

   $ 110,000      $ 165,000      $ 220,000  

Tiffany Stanley

   $ 150,000      $ 225,000      $ 300,000  

See the section entitled “—Quantification of Potential Payments and Benefits to STAR’s Named Executive Officers in Connection with the Company Merger” beginning on page 97 of this joint proxy statement/for the estimated bonus payment amount that each of STAR’s named executive officers would receive assuming maximum performance is achieved.

 

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Indemnification and Insurance

Pursuant to the terms of the Merger Agreement, STAR non-employee directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies following the Company Merger. Such indemnification and insurance coverage is further described in the section entitled “The Merger Agreement—Covenants and Agreements—Indemnification of Directors and Officers; Insurance” beginning on page 118 of this joint proxy statement/prospectus.

Appointment to IRT Board

Pursuant to the Merger Agreement, at the Company Merger Effective Time, five members of the STAR Board will be appointed to the IRT Board. For more information see the section entitled “The Merger Agreement—Officers and Board of Directors of the Combined Company.”

Potential Compensation Arrangements with IRT

Any STAR executive officers who become officers or employees or who otherwise are retained to provide services to IRT may, prior to, on or following the Company Merger Effective Time, enter into new compensation arrangements with IRT and may participate in cash or equity incentive or other benefit plans maintained by IRT. As of the date of this joint proxy statement/prospectus, no new individualized compensation arrangements between STAR’s executive officers and IRT have been established.

Quantification of Potential Payments and Benefits to STAR’s Named Executive Officers in Connection with the Company Merger

The information set forth in the table below is intended to comply with Item 402(t) of the SEC’s Regulation S-K, which requires disclosure of information about certain compensation for each named executive officer of STAR that is based on, or otherwise relates to, the Company Merger. For additional details regarding the terms of the payments and benefits described below, see the discussion under the caption “—Interests of STAR Directors and Executive Officers in the Mergers” above.

The amounts shown in the table below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below and in the footnotes to the table, and do not reflect certain compensation actions that may occur before consummation of the Company Merger. For purposes of calculating such amounts, the following assumptions were used:

 

 

Equity estimates are based on the Exchange Ratio and assume a price per share of $17.20 for each share of IRT Common Stock, which represents the average closing market price of the shares of IRT Common Stock over the first five business days following the first public announcement of the entry into the Merger Agreement. Accordingly, the actual value received by the executive officers and may be greater or less than those provided.

 

 

The employment of each executive officer of STAR is terminated by STAR without “cause” or due to the executive officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements), in either case on the closing date of the Company Merger.

 

 

2021 annual bonuses are earned and paid at the maximum level of performance.

 

Named Executive Officer

   Cash ($)(1)      Equity($)(2)      Perquisites /
Benefits($)(3)
     Total ($)(4)  

Rodney F. Emery

     —          —          —          —    

Ella S. Neyland

   $ 2,194,000      $ 757,082      $ 10,872      $ 2,961,954  

Tim Middleton

   $ 2,194,000      $ 757,082      $ 27,468      $ 2,978,550  

Gustav Bahn

   $ 1,950,000      $ 560,027      $ 18,646      $ 2,528,673  

Jason Stern

   $ 1,950,000      $ 447,092      $ 27,468      $ 2,424,560  

 

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(1)

Cash. Consists of (a) cash payments equal to (i) 1.5 multiplied by (ii) the sum of the executive officer’s base salary and an amount equal to the executive officer’s target annual cash incentive award plus (b) the 2021 annual bonus plus (c) the Cash LTIP Amount. See the sections entitled “—Officer Employment Agreements,” “—Cash LTIP Amount” and “—2021 Annual Bonuses” for further description of these amounts. The estimated amount of each such payment is shown in the following table:

 

Named Executive Officer

   Severance ($)      Cash LTIP Amount ($)      2021 Maximum Annual Bonus  

Rodney F. Emery

     —          —          —    

Ella S. Neyland

   $ 1,181,500      $ 562,500      $ 450,000  

Tim Middleton

   $ 1,181,500      $ 562,500      $ 450,000  

Gustav Bahn

   $ 1,050,000      $ 500,000      $ 400,000  

Jason Stern

   $ 1,050,000      $ 500,000      $ 400,000  

 

(2)

Equity. Includes accelerated vesting of STAR Restricted Shares upon a qualifying termination of employment. For further details regarding the treatment of STAR equity awards in connection with the Company Merger and the estimated values of such awards, see the section entitled “—Treatment of Outstanding Equity Awards.”

(3)

Perquisites / Benefits. Consists of estimated value of continuation of subsidized health care coverage for the 18-month period following termination of employment upon qualifying termination of employment. See the section entitled “—Officer Employment Agreements.”

(4)

Cutback. Amounts reported in this table do not reflect the impact of the better net after-tax cutback that may apply to the payments and benefits of the named executive officers in the event that the excise tax applicable under Sections 280G and 4999 of the Code would otherwise apply. See the section entitled “—Officer Employment Agreements.”

Letter Agreement

As a condition to IRT entering into the Merger Agreement, on July 26, 2021, STAR entered into the Letter Agreement with Rodney Emery, the Chief Executive Officer and Chairman of STAR, and SRI. SRI is a controlled affiliate of Mr. Emery but not otherwise related to STAR. Pursuant to the Letter Agreement, and subject to limitations, SRI agreed to indemnify the Indemnified Parties for 75% of any costs, expenses, judgments, liabilities and payments, including settlement payments and attorneys’ fees, incurred or arising in connection with certain specified stockholder claims. IRT is an express third party beneficiary of the Letter Agreement. For more information please see STAR’s Quarterly Report on Form 10-Q for the period ended June 30, 2021, a copy of which is attached to this joint proxy statement/prospectus as Annex F.

Directors and Management Following the Mergers

Initial Board Composition of the Combined Company Following the Mergers

Upon consummation of the Mergers, the board of directors of the combined company will be comprised of the following five incumbent directors of the IRT Board and the following five incumbent directors of the STAR Board: Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington; and Stephen R. Bowie, Ned W. Brines, Ana Marie del Rio, Ella S. Neyland and Thomas H. Purcell, respectively.

Officers of the Combined Company Following the Mergers

Upon consummation of the Mergers, Scott F. Schaeffer, currently IRT’s Chairman of the Board and Chief Executive Officer, will continue in these positions for the combined company; James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company; Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company; Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company and 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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Treatment of STAR OP Units in the Partnership Merger

The Merger Agreement provides that, at the Partnership Merger Effective Time, (1) each Class A STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio and will be owned by IRT through IRT Merger Sub and (2) each Class A-2 STAR OP Unit and each Class B STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio. 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.

