Filed Pursuant to Rule 424(b)(3)
Registration No. 333-204578
JOINT PROXY STATEMENT/PROSPECTUS
To the Stockholders of Independence Realty Trust, Inc. and the Stockholders of Trade Street Residential, Inc.:
The board of directors of Independence Realty Trust, Inc. (IRT) and the board of directors of Trade Street Residential, Inc. (TSRE) have each approved an Agreement and Plan of Merger, dated as of May 11, 2015 (the Merger Agreement), by and among IRT, Independence Realty Operating Partnership, LP, IRTs operating partnership (IROP), Adventure Merger Sub LLC, a direct wholly-owned subsidiary of IROP (OP Merger Sub), IRT Limited Partner, LLC, a direct wholly-owned subsidiary of IRT (IRT LP LLC), TSRE, and Trade Street Operating Partnership, LP, TSREs operating partnership (TSR OP).
The Merger Agreement provides for: (i) OP Merger Sub to merge into TSR OP (the Partnership Merger), with TSR OP continuing as the surviving entity, and (ii) TSRE to merge into IRT LP LLC (the Company Merger and, together with the Partnership Merger, the Merger), with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT. The combined company (the Combined Company) will retain the name Independence Realty Trust, Inc. and will continue to trade on the NYSE MKT LLC (the NYSE MKT), under the symbol IRT. Upon completion of the Merger, the board of directors of the Combined Company will be increased to seven members, with Richard H. Ross, TSREs Chief Executive Officer, and Mack D. Pridgen III, the Chairman of TSREs board of directors, joining the five current IRT directors on the board of directors of the Combined Company. The executive officers of IRT immediately prior to the effective time of the Merger will continue to serve as the executive officers of the Combined Company.
If the Merger is completed, then, at the effective time of the Company Merger, each issued and outstanding share of TSRE common stock will convert into the right to receive (i) $3.80 in cash, without interest, subject to increase, at the election of IRT, to up to $4.56 (such cash amount, the Per Share Cash Amount), and (ii) a number of shares of IRT common stock equal to the quotient, or Exchange Ratio, determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000.
Neither the Per Share Cash Amount nor the Exchange Ratio will change as a result of a change in the market price of IRT common stock, although the aggregate value of the merger consideration will fluctuate with changes in the market price of IRT common stock and the Per Share Cash Amount that IRT elects, which will have the effect of changing the Exchange Ratio and the number of shares of IRT common stock to be issued upon completion of the Merger. Based on the closing price of IRT common stock on the NYSE MKT of $8.14 on July 30, 2015, the latest practicable date before the date of this joint proxy statement/prospectus, and based on a $3.80 Per Share Cash Amount and a resulting Exchange Ratio of 0.4108, the aggregate value of the per share merger consideration would equal $7.14, comprised of $3.80 of cash and 0.4108 of a share of IRT common stock with a market value of $3.34. We urge you to obtain current market quotations for IRT common stock and TSRE common stock.
Upon completion of the Merger, we estimate that continuing IRT stockholders will own approximately 66.5% of the issued and outstanding common stock of the Combined Company, and former TSRE stockholders will own approximately 33.5% of the issued and outstanding common stock of the Combined Company.
In connection with the proposed Merger, IRT and TSRE will each hold a special meeting of their respective stockholders. At the IRT special meeting, IRT stockholders will be asked to vote on (i) a proposal to approve the issuance of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of common units of limited partnership interest in IROP (IROP Units) issued in the Partnership Merger), and (ii) a proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). At the TSRE special meeting, TSRE stockholders will be asked to vote on (i) a proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement, and (ii) a proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
The record date for determining the stockholders entitled to receive notice of, and to vote at, the IRT special meeting and the TSRE special meeting is July 8, 2015.
The IRT board of directors has unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, are fair to and in the best interests of IRT and its stockholders, (ii) approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (iii) authorized and approved the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). The IRT board of directors unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
The TSRE board of directors has (i) determined that the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of TSRE and its stockholders and (ii) approved the Merger Agreement and authorized the performance by TSRE thereunder. The TSRE board of directors recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
The Merger cannot be completed unless, among other matters, (i) TSRE stockholders approve the Company Merger and the other transactions contemplated by the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on the Company Merger, and (ii) IRT stockholders approve the issuance of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) by the affirmative vote of the holders of at least a majority of all votes cast on the proposal. The completion of the Merger is also subject to the satisfaction or waiver of other customary conditions set forth in the Merger Agreement.
Concurrently with the execution of the Merger Agreement, (i) IRT entered into voting agreements with funds managed or advised by Senator Investment Group, LP and funds managed or advised by Monarch Alternative Capital LP, who collectively owned approximately 48.3% of the outstanding shares of TSRE common stock as of July 8, 2015, and (ii) TSRE entered into a voting agreement with RAIT, which owned approximately 22.8% of the outstanding shares of IRT common stock as of July 8, 2015. Pursuant to the terms of the voting agreements, among other things, each of stockholders party thereto agreed to vote all of its shares of IRT common stock or TSRE common stock, as applicable, to approve the Company Merger at the TSRE special meeting or to approve the issuance of IRT common stock in the Merger at the IRT special meeting, as applicable.
This joint proxy statement/prospectus contains important information about IRT, TSRE, the Merger, the Merger Agreement and the special meetings. This document is also a prospectus for shares of IRT common stock that will be issued pursuant to the Merger Agreement. We encourage you to read this joint proxy statement/prospectus carefully before voting, including the section entitled Risk Factors beginning on page 37.
Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the IRT special meeting or the TSRE special meeting, as applicable, please submit a proxy to vote your shares as promptly as possible to make sure that your shares of IRT common stock and/or shares of TSRE common stock, as applicable, are represented at the applicable special meeting. Please review this joint proxy statement/prospectus for more complete information regarding the Merger and the special meetings of IRT and TSRE.
Sincerely,
Scott F. Schaeffer Chief Executive Officer Independence Realty Trust, Inc. |
Richard H. Ross Chief Executive Officer Trade Street Residential, Inc. |
Neither the Securities and Exchange Commission, nor any state securities regulatory authority has approved or disapproved of the Merger or the securities to be issued under this joint proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated July 31, 2015, and is first being mailed to IRT and TSRE stockholders on or about August 3, 2015.
INDEPENDENCE REALTY TRUST, INC.
Cira Centre, 2929 Arch Street, 17th Floor
Philadelphia, PA 19104
(215) 243-9000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 2015
To the Stockholders of Independence Realty Trust, Inc.:
A special meeting of the stockholders of Independence Realty Trust, Inc., a Maryland corporation (IRT), will be held at IRTs offices at the Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania 19104 on September 15, 2015, commencing at 9:00 a.m., local time, for the following purposes:
(i) | to consider and vote on a proposal to approve the issuance of shares of IRT common stock (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) pursuant to the Agreement and Plan of Merger, dated as of May 11, 2015, as it may be amended from time to time (the Merger Agreement), by and among IRT, Independence Realty Operating Partnership, LP, IRTs operating partnership (IROP), Adventure Merger Sub LLC, a direct wholly-owned subsidiary of IROP (OP Merger Sub), IRT Limited Partner, LLC, a direct wholly-owned subsidiary of IRT (IRT LP LLC), Trade Street Residential, Inc., a Maryland corporation (TSRE), and Trade Street Operating Partnership, LP, TSREs operating partnership (TSR OP) (a copy of the Merger Agreement is attached as Annex A to the joint proxy statement/prospectus accompanying this notice). The Merger Agreement provides for: (i) OP Merger Sub to merge into TSR OP (the Partnership Merger), with TSR OP continuing as the surviving entity, and (ii) TSRE to merge into IRT LP LLC (the Company Merger and, together with the Partnership Merger, the Merger), with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT; and |
(ii) | to consider and vote on a proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). |
IRT does not expect to transact any other business at the special meeting. IRTs board of directors has fixed the close of business on July 8, 2015 as the record date (the IRT Record Date) for determination of IRT stockholders entitled to receive notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. Only holders of record of IRT common stock at the close of business on the IRT Record Date are entitled to receive notice of, and to vote at, the special meeting. As of the IRT Record Date, there were 31,933,217 shares of IRT common stock outstanding and entitled to vote at the special meeting, held by approximately 35 stockholders of record.
Approval of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of the holders of at least a majority of all votes cast on the proposal. Approval of the proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of at least a majority of all votes cast on such proposal.
IRTs board of directors has unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to, and in the best interests of IRT and its stockholders, (ii) approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (iii) authorized and approved the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). IRTs board of directors unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) and FOR the proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the special meeting, please submit a proxy to vote your shares as promptly as possible. To submit a proxy, complete, sign, date and mail your proxy card in the preaddressed postage-paid envelope provided or, if the option is available to you, call the toll-free telephone number listed on your proxy card or use the internet as described in the instructions on the enclosed proxy card to submit your proxy. Submitting a proxy will assure that your vote is counted at the special meeting if you do not attend in person. If your shares of IRT common stock are held in street name by your broker or other nominee, only your broker or other nominee can vote your shares of IRT common stock and the vote cannot be cast unless you provide instructions to your broker or other nominee on how to vote or obtain a legal proxy from your broker or other nominee. You should follow the directions provided by your broker or other nominee regarding how to instruct your broker or other nominee to vote your shares of IRT common stock. You may revoke your proxy at any time before it is voted. Please review the joint proxy statement/prospectus accompanying this notice for more complete information regarding the Merger and the special meeting of the stockholders of IRT.
By Order of the Board of Directors of Independence Realty Trust, Inc.
Anders F. Laren
Secretary
Philadelphia, Pennsylvania
July 31, 2015
Trade Street Residential, Inc.
19950 West Country Club Drive
Suite 800
Aventura, Florida 33180
(786) 248-5200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 2015
To the Stockholders of Trade Street Residential, Inc.:
A special meeting of the stockholders of Trade Street Residential, Inc., a Maryland corporation (TSRE), will be held at the 8th Floor Conference Room at 19950 West Country Club Drive, Aventura, Florida 33180 on September 15, 2015, commencing at 10:00 a.m., local time, for the following purposes:
(i) | to consider and vote on a proposal to approve the merger of TSRE into IRT Limited Partner, LLC (IRT LP LLC), a direct wholly-owned subsidiary of Independence Realty Trust, Inc., a Maryland corporation, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT (the Company Merger), and other transactions contemplated by an Agreement and Plan of Merger, dated as of May 11, 2015, as it may be amended from time to time (the Merger Agreement), by and among IRT, Independence Realty Operating Partnership, LP, IRTs operating partnership (IROP), Adventure Merger Sub LLC, a direct wholly-owned subsidiary of IROP (OP Merger Sub), IRT LP LLC, TSRE, and Trade Street Operating Partnership, LP, TSREs operating partnership (TSR OP) (a copy of the Merger Agreement is attached as Annex A to the joint proxy statement/prospectus accompanying this notice). The Merger Agreement provides for: (i) the Company Merger and (ii) OP Merger Sub to merge into TSR OP, with TSR OP continuing as the surviving entity (the Partnership Merger and, together with the Company Merger, the Merger); and |
(ii) | to consider and vote on a proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. |
TSRE does not expect to transact any other business at the special meeting. TSREs board of directors has fixed the close of business on July 8, 2015 as the record date (the TSRE Record Date) for determination of TSRE stockholders entitled to receive notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. Only holders of record of TSRE common stock at the close of business on the TSRE Record Date are entitled to receive notice of, and to vote at, the special meeting. As of the TSRE Record Date, there were 36,799,520 shares of TSRE common stock outstanding and entitled to vote at the special meeting, held by approximately 42 stockholders of record.
