The transactions are expected to close in the first quarter of 2020, subject to certain closing conditions, including the approval of the respective mergers by the stockholders.

What the New REIT Will Look Like

The combined REIT will continue its multifamily focus with an emphasis on moderate income apartments. If the mergers were to occur today, the combined company’s portfolio would have 71 properties in 14 states with an average effective rent of $1,158. Based on occupancy as of June 30, 2019, the combined company’s portfolio is expected to have an occupancy rate of 94%, an average age of 20 years and gross real estate assets of $3.3 billion.

The REIT will also pursue ground-up development opportunities, with an eye on average annual returns that will be 40% higher than acquisitions of stabilized, developed multifamily properties.

Synergies of the deal will increase average annual cash flow by a projected $21 million. The combined company will have a combined capital structure of 52% secured debt vs. 48% equity. It will also have a lower average interest rate compared to the current STAR standalone rate.

Transaction Terms

In exchange for each share of SIR and STAR III common stock, SIR and STAR III stockholders will receive 0.5934 and 1.43 shares, respectively, of STAR common stock, which is equivalent to $9.40 per SIR share and $22.65 per STAR III share, based on STAR’s most recent estimated value per share of $15.84.

Following the closing of the transactions, STAR, SIR and STAR III stockholders are expected to own approximately 48.1%, 40.6% and 11.3% of the combined company, respectively. One independent director from SIR and one independent director from STAR III will join the STAR Board of Directors, increasing the STAR Board of Directors from five to seven members, and the number of independent directors from three to five.

The merger agreements provide SIR and STAR III with go-shop periods of 30 days and 45 days, respectively.