Accounting Treatment

IRT and STAR prepare their financial statements in accordance with GAAP. The Mergers will be accounted for by applying the acquisition method of accounting in accordance with ASC 805 “Business Combinations” (“ASC 805”) which requires the identification of the acquiror, the determination of the acquisition date, the recognition and measurement, at fair value, of the assets acquired, liabilities assumed, and any non-controlling interest in the consolidated subsidiaries of the acquiree, and recognition and goodwill or a gain from a bargain purchase, if any. ASC 805 provides that in a business combination involving the exchange of equity interests, the entity issuing the equity interests is usually the acquiror; however, all pertinent facts and circumstances must be considered, including the relative voting rights of the stockholders of the constituent companies in the combined entity, the composition of the board of directors and senior management of the combined entity, the relative size of the company and the terms of the exchange of equity interests in the business combination, including payment of a premium.

The facts and circumstances considered in reaching the accounting acquiror conclusion are described below. Since more of the indicators identified in ASC 805 favored IRT as accounting acquiror compared to those that favored STAR, IRT is considered the acquiror for accounting purposes and will recognize and measure, at fair value, the assets acquired, liabilities assumed, and any non-controlling interests in the consolidated subsidiaries of STAR, and IRT will recognize goodwill or a gain from a bargain purchase, if any, upon consummation of the Mergers. The indicators favoring IRT included (in order of relative strength):

 

   

Composition of senior management, which will be comprised of a majority of current IRT senior management.

 

   

The Exchange Ratio, which represented a premium of approximately 16.40% to the most recently disclosed estimated value per share of STAR Common Stock as of December 31, 2020.

 

   

Other considerations including the combined company’s name, location of its headquarters, and size of IRT’s and STAR’s equity market capitalization prior to the announcement of the Mergers, all of which favored IRT as the accounting acquiror.

 

   

Board composition of the combined company, although the 10-member board of directors of the combined company will be split evenly between current IRT and current STAR directors the fact that the roles of Chairman of the Board and Lead Independent Director will be filled by current IRT directors favored IRT as the accounting acquiror.

The only indicator favoring STAR was the relative size of its revenue and total assets compared to that of IRT. One indicator, relative voting rights, was inconclusive as it is expected that IRT and STAR stockholders will each own approximately 50% of the combined company. However, upon consummation of the Mergers, based on the shares of IRT Common Stock and STAR Common Stock outstanding as of the record date, and assuming issuance by IRT of 16,100,000 shares of IRT Common Stock in full physical settlement of the IRT Forward Sale Agreements prior to consummation of the Mergers, IRT and STAR estimate that legacy IRT stockholders and

 

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holders of IROP Common Units will own approximately 53% of the issued and outstanding shares of IRT Common Stock and IROP Common Units, and legacy STAR stockholders and STAR OP unitholders will own approximately 47% of the issued and outstanding shares of IRT Common Stock and IROP Common Units.

Regulatory Approvals

IRT and STAR are not aware of any material federal or state regulatory requirements that must be complied with, or regulatory approvals that must be obtained, in connection with the Mergers or the other transactions contemplated by the Merger Agreement.

Exchange of Shares in the Mergers

Prior to the Company Merger Effective Time, subject to the terms of the Merger Agreement, IRT will appoint the paying agent to handle the exchange of book-entry shares of STAR Common Stock for book-entry shares of IRT Common Stock and the payment of the cash in lieu of any fractional shares of IRT Common Stock. All shares of STAR Common Stock and IRT Common Stock currently outstanding are in book-entry form. As soon as reasonably practicable after the Company Merger Effective Time, the paying agent will mail to each holder of record of shares of STAR Common Stock a letter of transmittal, with instructions for use in receiving the cash in lieu of fractional shares of IRT Common Stock that the holder is entitled to receive under the Merger Agreement. Upon surrender of book-entry shares of STAR Common Stock and other documents required in the instructions along with the executed letter of transmittal, each STAR stockholder will receive any whole shares of IRT Common Stock such holder is entitled to receive and the cash in lieu of any fractional shares of IRT Common Stock such holder is entitled to receive. After the Company Merger Effective Time, STAR will not register any transfers of shares of STAR Common Stock.

If you are an IRT stockholder, you are not required to take any action with respect to your shares of IRT Common Stock.

Dividends

IRT and STAR plan to continue their respective current dividend policies until the Company Merger Effective Time. IRT intends to pay quarterly dividends, and STAR intends to pay daily dividends (payable monthly), to their respective stockholders in accordance with their ordinary course of business. IRT and STAR have agreed to coordinate their regular dividends for their stockholders so that, if one party’s stockholders receive any dividend for a particular period prior to the closing of the Mergers, the other party’s stockholders will also receive a dividend for a comparable period.

IRT and STAR have also agreed that either party, with at least 20 days’ advance notice to the other, can declare and pay, in addition to the regular dividend described in the foregoing paragraph, a dividend that is determined by such party to be the minimum dividend required in order for such party to qualify as a REIT and to avoid to the extent reasonably possible the incurrence of income or excise tax (which we refer to as a “REIT dividend”). If one party declares a REIT dividend, the other party can declare a dividend per share in the same amount, as adjusted by the Exchange Ratio. The record date and payment date for any REIT dividend will be the close of business on the last business day prior to the closing date of the Mergers.

Listing of IRT Common Stock in the Mergers

It is a condition to the consummation of the Mergers that the IRT Common Stock issuable in the Mergers, including shares of IRT Common Stock to be issued upon conversion of the IROP Common Units issued in the Partnership Merger, be approved for listing on the NYSE, subject to official notice of issuance.

 

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Deregistration of STAR Common Stock

Following consummation of the Company Merger, the STAR Common Stock currently registered under the Exchange Act will be deregistered.

No Appraisal or Dissenters’ Rights

No appraisal or dissenters’ rights will be available with respect to the Company Merger, the Partnership Merger, the issuance of IRT Common Stock in the Company Merger, or any of the other transactions contemplated by the Merger Agreement.

 

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THE MERGER AGREEMENT

The following section summarizes material provisions of the Merger Agreement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. This summary is subject to, and qualified in its entirety by reference to, the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. The rights and obligations of the parties are governed by the express terms and conditions of the Merger Agreement and not by this summary or any other information contained in this joint proxy statement/prospectus. You are urged to read the Merger Agreement carefully and in its entirety before making any decisions regarding the Merger Agreement and the Mergers contemplated thereby.

The summary of the Merger Agreement is included in this joint proxy statement/prospectus only to provide you with information regarding the terms and conditions of the Merger Agreement, and not to provide any other factual information about IRT or STAR or their respective subsidiaries or businesses. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus. For more information, see “Where You Can Find More Information.”

The representations, warranties and covenants contained in the Merger Agreement and described in this joint proxy statement/prospectus were made only for purposes of the Merger Agreement and as of specific dates, may be subject to more recent developments and limitations agreed upon by the contracting parties, including being qualified by reference to confidential disclosures, were made solely for the benefit of the other parties to the Merger Agreement and for the purposes of allocating risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors. The representations and warranties contained in the Merger Agreement do not survive the Company Merger Effective Time. Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or conditions of IRT, STAR or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by IRT or STAR.