Approval of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on such proposal. Approval of the proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of at least a majority of all votes cast on such proposal.
TSREs board of directors has (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of TSRE and its stockholders and (ii) approved the Merger Agreement and authorized the performance by TSRE thereunder. TSREs board of directors recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the special meeting, please submit a proxy to vote your shares as promptly as possible. To submit a proxy, complete, sign, date and mail your proxy card in the preaddressed postage-paid envelope provided or, if the option is available to you, call the toll-free telephone number listed on your proxy card or use the internet as described in the instructions on the enclosed proxy card to submit your proxy. Submitting a proxy will assure that your vote is counted at the special meeting if you do not attend in person. If your shares of TSRE common stock are held in street name by your broker or other nominee, only your broker or other nominee can vote your shares of TSRE common stock and the vote cannot be cast unless you provide instructions to your broker or other nominee on how to vote or obtain a legal proxy from your broker or other nominee. You should follow the directions provided by your broker or other nominee regarding how to instruct your broker or other nominee to vote your shares of TSRE common stock. You may revoke your proxy at any time before it is voted. Please review the joint proxy statement/prospectus accompanying this notice for more complete information regarding the Merger and the special meeting of the stockholders of TSRE.
By Order of the Board of Directors of Trade Street Residential, Inc.
Caren A. Cohen
Secretary
Aventura, Florida
July 31, 2015
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and financial information about IRT and TSRE from other documents that are not included in or delivered with this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
Documents incorporated by reference are also available to IRT stockholders and TSRE stockholders without charge upon written or oral request. You can obtain any of these documents by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers.
Independence Realty Trust, Inc. Attention: Secretary Cira Centre 2929 Arch Street, 17th Floor Philadelphia, PA 19104 (215) 243-9000 |
Trade Street Residential, Inc. Attention: Secretary 19950 West Country Club Drive Suite 800 Aventura, FL 33180 (786) 248-5200 |
To receive timely delivery of the requested documents in advance of the applicable special meeting, you should make your request no later than September 8, 2015.
ABOUT THIS DOCUMENT
This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by IRT (File No. 333-204578) with the Securities and Exchange Commission (the SEC), constitutes a prospectus of IRT for purposes of the Securities Act of 1933, as amended (the Securities Act), with respect to the shares of IRT common stock to be issued to TSRE stockholders in exchange for shares of TSRE common stock pursuant to the Merger Agreement and shares that may be issuable upon redemption of IROP Units issued in the Partnership Merger. This joint proxy statement/prospectus also constitutes a proxy statement for each of IRT and TSRE for purposes of the Securities Exchange Act of 1934, as amended (the Exchange Act). In addition, this joint proxy statement/prospectus constitutes a notice of meeting with respect to the IRT special meeting and a notice of meeting with respect to the TSRE special meeting.
You should rely only on the information contained or incorporated by reference in 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 July 31, 2015. 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 that date. Neither our mailing of this joint proxy statement/prospectus to IRT stockholders or TSRE stockholders nor the issuance by IRT of shares of its common stock to TSRE stockholders pursuant to the Merger Agreement 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 TSRE has been provided by TSRE.
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Attending the IRT Special Meeting Without Voting Will Not Revoke Your Proxy |
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Attending the TSRE Special Meeting Without Voting Will Not Revoke Your Proxy |
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Recommendation of the IRT Board and Its Reasons for the Merger |
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Recommendation of the TSRE Board and Its Reasons for the Merger |
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Interests of IRTs Directors, Executive Officers and Affiliates in the Merger |
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Interests of TSREs Directors and Executive Officers in the Company Merger |
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Security Ownership of TSREs Directors and Executive Officers and Current Beneficial Owners |
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF IRT AND STOCKHOLDERS OF TSRE |
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TSRE 2015 Annual Stockholder Meeting and Stockholder Proposals |
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The Combined Company Annual Stockholder Meeting and Stockholder Proposals |
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WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE |
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ANNEXES |
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Annex A: |
Agreement and Plan of Merger | A-1 | ||||
Annex B: |
Voting Agreement of Senator Global Opportunity Intermediate Fund LP | B-1 | ||||
Annex C: |
Voting Agreement of Senator Global Opportunity Fund LP | C-1 | ||||
Annex D: |
Voting Agreement of Monarch | D-1 | ||||
Annex E: |
Voting Agreement of RAIT Financial Trust | E-1 | ||||
Annex F: |
Opinion of Deutsche Bank Securities Inc. | F-1 | ||||
Annex G: |
Opinion of J.P. Morgan Securities LLC | G-1 |
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The following are answers to some questions that IRT stockholders and TSRE stockholders may have regarding the proposed transaction between IRT and TSRE and the other proposals being considered at the IRT special meeting and the TSRE special meeting. IRT and TSRE urge you to read carefully this entire joint proxy statement/prospectus, including the Annexes and the documents incorporated by reference into this joint proxy statement/prospectus, because the information in this section does not provide all the information that might be important to you.