Form, Effective Time and Closing of the Mergers

The Merger Agreement provides for (i) the merger of STAR into IRT Merger Sub at the Company Merger Effective Time, with IRT Merger Sub continuing as the surviving entity and a wholly owned subsidiary of IRT, and (ii) immediately following the Company Merger, the merger of STAR OP into IRT OP at the Partnership Merger Effective Time, with IRT OP continuing as the surviving entity. The Company Merger will become effective upon the articles of merger with respect to the Company Merger being duly filed with and accepted for record by the State Department of Assessments and Taxation of the State of Maryland, or such later time specified in the articles of merger not exceeding 30 days from the date of acceptance for record of the articles of merger. The Partnership Merger will become effective upon the certificate of merger with respect to the Partnership Merger being duly filed with the Secretary of State of the State of Delaware.

The Merger Agreement provides that the closing of the Company Merger will take place at 9:29 a.m. Eastern time at the offices of Morrison & Foerster LLP in Atlanta, Georgia on the second business day after the satisfaction or waiver of the conditions to closing (described below under “—Conditions to Completion of the Mergers”) set forth in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the closing), or at such other place, date and time as IRT and STAR may agree in writing.

Officers and Board of Directors of the Combined Company

Effective as of the Company Merger Effective Time, the parties will take all necessary action to cause the officers of the combined company to be as follows: Scott F. Schaeffer, currently IRT’s Chairman of the Board

 

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and Chief Executive Officer, will continue in these positions for the combined company; James J. Sebra, currently IRT’s Chief Financial Officer, will continue in this position for the combined company; Farrell M. Ender, currently IRT’s President, will continue in this position for the combined company; Jessica K. Norman, currently IRT’s Executive Vice President and General Counsel, will serve as Chief Legal Officer of the combined company; and Ella S. Neyland, currently STAR’s President, Chief Financial Officer and Treasurer, will serve as Chief Operating Officer of the combined company.

The parties will take all necessary action to cause the board of directors of the combined company to consist of ten members at the Company Merger Effective Time, with the following composition: five current IRT directors, Scott F. Schaeffer, Richard D. Gebert, Melinda H. McClure, DeForest Blake Soaries Jr. and Lisa Washington (each, an “IRT designee”), and five current STAR directors, Ella S. Neyland, Ana Marie del Rio, Thomas H. Purcell, Ned W. Brines and Stephen R. Bowie (each, a “STAR designee”). Scott F. Schaeffer, Chairman of the IRT Board, will continue to serve as Chairman of the Board for the combined company. Melinda H. McClure, lead independent director of the IRT Board, will continue in her role as the lead independent director for the board of directors of the combined company. If any IRT designee or STAR designee is unable or unwilling to serve, for any reason, as a director on the board of directors of the combined company at the Company Merger Effective Time, IRT or STAR, respectively, will have the right to designate another individual who is then serving as a member of the IRT Board or the STAR Board, as applicable, to become an IRT designee or a STAR designee (as applicable) in place of such unavailable IRT designee or STAR designee (as applicable), provided that such replacement director will be reasonably acceptable to STAR or IRT (as applicable).

Merger Consideration; Effects of the Mergers

Merger Consideration

At the Company Merger Effective Time, by virtue of the Company Merger and without any action on the part of any party to the Merger Agreement, the holders of STAR Common Stock, or any other person, each issued and outstanding share of STAR Common Stock (other than shares held by IRT, any subsidiary of IRT, or any subsidiary of STAR as of immediately prior to the Company Merger Effective Time) will be automatically converted into the right to receive a number of shares of IRT Common Stock equal to the Exchange Ratio (the “Share Merger Consideration”).

At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of any party to the Merger Agreement, the holders of STAR OP Units, or any other person, (i) each IROP Common Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will remain issued and outstanding, (ii) each STAR OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time will be automatically converted into the right to receive a number of IROP Common Units equal to the Exchange Ratio (the “Unit Merger Consideration”) and will cease to exist, and the holder of such STAR OP Unit will cease to have any rights with respect to such STAR OP Unit other than the right to receive the Unit Merger Consideration, without interest, and (iii) the general partnership interest of STAR OP, which is owned entirely by STAR, will be cancelled and cease to exist, and no consideration will be delivered in respect thereof.

No fractional shares of IRT Common Stock will be issued, but instead holders of STAR Common Stock will receive cash, without interest, in an amount equal to the product of (i) such fractional part of a share of IRT Common Stock multiplied by (ii) the volume weighted average price of IRT Common Stock on the NYSE for a thirty (30) trading day period, starting with the opening of trading on the first trading day of such period and ending with the closing of the second to last trading day prior to the closing date of the Mergers, as reported by Bloomberg.

Treatment of STAR Restricted Shares

The Merger Agreement provides that, at the Company Merger Effective Time, each award of STAR Restricted Shares that is subject to vesting or forfeiture conditions, other than vesting or forfeiture conditions that terminate

 

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at the Company Merger Effective Time, that is outstanding immediately prior to the Company Merger Effective Time will be automatically converted into a number of IRT Restricted Shares (rounded to the nearest whole number of shares) equal to the product obtained by multiplying (A) the number of shares of STAR Common Stock subject to such restricted stock award immediately prior to the Company Merger Effective Time by (B) the Exchange Ratio. Notwithstanding the foregoing, with respect to any STAR Restricted Shares held by a grantee who is a non-employee member of the STAR Board immediately prior to the Company Merger Effective Time and who does not become a member of the board of directors of the combined company at the Company Merger Effective Time, such STAR Restricted Shares will vest upon the Company Merger Effective Time and therefore any IRT Restricted Shares issued in respect thereof will be fully vested and non-forfeitable.

Exchange and Payment Procedures

Prior to the closing date of the Mergers, IRT will enter into an agreement (in a form reasonably acceptable to STAR) with a United States bank or trust company to be appointed by IRT (and reasonably satisfactory to STAR) to act as a paying agent (the “Paying Agent”) for the purpose of exchanging STAR Common Stock represented by book-entry shares (the “Book-Entry Shares”) for Share Merger Consideration (including Share Merger Consideration subject to vesting and forfeiture conditions as provided for in the Merger Agreement).

Prior to the Company Merger Effective Time, IRT will deposit, or will cause to be deposited, with the Paying Agent in trust for the benefit of the holders of STAR Common Stock (including holders of shares STAR Restricted Stock), for exchange in accordance with the Merger Agreement, (i) evidence of IRT Common Stock in book-entry form issuable pursuant to the Merger Agreement equal to the aggregate Share Merger Consideration (inclusive of shares of IRT Common Stock subject to vesting and forfeiture conditions as provided for in the Merger Agreement, but excluding any fractional shares), and (ii) immediately available funds equal to, to the extent then determinable, any cash payable in lieu of fractional shares pursuant to the Merger Agreement, and IRT will instruct the Paying Agent to timely pay the cash in lieu of fractional shares of IRT Common Stock.

At the Partnership Merger Effective Time, IRT OP will reflect on its books and records, and provide reasonable evidence thereof, the issuance of IROP Common Units, including fractional IROP Common Units, in conversion of STAR OP Units in accordance with the Merger Agreement.

As soon as reasonably practicable (and in any event within three (3) business days) after the Company Merger Effective Time, to the extent not previously delivered, IRT will cause the Paying Agent to mail to each holder of record of STAR Common Stock, as converted into the Share Merger Consideration pursuant to the Merger Agreement, a letter of transmittal in customary form as agreed to between STAR and IRT prior to the Company Merger Effective Time. The letter of transmittal will be accompanied by instructions for use in receiving the cash in lieu of fractional shares pursuant to the Merger Agreement with respect to the Book-Entry Shares. The letter of transmittal will be in such form and have such other provisions as IRT and STAR may agree, including any provisions relating to any distribution to be made with respect to shares of STAR Common Stock pursuant to the Merger Agreement that has a record date prior to, and has not been paid as of, the Company Merger Effective Time.

IRT OP will deliver to each holder of STAR OP Units as of immediately prior to the Partnership Merger Effective Time any agreement or additional documents necessary to admit such holder of STAR OP Units as a new limited partner of IRT OP, on terms and conditions as reasonably agreed to by STAR and IRT, and to record such holder as the owner of the aggregate number of IROP Common Units as such holder is entitled to receive in respect of its aggregate Unit Merger Consideration pursuant to the Merger Agreement.

Withholding

All payments under the Merger Agreement are subject to applicable withholding requirements.

 

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Appraisal Rights

No dissenters’ or appraisal rights, or rights of objecting stockholders under Title 3, Subtitle 2 of the MGCL, will be available to holders of STAR Common Stock with respect to the Company Merger or the other transactions contemplated by the Merger Agreement.

Representations and Warranties

The Merger Agreement contains a number of representations and warranties made by STAR and STAR OP, on the one hand, and IRT, IRT OP and IRT Merger Sub, on the other hand. The representations and warranties were made by the parties as of the date of the Merger Agreement and do not survive the Company Merger Effective Time. Certain of these representations and warranties are subject to specified exceptions and qualifications contained in the Merger Agreement and qualified by information with respect to each of STAR and IRT filed with the SEC prior to the date of the Merger Agreement and in the disclosure letters delivered in connection with the Merger Agreement.

Representations and Warranties of STAR and STAR OP

The Merger Agreement includes representations and warranties by STAR and STAR OP relating to, among other things:

 

   

organization, valid existence, organizational documents, good standing, qualification to conduct business and subsidiaries;

 

   

capital structure;

 

   

due authorization, execution, delivery and validity of the Merger Agreement and board approvals;

 

   

absence of any conflict with or violation of organizational documents or applicable laws, absence of any filings with or consent by a governmental entity, and the absence of any violation or breach of, or default or consent requirements under, certain agreements;

 

   

SEC filings, financial statements, absence of undisclosed liabilities, and internal controls;

 

   

accuracy of information supplied for inclusion in this joint proxy statement/prospectus;

 

   

absence of certain changes since January 1, 2021;

 

   

tax matters, including qualification as a REIT;

 

   

labor and employment matters;

 

   

employee benefit plans and the Employee Retirement Income Security Act of 1974 (which we refer to as “ERISA”);

 

   

litigation;

 

   

compliance with laws and permits;

 

   

environmental matters;

 

   

real property and leases;

 

   

intellectual property;

 

   

material contracts;

 

   

insurance;

 

   

interested party transactions;

 

   

required stockholder vote;

 

   

broker’s, investment banker’s, finder’s and other fees;

 

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opinion of financial advisor;

 

   

inapplicability of takeover statutes;

 

   

inapplicability of the Investment Company Act of 1940, as amended (which we refer to as the “Investment Company Act of 1940”);

 

   

absence of dissenters’, appraisal or similar rights in connection with the Mergers;

 

   

inapplicability of the Hart-Scott-Rodino Antitrust Improvements Act; and

 

   

disclaimer of other representations and warranties.

Representations and Warranties of IRT, IRT OP and IRT Merger Sub

The Merger Agreement includes representations and warranties by IRT, IRT OP and IRT Merger Sub relating to, among other things:

 

   

organization, valid existence, organizational documents, good standing, qualification to conduct business and subsidiaries;

 

   

capital structure;

 

   

due authorization, execution, delivery and validity of the Merger Agreement and board approvals;

 

   

absence of any conflict with or violation of organizational documents or applicable laws, absence of any filings with or consent by a governmental entity, and the absence of any violation or breach of, or default or consent requirements under, certain agreements;

 

   

SEC filings, financial statements, absence of undisclosed liabilities, and internal controls;

 

   

accuracy of information supplied for inclusion in this joint proxy statement/prospectus;

 

   

absence of certain changes since January 1, 2021;

 

   

tax matters, including qualification as a REIT;

 

   

labor and employment matters;

 

   

employee benefit plans and ERISA;

 

   

litigation;

 

   

compliance with laws and permits;

 

   

environmental matters;

 

   

real property and leases;

 

   

intellectual property;

 

   

material contracts;

 

   

insurance;

 

   

interested party transactions;

 

   

required stockholder vote;

 

   

broker’s, investment banker’s, finder’s and other fees;

 

   

opinions of financial advisors;

 

   

inapplicability of takeover statutes;

 

   

inapplicability of the Investment Company Act of 1940;

 

   

absence of dissenters’, appraisal or similar rights in connection with the Mergers;

 

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inapplicability of the Hart-Scott-Rodino Antitrust Improvements Act; and

 

   

disclaimer of other representations and warranties.

Definition of “Material Adverse Effect”

Many of the representations of STAR and STAR OP, on the one hand, and IRT, IRT OP and IRT Merger Sub, on the other hand, are qualified by a “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would reasonably be expected to have a material adverse effect). For the purposes of the Merger Agreement, “material adverse effect” means any change, development, event, effect or occurrence that (i) has a material adverse effect on the business, assets, properties, financial condition or results of operations of IRT and its subsidiaries, taken as a whole, or STAR and its subsidiaries, taken as a whole, as the case may be, or (ii) will or would reasonably be expected to prevent or materially impair or delay the ability of IRT, IRT OP or IRT Merger Sub, or STAR or STAR OP, as the case may be, to consummate the Mergers. However, any change, development, event, effect or occurrence will not be considered a material adverse effect to the extent arising out of or resulting from the following:

 

   

any event generally affecting the geographic regions or industry in which the respective parties operate;

 

   

any event generally affecting the economy, or financial, credit, foreign exchange, securities or capital markets (including changes in interest rates or exchange rates), including any disruption thereof, in the United States or elsewhere in the world

 

   

changes in applicable law or applicable accounting regulations or principles or interpretations thereof;

 

   

any event directly or indirectly attributable to the announcement or pendency of the Merger Agreement or the anticipated consummation of the Mergers and the other transactions contemplated by the Merger Agreement (including compliance with the covenants set forth in the Merger Agreement and the identity of IRT as the acquiror of STAR, or any action taken, delayed or omitted to be taken by one party at the request or with the prior consent of the other party or otherwise pursuant to the terms of the Merger Agreement), including the impact thereof on relationships, contractual or otherwise, with employees, customers, suppliers, tenants, or lenders;