Unless stated otherwise, all references in this joint proxy statement/prospectus to:
| IRT are to Independence Realty Trust, Inc., a Maryland corporation; |
| IRT Record Date are to July 8, 2015, which is the record date for determination of IRT stockholders entitled to receive notice of, and to vote at, the IRT special meeting and any adjournments or postponements of the IRT special meeting. |
| IROP are to Independence Realty Operating Partnership, LP, a Delaware limited partnership and IRTs operating partnership; |
| OP Merger Sub are to Adventure Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of IROP; |
| IRT LP LLC are to IRT Limited Partner, LLC, a Delaware limited liability company and direct wholly-owned subsidiary of IRT; |
| TSRE are to Trade Street Residential, Inc., a Maryland corporation; |
| TSRE Record Date are to July 8, 2015, which is the record date for determination of TSRE stockholders entitled to receive notice of, and to vote at, the TSRE special meeting and any adjournments or postponements of the TSRE special meeting. |
| TSR OP are to Trade Street Operating Partnership, LP, a Delaware limited partnership and TSREs operating partnership; |
| the IRT Board are to the board of directors of IRT; |
| the TSRE Board are to the board of directors of TSRE; |
| the Merger Agreement are to the Agreement and Plan of Merger, dated as of May 11, 2015, by and among IRT, IROP, OP Merger Sub, IRT LP LLC, TSRE and TSR OP, as it may be amended from time to time, a copy of which is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by reference; |
| the Partnership Merger are to the merger of OP Merger Sub into TSR OP, with TSR OP continuing as the surviving entity; |
| the Company Merger are to the merger of TSRE into IRT LP LLC, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT; |
| the Merger are to, collectively, the Partnership Merger and the Company Merger; |
| the Combined Company are to IRT after the effective time of the Company Merger; and |
| the NYSE MKT are to the NYSE MKT LLC. |
Q: | What is the proposed transaction? |
A: | IRT and TSRE have entered into the Merger Agreement, which provides for: (i) OP Merger Sub to merge into TSR OP, with TSR OP continuing as the surviving entity, and (ii) TSRE to merge into IRT LP LLC, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT. |
Q: | What will happen in the proposed transaction? |
A: | At the effective time of the Company Merger, each issued and outstanding share of TSRE common stock will convert into the right to receive (i) $3.80 in cash, without interest, subject to increase, at the election of IRT, to up to $4.56 (such cash amount, the Per Share Cash Amount), and (ii) a number of shares of IRT common stock equal to the quotient, or Exchange Ratio, determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000 (the cash and shares of IRT common stock received in exchange for the TSRE common stock, the Company Merger Consideration). At the effective time of the Partnership Merger, each issued and outstanding unit of limited partnership interest of TSR OP (each, a TSR OP Unit), other than TSR OP Units owned by TSRE or one of its subsidiaries, will convert into the right to receive (i) the Per Share Cash Amount and (ii) a number of common units of limited partnership interest in IROP (IROP Units) equal to the Exchange Ratio (the cash and IROP Units received in exchange for the TSR OP Units, the Partnership Merger Consideration and, together with the Company Merger Consideration, the Merger Consideration). Holders of TSRE common stock and TSR OP Units will not receive any fractional shares of IRT common stock or fractional IROP Units in the Merger and instead will be paid cash (without interest) in lieu of any fractional share or unit interest to which they would otherwise be entitled. |
Q: | How does IRTs right to elect to increase the Per Share Cash Amount work? |
A: | Pursuant to the Merger Agreement, and absent any further action by IRT, the Per Share Cash Amount will be $3.80. However, upon IRTs written notice to TSRE at least two business days prior to the TSRE special meeting, IRT may elect to increase the Per Share Cash Amount from $3.80 to an amount that, at the time of such election, would not cause the stock portion of the Merger Consideration to be less than 40% of the total Merger Consideration (calculated based on the closing price of IRT common stock on the trading day prior to the date of the election notice). However, if (i) IRT makes such an election, (ii) the stock portion of the Merger Consideration on the closing date of the Merger (calculated based on the closing price of IRT common stock on the trading day prior closing date of the Merger) would be less than 40% of the total Merger Consideration, and (iii) TSRE does not terminate the Merger Agreement, then the Per Share Cash Amount will be reduced so that the cash portion of the Merger Consideration will equal 60% of the total Merger Consideration on the closing date of the Merger (calculated based on the closing price of IRT common stock on the trading day prior closing date of the Merger). |
Q: | How will IRT fund the cash portion of the Merger Consideration? |
A: | IRT intends to finance the cash portion of the Merger Consideration and the fees, expenses and costs incurred in connection with the Merger and other transactions related to the Merger, and to repay or refinance certain of TSREs borrowings, using a combination of some or all of the following resources: |
| IRTs available cash on hand; |
| the assumption and/or refinancing of certain of TSREs existing mortgage debt; |
| borrowings under a new senior secured credit facility (the KeyBank Senior Facility) for up to $325.0 million with KeyBank National Association (KeyBank NA); |
| borrowings under a new senior interim term loan facility (the KeyBank Interim Facility and, together with the KeyBank Senior Facility, the KeyBank Facilities) for up to $120.0 million with KeyBank NA; and |
| if market conditions allow, proceeds from the sale of IRT stock. |
The closing of the KeyBank Facilities remains subject to the negotiation and entry into definitive documentation and the satisfaction or waiver of customary conditions contained therein.
To the extent IRT does not utilize the KeyBank Facilities, IRT intends to finance the cash portion of the Merger Consideration and the fees, expenses and costs incurred in connection with the Merger and other transactions related to the Merger, and repay or refinance certain of TSREs borrowings, using borrowings
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under a new senior secured term loan facility (the DB Term Loan Facility) for up to $500.0 million, for which IRT has received a commitment from Deutsche Bank AG New York Branch (DBNY).
IRT has entered into a binding commitment letter (the DB Commitment Letter) with DBNY and Deutsche Bank Securities Inc. (Deutsche Bank) pursuant to which, on and subject to the terms and conditions therein, DBNY has committed to provide the DB Term Loan Facility in an aggregate principal amount of up to $500.0 million, subject to customary conditions as set forth in the DB Commitment Letter. The DB Commitment Letter permits IRT to use alternative financing, including the KeyBank Facilities, in connection with the consummation of the Merger, and IRT is under no obligation to enter into definitive documentation for the DB Term Loan Facility or to draw upon the financing commitment from DBNY.
IRTs ability to finance the Merger is not a condition to its obligation to complete the Merger. For more information regarding the financing related to the Merger, see The Merger AgreementFinancing Related to the Merger beginning on page 130.
Q: | How will IRT stockholders be affected by the Merger and the issuance of shares of IRT common stock in the Merger? |
A: | After the Merger, each IRT stockholder will continue to own the shares of IRT common stock that the stockholder held immediately prior to the effective time of the Company Merger. As a result, each IRT stockholder will own shares of common stock in a larger company with more assets. However, because IRT will be issuing new shares of IRT common stock in the Merger, each outstanding share of IRT common stock immediately prior to the effective time of the Merger will represent a smaller percentage of the aggregate number of shares of the Combined Companys common stock outstanding after the Merger. Upon completion of the Merger, we estimate that continuing IRT stockholders will own approximately 66.5% of the issued and outstanding Combined Companys common stock and former TSRE stockholders will own 33.5% of the issued and outstanding Combined Companys common stock. |
Q: | What happens if the market price of shares of IRT common stock or TSRE common stock changes before the closing of the Merger? |
A: | Neither the Per Share Cash Amount nor the Exchange Ratio will change as a result of a change in the market price of IRT common stock, although the aggregate value of the Merger Consideration will fluctuate with changes in the market price of IRT common stock and the Per Share Cash Amount that IRT elects. As a result, the value of the consideration to be received by TSRE stockholders in the Merger will increase or decrease depending on the market price of shares of IRT common stock at the effective time of the Merger. See The Merger AgreementMerger Consideration; Effects of the MergerMerger Consideration beginning on page 111. |
Q: | Why am I receiving this joint proxy statement/prospectus? |
A: | The IRT Board and the TSRE Board are using this joint proxy statement/prospectus to solicit proxies of IRT stockholders and TSRE stockholders in connection with the Merger Agreement and the Merger. In addition, IRT is using this joint proxy statement/prospectus as a prospectus for TSRE stockholders because IRT is offering shares of its common stock to be issued in exchange for TSRE common stock in the Merger. The Merger cannot be completed unless: |
| the holders of IRT common stock vote to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger); and |
| the holders of TSRE common stock vote to approve the Company Merger and the other transactions contemplated by the Merger Agreement. |
Each of IRT and TSRE will hold separate special meetings of their respective stockholders to obtain these approvals and to consider other proposals as described elsewhere in this joint proxy statement/prospectus.
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This joint proxy statement/prospectus contains important information about IRT, TSRE, the Merger and the Merger Agreement, and the other proposals being voted on at the special meetings of stockholders and you should read it carefully. The enclosed voting materials allow you to vote your shares of IRT common stock and/or TSRE common stock, as applicable, without attending the applicable special meeting.
Your vote is important. You are encouraged to submit your proxy as promptly as possible.
Q: | Am I being asked to vote on any other proposals at the special meetings in addition to the Merger proposal? |
A: | IRT. At the IRT special meeting, IRT stockholders will be asked to consider and vote upon the following additional proposal: |
| To approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). |
TSRE. At the TSRE special meeting, TSRE stockholders will be asked to consider and vote upon the following additional proposal:
| To approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. |
Q: | Why is IRT proposing the Merger? |
A: | The IRT Board believes that the Merger will result in a number of important strategic benefits for the Combined Company, including an increased scale that will provide an enhanced platform to pursue strategic acquisitions and transformational opportunities, improved operating statistics and portfolio quality, enhanced liquidity due to increased market capitalization and meaningful revenue and cost synergy potential. The IRT Board believes that the Merger will be an accretive transaction to IRTs asset base. To review the reasons of the IRT Board for the Merger in greater detail, see The MergerRecommendation of the IRT Board and Its Reasons for the Merger beginning on page 78. |
Q: | Why is TSRE proposing the Merger? |
A: | After careful consideration and consultation, the TSRE Board has recommended that the TSRE stockholders approve the Company Merger and the other transactions contemplated by the Merger Agreement based upon numerous factors, including an attractive valuation with an effective Company Merger Consideration of $7.60 per share of TSRE common stock as of the date of the Merger Agreement (with mechanisms in the Merger Agreement that provide both significant downside protection in the event of a decline and the ability to benefit from any increase in the trading price of IRT common stock before the closing of the Merger), and a mix of consideration, with the TSRE stockholders receiving both liquidity as a result of the receipt of the cash portion of the Company Merger Consideration and an opportunity to continue to participate in the Combined Company as stockholders, as well as, assuming that the Company Merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code), the expectation that the receipt of the IRT common stock portion of the Company Merger Consideration generally will not be taxable to TSRE stockholders. To review the reasons of the TSRE Board for the Merger in greater detail, see The MergerRecommendation of the TSRE Board and Its Reasons for the Merger beginning on page 81. |
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Q: | Who will be the board of directors and management of the Combined Company? |
A: | As of the effective time of the Company Merger, the board of directors of the Combined Company will be increased to seven members, with the five current IRT directors, Scott F. Schaeffer, William C. Dunkelberg, Robert F. McCadden, DeForest B. Soaries, Jr., and Sharon M. Tsao, continuing as directors of the Combined Company. In addition, Richard H. Ross, the Chief Executive Officer of TSRE, and Mack D. Pridgen III, the Chairman of the TSRE Board, will join the board of directors of the Combined Company as of the effective time of the Company Merger. |
The executive officers of IRT immediately prior to the effective time of the Company Merger will continue to serve as the executive officers of the Combined Company, with Scott F. Schaeffer continuing to serve as the Chief Executive Officer of the Combined Company.