 

   

national or international political conditions, any outbreak or escalation of hostilities, insurrection or war, whether or not pursuant to declaration of a national emergency or war, acts of terrorism, sabotage, strikes, freight embargoes or similar calamity or crisis;

 

   

fires, epidemics, quarantine restrictions, earthquakes, hurricanes, tornados or other natural disasters;

 

   

any decline in the market price, or in the case of IRT, change in trading volume, of the capital stock of IRT or STAR, or any failure to meet publicly announced revenue or earnings projections or predictions (whether such projections or predictions were made by IRT, STAR or independent third parties) or internal projections;

 

   

any damage or destruction of any property of IRT or STAR, as applicable, that is substantially covered by insurance;

which, in the case of first, second, third and fifth bullet points above, such changes do not disproportionately affect IRT or STAR, as applicable, relative to other similarly situated participants in the industries in which they operate, and, in the case of the sixth bullet point above, such changes do not disproportionately affect IRT or STAR, as applicable, relative to other participants in the industries in which they operate in the geographic regions in which they operate or own or lease properties.

Covenants and Agreements

Conduct of Business of STAR Pending the Mergers

STAR has agreed to certain restrictions on it and its subsidiaries until the earlier of the Company Merger Effective Time and the valid termination of the Merger Agreement. In general, except as contemplated by the

 

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Merger Agreement or required by law, STAR has agreed that it will, and will cause each of its subsidiaries to, conduct its business in the ordinary course consistent with past practice, and use its commercially reasonable efforts to (i) maintain its material assets and properties in their current condition (normal wear and tear excepted), (ii) preserve intact its current business organization, keep available the services of its current officers and employees, keep and preserve its present relationship with tenants, joint venture partners or co-venturers, suppliers, licensors, licensees, distributors and others having material business dealings with it, and (iii) preserve the status of STAR as a REIT. Without limiting the foregoing, STAR has also agreed that it will not, and it will not cause or permit any of its subsidiaries to (subject to certain exceptions), without the prior written consent of IRT, which shall not be unreasonably withheld, conditioned or delayed (provided that if STAR submits to IRT a written request for IRT’s consent to take certain actions that are otherwise prohibited under the terms of the Merger Agreement and IRT fails to respond to such request within ten days following the receipt of such request, then IRT will be deemed to have given prior written consent with respect to the actions in such request), among other things:

 

   

except for daily distributions (payable monthly) of up to $0.001438 per share of STAR Common Stock to the holders thereof and comparable distributions on STAR OP Units for each calendar day prior to the Company Merger Effective Time, declare, set aside or pay any dividends on, or make any other distributions in respect of, shares of capital stock or other equity securities or ownership interests in STAR or its subsidiaries;

 

   

split, combine or reclassify any shares of capital stock or other equity securities or ownership interests in STAR or its subsidiaries or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any shares of capital stock or other equity securities or ownership interests in STAR or its subsidiaries;

 

   

purchase, redeem (whether or not pursuant to STAR’s share repurchase plan) or otherwise acquire any shares of capital stock or other equity securities or ownership interests of STAR or its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

 

   

issue, sell, pledge or grant (or enter into an agreement to issue, sell, pledge or grant): (i) any shares of capital stock or other equity securities or ownership interests of STAR or its subsidiaries, (ii) any voting securities of STAR, including voting debt securities, (iii) any securities convertible into or exchangeable for, or any options, warrants, calls or rights to acquire, any shares of capital stock or other equity securities or ownership interests of STAR or its subsidiaries, voting securities, including voting debt securities, or convertible or exchangeable securities or (iv) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units;

 

   

amend the charter, bylaws or other organizational documents of STAR or its subsidiaries;

 

   

acquire or agree to acquire (including by merging or consolidating with, or by purchasing an equity interest in or portion of the assets of, or by any other manner), any business or any corporation, partnership, joint venture, association or other business organization or division thereof, real property, personal property or assets;

 

   

(i) grant or cause to be granted to any executive officer, director or employee of STAR or its subsidiaries an increase in compensation, (ii) grant or cause to be granted to any current or former executive officer or director of STAR or its subsidiaries any increase in severance or termination pay, (iii) enter into any change in control, severance or termination agreement with any executive officer or director, (iv) establish, adopt, enter into or amend any collective bargaining agreement or any employee benefit plan, or (v) take any action to accelerate any rights or benefits under any employee benefit plan;

 

   

make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of STAR or its subsidiaries;

 

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sell, lease (as lessor), license, sell and lease back, mortgage or otherwise dispose of or subject to any lien any properties or assets;

 

   

(i) incur or modify any indebtedness for borrowed money or guarantee any such indebtedness of another person, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities of STAR or its subsidiaries, guarantee any debt securities of another person, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, or (iii) make any loans, advances or capital contributions to, or investments in, any other person;

 

   

pay, discharge, settle or satisfy any material action, litigation, claim or arbitration where the amount paid out-of-pocket net of insurance proceeds in settlement or compromise exceeds $500,000 individually or $1,000,000 in the aggregate;

 

   

enter into any consent decree, injunction or similar restraint or form of equitable relief that would materially restrict the operation of the business of STAR and its subsidiaries taken as a whole;

 

   

cancel any material indebtedness or waive any claims or rights with a value in excess of $500,000;

 

   

enter into or amend, extend or terminate, or waive, release, compromise or assign any rights or claims under any material contract;

 

   

establish, adopt or enter into any collective bargaining agreement or other labor union contract applicable to the employees of STAR or its subsidiaries;

 

   

authorize, or enter into any commitment for, any new material capital expenditure relating to the properties of STAR or its subsidiaries;

 

   

enter into or modify in a manner adverse to STAR any tax protection agreement, make, change or revoke any material tax election, change a material method of tax accounting, file or amend any material tax return, or settle or compromise any material U.S. federal, state, local or foreign income tax liability, audit, claim or assessment, enter into any material closing agreement related to taxes, knowingly surrender any right to claim any material tax refund, or give or request any waiver of a statute of limitation with respect to any material tax return;

 

   

take any action that would, or fail to take any action, the failure of which to be taken would, reasonably be expected to cause STAR to fail to qualify as a REIT or any of its subsidiaries to cease to be treated as any of (i) a partnership or disregarded entity for U.S. federal income tax purposes or (ii) a qualified REIT subsidiary or a taxable REIT subsidiary under the applicable provisions of Section 856 of the Code, as the case may be;

 

   

enter into any contract that would limit or otherwise restrict (or purport to do so) STAR or its subsidiaries from engaging or competing in any line of business or owning property in any geographic area;

 

   

adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of STAR or its subsidiaries;

 

   

enter into any joint venture or partnership or other similar contract with any third party;

 

   

enter into any new line of business;

 

   

permit existing insurance policies of STAR or its subsidiaries to be cancelled or terminated without replacing such insurance policies with comparable insurance policies, to the extent available on commercially reasonable terms; or

 

   

authorize any of, or commit, resolve or agree to take any of, the foregoing actions.