Q: | Will IRT and TSRE continue to pay distributions prior to the closing of the Merger? |
A: | Yes. The Merger Agreement permits IRT and IROP to pay (i) monthly distributions of up to $0.06 per share of IRT common stock, including for any partial month ending on the effective time of the Company Merger, (ii) monthly distributions of up to $0.06 per IROP Unit, and (iii) any distribution that is required for IRT to maintain its REIT qualification. The Merger Agreement permits TSRE and TSR OP to pay (i) quarterly distributions of up to $0.095 per share of TSRE common stock for the quarter ending June 30, 2015 and for each quarter (or partial quarter) thereafter ending on or prior to the effective time of the Company Merger, (ii) a distribution per TSR OP Unit in the same amount as any distribution per share made with respect to TSRE common stock, and (iii) any distribution that is required for TSRE to maintain its REIT qualification. |
Q: | When and where are the special meetings of the IRT and TSRE stockholders? |
A: | The IRT special meeting will be held at IRTs offices at the Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania 19104 on September 15, 2015 commencing at 9:00 a.m., local time. |
The TSRE special meeting will be held at the 8th Floor Conference Room at 19950 West Country Club Drive, Aventura, Florida 33180 on September 15, 2015 commencing at 10:00 a.m., local time.
Q: | Who can vote at the special meetings? |
A: | IRT. All holders of IRT common stock of record as of the close of business on the IRT Record Date are entitled to notice of, and to vote at, the IRT special meeting. As of the IRT Record Date, there were 31,933,217 shares of IRT common stock outstanding and entitled to vote at the IRT special meeting, held by approximately 35 holders of record. Each share of IRT common stock is entitled to one vote on each proposal presented at the IRT special meeting. |
TSRE. All holders of TSRE common stock of record as of the close of business on the TSRE Record Date are entitled to receive notice of, and to vote at, the TSRE special meeting. As of the TSRE Record Date, there were 36,799,570 shares of TSRE common stock outstanding and entitled to vote at the TSRE special meeting, held by approximately 42 holders of record. Each share of TSRE common stock is entitled to one vote on each proposal presented at the TSRE special meeting.
Q: | What constitutes a quorum? |
A: | IRT. IRTs bylaws provide that the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter will constitute a quorum. |
TSRE. TSREs bylaws provide that the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter will constitute a quorum.
Shares that are voted, in person or by proxy, shares abstaining from voting, and broker non-votes, if any, are treated as present at each of the IRT special meeting and the TSRE special meeting, respectively, for purposes of determining whether a quorum is present.
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Q: | What vote is required to approve the proposals? |
A: | IRT. |
| Approval of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of the holders of at least a majority of all votes cast on such proposal. |
| Approval of the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of at least a majority of all votes cast on such proposal. |
TSRE.
| Approval of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on such proposal. |
| Approval of the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of a majority of all votes cast on such proposal. |
Q: | How does the IRT Board recommend that IRT stockholders vote on the proposals? |
A: | After consideration, the IRT Board has unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to, and in the best interests of IRT and its stockholders, (ii) approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (iii) authorized and approved the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). The IRT Board unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). |
For a more complete description of the recommendation of the IRT Board, see The MergerRecommendation of the IRT Board and Its Reasons for the Merger beginning on page 78.
Q: | How does the TSRE Board recommend that TSRE stockholders vote on the proposals? |
After consideration, the TSRE Board has (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of TSRE and its stockholders and (ii) approved the Merger Agreement. The TSRE Board recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
For a more complete description of the recommendation of the TSRE Board, see The MergerRecommendation of the TSRE Board and Its Reasons for the Merger beginning on page 81.
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Q: | What if I sell my shares of IRT common stock before the IRT special meeting or my shares of TSRE common stock before the TSRE special meeting? |
A: | IRT. If you transfer your shares of IRT common stock after the close of business on the IRT Record Date but before the IRT special meeting, you will, unless you provide the transferee of your shares with a proxy, retain your right to vote at the IRT special meeting. |
TSRE. If you transfer your shares of TSRE common stock after the close of business on the TSRE Record Date but before the TSRE special meeting, you will, unless you provide the transferee of your shares with a proxy, retain your right to vote at the TSRE special meeting, but will have transferred the right to receive the Company Merger Consideration to be paid by IRT in the Merger. In order to receive the Company Merger Consideration to be paid by IRT in the Merger, you must hold your shares of TSRE common stock through the effective time of the Company Merger.
Q: | Do any of TSREs executive officers or directors have interests in the Company Merger that may differ from those of TSRE stockholders? |
A: | TSREs executive officers and directors have interests in the Company Merger that are different from, or in addition to, their interests as TSRE stockholders. The members of the TSRE Board were aware of and considered these interests, among other matters, in evaluating the Merger Agreement and the Company Merger, and in recommending that TSRE stockholders vote FOR the proposal to approve the Merger and the other transactions contemplated by the Merger Agreement. For a description of these interests, see The MergerInterests of TSREs Directors and Executive Officers in the Merger beginning on page 105. |
Q: | Have any stockholders of IRT and TSRE already agreed to approve the Merger? |
A: | Yes. Pursuant to a voting agreement, RAIT Financial Trust (RAIT), which owned approximately 22.8% of the outstanding shares of IRT common stock as of the IRT Record Date, has agreed to vote in favor of the issuance of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), subject to the terms and conditions of contained in the voting agreement, as described under Voting Agreements beginning on page 154. |
Pursuant to separate voting agreements, funds managed or advised by Senator Investment Group LP (collectively, Senator) and Monarch Alternative Capital LP (collectively, Monarch), which collectively owned approximately 48.3% of the outstanding shares of TSRE common stock as of the TSRE Record Date, have agreed to vote in favor of the Company Merger and the other transactions contemplated by the Merger Agreement, subject to the terms and conditions of the applicable voting agreements, as described under Voting Agreements beginning on page 154.
Q: | Are there any conditions that must be satisfied for the Merger to be completed? |
A: | Yes. In addition to the approval of the stockholders of IRT of the issuance of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) and the approval of the stockholders of TSRE of the Company Merger and the other transactions contemplated by the Merger Agreement, there are a number of customary conditions that must be satisfied or waived for the Merger to be consummated. For a description of all of the conditions to the Merger, see The Merger AgreementConditions to Completion of the Merger beginning on page 125. |
Q: | Are there risks associated with the Merger that I should consider in deciding how to vote? |
A: | Yes. There are a number of risks related to the Merger that are discussed in this joint proxy statement/ prospectus described in the section entitled Risk Factors beginning on page 37. |
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Q: | If my shares of IRT common stock or my shares of TSRE common stock are held in street name by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares of IRT common stock or my shares of TSRE common stock for me? |
A: | Unless you instruct your broker, bank or other nominee how to vote your shares of IRT common stock and/or your shares of TSRE common stock, as applicable, held in street name, your shares will NOT be voted. If you hold your shares of IRT common stock and/or your shares of TSRE common stock in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), in order for your shares to be present and voted at the applicable special meeting, you must provide your broker, bank or other nominee with instructions on how to vote your shares. |
Q: | What happens if I do not vote for a proposal? |
A: | IRT. If you are an IRT stockholder, abstentions and broker non-votes, if any, will be counted in determining the presence of a quorum. Abstentions will have no effect on either (i) the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) or (ii) the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Broker non-votes, if any, will have no effect on either proposal. A broker non-vote is a vote that is not cast on a non-routine matter because the shares entitled to cast the vote are held in street name, the broker lacks discretionary authority to vote the shares and the broker has not received voting instructions from the beneficial owner. Because there are no discretionary (or routine) matters to be voted on at the IRT special meeting, IRT does not expect to receive any broker non-votes. |
TSRE. If you are a TSRE stockholder, abstentions and broker non-votes, if any, will be counted in determining the presence of a quorum. Abstentions and broker non-votes, if any, will have the same effect as a vote cast AGAINST the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. Abstentions and broker non-votes, if any, will have no effect on the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. A broker non-vote is a vote that is not cast on a non-routine matter because the shares entitled to cast the vote are held in street name, the broker lacks discretionary authority to vote the shares and the broker has not received voting instructions from the beneficial owner. Because there are no discretionary (or routine) matters to be voted on at the TSRE special meeting, TSRE does not expect to receive any broker non-votes.
Q: | Will my rights as a stockholder of IRT or TSRE change as a result of the Merger? |
A: | The rights of IRT stockholders will be unchanged as a result of the Merger. TSRE stockholders will have different rights following the effective time of the Company Merger due to the differences between the governing documents of IRT and TSRE. At the effective time of the Company Merger, the existing charter and bylaws of IRT will thereafter be the charter and bylaws of the Combined Company. For more information regarding the differences in stockholder rights, see Comparison of Rights of Stockholders of IRT and Stockholders of TSRE beginning on page 168. |
Q: | When is the Merger expected to be completed? |
A: | IRT and TSRE expect to complete the Merger as soon as reasonably practicable following satisfaction of all of the required conditions, but in no event after October 15, 2015, provided that IRT has the right to extend the closing date of the Merger if consents from certain of TSREs lenders are not obtained and IRT has received an extension of the DB Commitment Letter until December 31, 2015 or has received a financing |
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commitment from an alternate source that does not expire prior to December 31, 2015. If approval is obtained from the stockholders of both IRT and TSRE, and if the other conditions to closing the Merger are satisfied or waived, it is currently expected that the Merger will be completed in the third quarter of 2015. However, there is no guaranty that the conditions to the Merger will be satisfied or that the Merger will close on the anticipated timeline or at all. |
Q: | If I am a TSRE stockholder do I need to do anything with my stock certificates now? |
A: | No. You should not submit your stock certificates at this time. After the Company Merger is completed, if you held shares of TSRE common stock, the exchange agent for the Combined Company will send you a letter of transmittal and instructions for exchanging your shares of TSRE common stock for shares of the Combined Company common stock pursuant to the terms of the Merger Agreement. Upon surrender of a certificate or book-entry share for cancellation along with the executed letter of transmittal and other required documents described in the instructions, a TSRE stockholder will receive shares of common stock of the Combined Company and the cash consideration pursuant to the terms of the Merger Agreement. |
Q: | What are the anticipated U.S. federal income tax consequences to me of the proposed Merger? |
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 Company Merger is conditioned on the receipt by each of IRT and TSRE of an opinion from its respective counsel, dated as of the closing date of the Company Merger, to the effect that, on the basis of fact, representations and assumptions set forth or referred to in such opinion, 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 of shares of TSRE common stock generally will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of Combined Company common stock in exchange for TSRE common stock in connection with the Company Merger, except with respect to the cash consideration and cash received in lieu of fractional shares of Combined Company common stock. Assuming that the Company Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders of shares of TSRE common stock generally will recognize gain for U.S. federal income tax purposes to the extent of the cash compensation received in the Company Merger and the cash received in lieu of fractional shares of Combined Company common stock. Holders of TSRE common stock should read the discussion under the heading Material U.S. Federal Income Tax ConsequencesMaterial U.S. Federal Income Tax Consequences of the Merger beginning on page 134 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 Company Merger. |
Q: | Are IRT or TSRE stockholders entitled to appraisal rights? |
A: | No. Neither IRT nor TSRE stockholders are entitled to exercise appraisal or dissenters rights in connection with the Company Merger or the other transactions contemplated by the Merger Agreement. See The Merger AgreementMerger Consideration; Effects of the MergerAppraisal Rights beginning on page 113. |
Q: | What do I need to do now? |
A: | After you have carefully read this joint proxy statement/prospectus, please respond by completing, signing and dating your proxy card or voting instruction card and returning it in the enclosed pre-addressed postage-paid envelope or, if available, by submitting your proxy by one of the other methods specified in your proxy card or voting instruction card as promptly as possible so that your shares of IRT common stock and/or your shares of TSRE common stock, as applicable, will be represented and voted at the IRT special meeting or the TSRE special meeting, as applicable. |
Please refer to your proxy card or voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available to you.