 

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Conduct of Business of IRT Pending the Mergers

IRT has agreed to certain restrictions on it and its subsidiaries until the earlier of the Company Merger Effective Time and the valid termination of the Merger Agreement. In general, except as contemplated by the Merger Agreement or required by law, IRT has agreed that it will, and will cause each of its subsidiaries to, conduct its business in the ordinary course consistent with past practice, and use its commercially reasonable efforts to (i) maintain its material assets and properties in their current condition (normal wear and tear excepted), (ii) preserve intact its current business organization, keep available the services of its current officers and external manager, keep and preserve its present relationship with tenants, joint venture partners or co-venturers, suppliers, licensors, licensees, distributors and other having material business dealings with it, and (iii) preserve the status of IRT as a REIT. Without limiting the foregoing, IRT has also agreed that it will not, and it will not cause or permit any of its subsidiaries to (subject to certain exceptions), without the prior written consent of STAR, which shall not be unreasonably withheld, conditioned or delayed (provided that if IRT submits to STAR a written request for STAR’s consent to take certain actions that are otherwise prohibited under the terms of the Merger Agreement and STAR fails to respond to such request within ten days following the receipt of such request, then STAR will be deemed to have given prior written consent with respect to the actions in such request), among other things:

 

   

except for quarterly distributions of up to $0.12 per share of IRT Common Stock to the holders thereof and comparable distributions on IROP Common Units for each quarter or partial quarter ending prior to the Company Merger Effective Time, declare, set aside or pay any dividends on, or make any other distributions in respect of, shares of capital stock or other equity securities or ownership interests in IRT or its subsidiaries;

 

   

split, combine or reclassify any shares of capital stock or other equity securities or ownership interests in IRT or its subsidiaries or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any shares of capital stock or other equity securities or ownership interests in IRT or its subsidiaries;

 

   

purchase, redeem or otherwise acquire any shares of capital stock or other equity securities or ownership interests of IRT or its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

 

   

issue, sell, pledge or grant (or enter into an agreement to issue, sell, pledge or grant): (i) any shares of capital stock or other equity securities or ownership interests of IRT or its subsidiaries, (ii) any voting securities of IRT, including voting debt securities, (iii) any securities convertible into or exchangeable for, or any options, warrants, calls or rights to acquire, any shares of capital stock or other equity securities or ownership interests of IRT or its subsidiaries, voting securities, including voting debt securities, or convertible or exchangeable securities or (iv) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units, but the Merger Agreement did not restrict the IRT Common Stock Offering;

 

   

amend the charter, bylaws or other organizational documents of IRT or its subsidiaries;

 

   

acquire or agree to acquire (including by merging or consolidating with, or by purchasing an equity interest in or portion of the assets of, or by any other manner), any business or any corporation, partnership, joint venture, association or other business organization or division thereof, real property, personal property or assets;

 

   

(i) grant or cause to be granted to any executive officer, director or employee of IRT or its subsidiaries an increase in compensation, (ii) grant or cause to be granted to any current or former executive officer or director of IRT or its subsidiaries any increase in severance or termination pay, (iii) enter into any change in control, severance or termination agreement with any executive officer or director, (iv) establish, adopt, enter into or amend any collective bargaining agreement or any employee benefit plan, or (v) take any action to accelerate any rights or benefits under any employee benefit plan;

 

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make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of IRT or its subsidiaries;

 

   

sell, lease (as lessor), license, sell and lease back, mortgage or otherwise dispose of or subject to any lien any properties or assets;

 

   

(i) incur or modify any indebtedness for borrowed money or guarantee any such indebtedness of another person, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities of IRT or its subsidiaries, guarantee any debt securities of another person, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, or (iii) make any loans, advances or capital contributions to, or investments in, any other person;

 

   

pay, discharge, settle or satisfy any material action, litigation, claim or arbitration where the amount paid out-of-pocket net of insurance proceeds in settlement or compromise exceeds $500,000 individually or $1,000,000 in the aggregate;

 

   

enter into any consent decree, injunction or similar restraint or form of equitable relief that would materially restrict the operation of the business of IRT and its subsidiaries taken as a whole;

 

   

cancel any material indebtedness or waive any claims or rights with a value in excess of $500,000;

 

   

enter into or amend, extend or terminate, or waive, release, compromise or assign any rights or claims under any material contract;

 

   

establish, adopt or enter into any collective bargaining agreement or other labor union contract applicable to the employees of IRT or its subsidiaries;

 

   

authorize, or enter into any commitment for, any new material capital expenditure relating to the properties of IRT or its subsidiaries;

 

   

enter into or modify in a manner adverse to IRT any tax protection agreement, make, change or revoke any material tax election, change a material method of tax accounting, file or amend any material tax return, or settle or compromise any material U.S. federal, state, local or foreign income tax liability, audit, claim or assessment, enter into any material closing agreement related to taxes, knowingly surrender any right to claim any material tax refund, or give or request any waiver of a statute of limitation with respect to any material tax return;

 

   

take any action that would, or fail to take any action, the failure of which to be taken would, reasonably be expected to cause IRT to fail to qualify as a REIT or any of its subsidiaries to cease to be treated as any of (i) a partnership or disregarded entity for U.S. federal income tax purposes or (ii) a qualified REIT subsidiary or a taxable REIT subsidiary under the applicable provisions of Section 856 of the Code, as the case may be;

 

   

enter into any contract that would limit or otherwise restrict IRT or its subsidiaries from engaging or competing in any line of business or owning property in any geographic area;

 

   

adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of IRT or its subsidiaries;

 

   

enter into any joint venture or partnership or other similar contract with any third party;

 

   

enter into any new line of business;

 

   

permit existing insurance policies of IRT or its subsidiaries to be cancelled or terminated without replacing such insurance policies with comparable insurance policies, to the extent available on commercially reasonable terms; or

 

   

authorize any of, or commit, resolve or agree to take any of, the foregoing actions.

 

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No Solicitation of Transactions by STAR

Until the earlier of the Company Merger Effective Time and the valid termination of the Merger Agreement, STAR has agreed not to, and to cause its subsidiaries not to (and not authorize any of its officers, directors, managers and other representatives to), directly or indirectly, (i) solicit, initiate, knowingly encourage or take any other action to knowingly facilitate any inquiry, discussion, offer or request that constitutes, or could reasonably be expected to lead to, a Company Takeover Proposal (as defined below), (ii) enter into any agreement, letter of intent, memorandum of understanding or other similar instrument with respect to any Company Takeover Proposal (other than certain confidentiality agreements), or (iii) enter into, continue, conduct, engage or otherwise participate in any discussions or negotiations regarding, or furnish to any third party any non-public information with respect to, or for the purpose of encouraging or facilitating, any Company Takeover Proposal.

For purposes of the Merger Agreement, “Company Takeover Proposal” means any inquiry, proposal or offer from any person (other than IRT or its subsidiaries) or “group,” within the meaning of Section 13(d) of the Exchange Act, relating to, in a single transaction or series of related transactions, any (A) acquisition of assets of STAR and its subsidiaries equal to 20% or more of STAR’s consolidated assets (as determined on a book-value basis) or to which 20% or more of STAR’s revenues or earnings on a consolidated basis are attributable, (B) acquisition of 20% or more of the outstanding shares of STAR Common Stock, (C) tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the outstanding shares of STAR Common Stock, (D) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving STAR or (E) combination of the foregoing types of transactions if the sum of the percentage of consolidated assets, consolidated revenues or earnings and shares of STAR Common Stock involved is 20% or more, in each case, other than the Company Merger and the other transactions contemplated by the Merger Agreement.

Notwithstanding the restrictions set forth above, prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by STAR stockholders, STAR may, in response to any Company Takeover Proposal that does not result from a material breach by STAR of the non-solicitation provisions in the Merger Agreement, (i) contact the person making such Company Takeover Proposal solely to clarify the terms and conditions thereof, and (ii) if the STAR Board determines in good faith, after consultation with outside legal counsel and independent financial advisors, that such Company Takeover Proposal constitutes or could reasonably be expected to lead to a Superior Company Proposal (as defined below), (1) provide access to or furnish information with respect to STAR and its subsidiaries to the person making such Company Takeover Proposal and its representatives pursuant to an acceptable confidentiality agreement (provided that STAR will prior to or concurrently with the time such information is provided to such person provide IRT with all non-public information regarding STAR that has not previously been provided to IRT that is provided to any person making such Company Takeover Proposal), and (2) conduct, engage or participate in discussions or negotiations with the person and its representatives making such Company Takeover Proposal.

For purposes of the Merger Agreement, “Superior Company Proposal” means any bona fide written Company Takeover Proposal (except that, for purposes of this definition, the references in the definition of “Company Takeover Proposal” to “20%” are replaced by “50%”) that was not the result of a material breach by STAR of the non-solicitation provisions in the Merger Agreement and that the STAR Board has determined in good faith, after consulting with outside legal counsel and independent financial advisors, is reasonably likely to be consummated in accordance with its terms and that, if consummated, would result in a transaction more favorable to STAR’s stockholders (solely in their capacity as such) than the Mergers and the other transactions contemplated by the Merger Agreement (including any revisions to the terms of the Merger Agreement proposed by IRT in response to such proposal or otherwise) taking into account all reasonably available legal, financial, regulatory and other aspects of such Company Takeover Proposal (including the likelihood of consummation of such Company Takeover Proposal) that the STAR Board deems relevant.

Except as described below, neither the STAR Board nor any committee thereof shall (i) (A) fail to recommend to STAR stockholders that they approve the Company Merger and the other transactions contemplated by the

 

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Merger Agreement or fail to include the STAR Board’s recommendation of the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement in this joint proxy statement, (B) change, modify, withhold, or withdraw, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to IRT or IRT OP, the approval of the Merger Agreement, the Mergers or any of the other transactions contemplated by the Merger Agreement, (C) take any formal action or make any recommendation or public statement or other disclosure in connection with a tender offer or exchange offer other than a recommendation against such offer or a temporary “stop, look and listen” communication by the STAR Board pursuant to Rule 14d-9(f) under the Exchange Act, (D) adopt, approve or recommend, or publicly propose to approve or recommend to the stockholders of STAR any Company Takeover Proposal or agree to take any such action, or (E) fail to publicly recommend against any Company Takeover Proposal within five business days of the request of IRT and/or fail to reaffirm the STAR Board’s recommendation of the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement within five business days of the request of IRT, or such fewer number of days as remains prior to the STAR special meeting (any action described in this clause (i) being referred to herein as a “Company Adverse Recommendation Change”) or (ii) cause or permit STAR or its subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, joint venture agreement, partnership agreement or other similar agreement relating to a Company Takeover Proposal (other than certain confidentiality agreements) (a “Company Alternative Acquisition Agreement”), or resolve or agree to take any such action.

Notwithstanding the foregoing, prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by STAR stockholders, but not after, the STAR Board may (I) effect a Company Adverse Recommendation Change if (a) (1) a material development or change in circumstances occurs or arises after the date of the Merger Agreement that was not known by the STAR Board as of the date of the Merger Agreement (such material development or change in circumstances being referred to herein as a “Company Intervening Event”), and (2) the STAR Board shall have determined, after consultation with outside legal counsel, that, in light of such Company Intervening Event, failure to take such action would be inconsistent with the directors’ duties under applicable law, or (b) STAR receives a Company Takeover Proposal that was not the result of a breach by STAR of the non-solicitation provisions in the Merger Agreement in any material respect and that the STAR Board determines, after consultation with outside legal counsel and independent financial advisors, constitutes a Superior Company Proposal, and (II) enter into a Company Alternative Acquisition Agreement with respect to a Company Takeover Proposal and concurrently terminate the Merger Agreement, if and only if, STAR receives a Company Takeover Proposal that was not the result of a breach by STAR of the non-solicitation provisions in the Merger Agreement in any material respect and that the STAR Board determines, after consultation with outside legal counsel and independent financial advisors, constitutes a Superior Company Proposal.

The STAR Board shall not be entitled to (i) effect a Company Adverse Recommendation Change or (ii) terminate the Merger Agreement to enter into a Company Alternative Acquisition Agreement with respect to a Superior Company Proposal unless: (A) the STAR Board shall have determined, after consultation with outside legal counsel, that failure to take such action would be inconsistent with the directors’ duties under applicable law; (B) the STAR Board shall have provided at least four business days’ prior written notice to IRT that it is prepared to effect a Company Adverse Recommendation Change or terminate the Merger Agreement, which notice shall contain a reasonably detailed description of the basis for the Company Adverse Recommendation Change or termination, the identity of the person making the Superior Company Proposal, if applicable, and the material terms and conditions of such Superior Company Proposal, if applicable; (C) STAR shall have negotiated, and shall have caused its representatives to negotiate, in good faith with IRT during such notice period, to the extent IRT wishes to negotiate; and (D) following the end of such notice period, the STAR Board shall have considered any proposed revisions to the Merger Agreement proposed by IRT in writing, and shall have determined, after consultation with outside legal counsel and independent financial advisors, that such Superior Company Proposal would continue to constitute a Superior Company Proposal if such revisions were to be given effect (provided that in the event of any material change to the material terms of such Superior Company Proposal, STAR shall, in each case, have delivered to IRT an additional notice consistent with that described in subclause (B) above and

 

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the notice period shall have recommenced, except that the notice period shall be at least two business days).

Under the Merger Agreement, STAR is required to notify IRT promptly, and within 24 hours, if it receives any Company Takeover Proposal or any request for information or inquiry that expressly contemplates or that could reasonably be expected to lead to a Company Takeover Proposal. Such notice to IRT will indicate the identity of the person making such Company Takeover Proposal, request or inquiry and include the material terms and conditions of such Company Takeover Proposal, request or inquiry. STAR will keep IRT promptly advised of all material developments (including all changes to the material terms of any Company Takeover Proposal), discussions or negotiations regarding any Company Takeover Proposal and the status of such Company Takeover Proposal. STAR agreed that it and its subsidiaries will not enter into any confidentiality agreement with any person subsequent to the date of the Merger Agreement that prohibits STAR or its subsidiaries from providing any information to IRT.

The Merger Agreement does not prohibit STAR from taking and disclosing to its stockholders a position contemplated by Rule 14d-9, Rule 14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or making any disclosure to its stockholders if the STAR Board has determined, after consultation with outside legal counsel, that the failure to do so would be inconsistent with the directors’ duties under applicable law (provided that any disclosure other than a “stop, look and listen” or similar communication of the type contemplated by Rule 14d-9(f) promulgated under the Exchange Act, an accurate disclosure of factual information to STAR’s stockholders under applicable law or in satisfaction of the directors’ duties or applicable law, an express rejection of any applicable Company Takeover Proposal or an express reaffirmation of the STAR Board’s recommendation to STAR stockholders to vote in favor of the approval of the Company Merger and the other transactions contemplated by the Merger Agreement will be deemed to be a Company Adverse Recommendation Change).

The Merger Agreement required STAR to immediately cease any existing discussions and negotiations conducted with any person before the execution of the Merger Agreement with respect to any Company Takeover Proposal and request that any such person promptly return and/or destroy all confidential information concerning STAR and its subsidiaries.

No Solicitation of Transactions by IRT

Until the earlier of the Company Merger Effective Time and the valid termination of the Merger Agreement, IRT has agreed not to, and to cause its subsidiaries not to (and not authorize any of its officers, directors, managers and other representatives to), directly or indirectly, (i) solicit, initiate, knowingly encourage or take any other action to knowingly facilitate any inquiry, discussion, offer or request that constitutes, or could reasonably be expected to lead to, a Parent Takeover Proposal (as defined below), (ii) enter into any agreement, letter of intent, memorandum of understanding or other similar instrument with respect to any Parent Takeover Proposal (other than certain confidentiality agreements), or (iii) enter into, continue, conduct, engage or otherwise participate in any discussions or negotiations regarding, or furnish to any third party any non-public information with respect to, or for the purpose of encouraging or facilitating, any Parent Takeover Proposal.

For purposes of the Merger Agreement, “Parent Takeover Proposal” means any inquiry, proposal or offer from any person (other than STAR or its subsidiaries) or “group,” within the meaning of Section 13(d) of the Exchange Act, relating to, in a single transaction or series of related transactions, any (A) acquisition of assets of IRT and its subsidiaries equal to 20% or more of IRT’s consolidated assets (as determined on a book-value basis) or to which 20% or more of IRT’s revenues or earnings on a consolidated basis are attributable, (B) acquisition of 20% or more of the outstanding shares of IRT Common Stock, (C) tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the outstanding shares of IRT Common Stock, (D) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving IRT or (E) combination of the foregoing types of transactions if the sum of the percentage of consolidated assets, consolidated revenues or earnings and shares of IRT Common Stock involved is 20% or more.

 

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Notwithstanding the restrictions set forth above, prior to the approval by IRT stockholders of the issuance of IRT Common Stock in the Company Merger, IRT may, in response to any Parent Takeover Proposal that does not result from a material breach by IRT of the non-solicitation provisions in the Merger Agreement, (i) contact the person making such Parent Takeover Proposal solely to clarify the terms and conditions thereof, and (ii) if the IRT Board determines in good faith, after consultation with outside legal counsel and independent financial advisors, that such Parent Takeover Proposal constitutes or could reasonably be expected to lead to a Superior Parent Proposal (as defined below), (1) provide access to or furnish information with respect to IRT and its subsidiaries to the person making such Parent Takeover Proposal and its representatives pursuant to an acceptable confidentiality agreement (provided that IRT will prior to or concurrently with the time such information is provided to such person provide STAR with all non-public information regarding IRT that has not previously been provided to STAR that is provided to any person making such Parent Takeover Proposal), and (2) conduct, engage or participate in discussions or negotiations with the person making such Parent Takeover Proposal and its representatives.

For purposes of the Merger Agreement, “Superior Parent Proposal” means any bona fide written Parent Takeover Proposal (except that, for purposes of this definition, the references in the definition of “Parent Takeover Proposal” to “20%” are replaced by “50%”) that was not the result of a material breach by IRT of the non-solicitation provisions in the Merger Agreement and that the IRT Board has determined in good faith, after consulting with outside legal counsel and independent financial advisors, is reasonably likely to be consummated in accordance with its terms and that, if consummated, would result in a transaction more favorable to IRT’s stockholders (solely in their capacity as such) than the Mergers and the other transactions contemplated by the Merger Agreement (including any revisions to the terms of the Merger Agreement proposed by STAR in response to such proposal or otherwise) taking into account all reasonably available legal, financial, regulatory and other aspects of such Parent Takeover Proposal (including the likelihood of consummation of such Parent Takeover Proposal) that the IRT Board deems relevant.

Except as described below, neither the IRT Board nor any committee thereof shall (i) (A) fail to recommend to IRT stockholders that they approve the issuance of IRT Common Stock in the Company Merger or fail to include such recommendation of the IRT Board in this joint proxy statement, (B) change, modify, withhold, or withdraw, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to STAR or STAR OP, the approval of the Merger Agreement, the Mergers or any of the other transactions contemplated by the Merger Agreement, (C) take any formal action or make any recommendation or public statement or other disclosure in connection with a tender offer or exchange offer other than a recommendation against such offer or a temporary “stop, look and listen” communication by the IRT Board pursuant to Rule 14d-9(f) under the Exchange Act, (D) adopt, approve or recommend, or publicly propose to approve or recommend to the stockholders of IRT any Parent Takeover Proposal or agree to take any such action, or (E) fail to publicly recommend against any Parent Takeover Proposal within five business days of the request of STAR and/or fail to reaffirm the IRT Board’s recommendation of the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement within five business days of the request of STAR, or such fewer number of days as remains prior to the IRT special meeting (any action described in this clause (i) being referred to herein as a “Parent Adverse Recommendation Change”) or (ii) cause or permit IRT or its subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, joint venture agreement, partnership agreement or other similar agreement relating to a Parent Takeover Proposal (other than certain confidentiality agreements) (a “Parent Alternative Acquisition Agreement”), or resolve or agree to take any such action.

Notwithstanding the foregoing, prior to the approval by IRT stockholders of the issuance of IRT Common Stock in the Company Merger, but not after, the IRT Board may (I) effect a Parent Adverse Recommendation Change if (a) (1) a material development or change in circumstances occurs or arises after the date of the Merger Agreement that was not known by the IRT Board as of the date of the Merger Agreement (such material development or change in circumstances being referred to herein as a “Parent Intervening Event”), and (2) the IRT Board shall have determined, after consultation with outside legal counsel, that, in light of such Parent

 

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Intervening Event, failure to take such action would be inconsistent with the directors’ duties under applicable law, or (b) IRT receives a Parent Takeover Proposal that was not the result of a breach by IRT of the non-solicitation pr