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The method by which you submit a proxy will in no way limit your right to vote at the IRT special meeting or the TSRE special meeting, as applicable, if you later decide to attend the special meeting in person.
However, if your shares of IRT common stock or your shares of TSRE common stock are held in the name of a broker, bank or other nominee, you must obtain a legal proxy, executed in your favor, from your broker, bank or other nominee, to be able to vote in person at the IRT special meeting or the TSRE special meeting, as applicable.
Q: | How will my proxy be voted? |
A: | IRT. All shares of IRT common stock entitled to vote and represented by properly completed proxies received prior to the IRT special meeting, and not revoked, will be voted at the IRT special meeting as instructed on the proxies. If you properly sign, date and return a proxy card, but do not indicate how your shares of IRT common stock should be voted on a matter, the shares of IRT common stock represented by your proxy will be voted as the IRT Board recommends and, therefore, FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate in the view of the IRT Board, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) if there are not sufficient votes at the time of such adjournment to approve such proposal. If you hold your shares of IRT common stock in street name and do not provide voting instructions to your broker, bank or other nominee, your shares of IRT common stock will have no effect on either proposal at the IRT special meeting. |
TSRE. All shares of TSRE common stock entitled to vote and represented by properly completed proxies received prior to the TSRE special meeting, and not revoked, will be voted at the TSRE special meeting as instructed on the proxies. If you properly sign, date and return a proxy card, but do not indicate how your shares of TSRE common stock should be voted on a matter, the shares of TSRE common stock represented by your proxy will be voted as the TSRE Board recommends and, therefore, FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of approval of the Company Merger and the other transactions contemplated by the Merger Agreement. If you hold your shares of TSRE common stock in street name and do not provide voting instructions to your broker, bank or other nominee, it will have the same effect as a vote cast AGAINST the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and will have no effect on the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
Q: | Can I revoke my proxy or change my vote after I have delivered my proxy? |
A: | Yes. You may revoke your proxy or change your vote at any time before your proxy is voted at the IRT special meeting or the TSRE special meeting, as applicable. If you are a holder of record, you can do this in any of the three following ways: |
| by sending a written notice to the corporate secretary of IRT or the corporate secretary of TSRE, as applicable, in time to be received before the IRT special meeting or the TSRE special meeting, as applicable, stating that you would like to revoke your proxy; |
| by completing, signing and dating another proxy card and returning it by mail in time to be received before the IRT special meeting or the TSRE special meeting, as applicable, or by submitting a later dated proxy by the internet or telephone in which case your later-submitted proxy will be recorded and your earlier proxy revoked; or |
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| by attending the IRT special meeting or the TSRE special meeting, as applicable, and voting in person. Simply attending the IRT special meeting or the TSRE special meeting, as applicable, without voting will not revoke your proxy or change your vote. |
If your shares of IRT common stock or your shares of TSRE common stock are held in street name in an account at a broker, bank or other nominee and you desire to change your vote or vote in person, you should contact your broker, bank or other nominee for instructions on how to do so. If you hold your shares of IRT common stock or TSRE common stock, as applicable, in street name, you may not vote your shares in person at the IRT special meeting or at the TSRE special meeting, as applicable, unless you bring a legal proxy from the broker, bank or other nominee that holds your shares.
Q: | What does it mean if I receive more than one set of voting materials for the IRT special meeting or the TSRE special meeting? |
A: | You may receive more than one set of voting materials for the IRT special meeting and/or the TSRE 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 TSRE 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 TSRE common stock. If you are a holder of record and your shares of IRT common stock or your shares of TSRE 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: | What happens if I am a stockholder of both IRT and TSRE? |
A: | You will receive separate proxy cards for each entity and must complete, sign and date each proxy card and return each proxy card in the appropriate pre-addressed postage-paid envelope or, if available, by submitting a proxy by one of the other methods specified in your proxy card or voting instruction card for each entity. |
Q: | Do I need identification to attend the IRT or TSRE special meeting in person? |
A: | Yes. Please bring proper identification, together with proof that you are a record owner of shares of IRT common stock or shares of TSRE common stock, as the case may be, reflecting your share ownership as of the close of business on the IRT Record Date or the close of business on the TSRE Record Date, as applicable. 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 showing that you beneficially owned shares of IRT common stock or shares of TSRE common stock, as applicable, on the applicable record date, as well as a legal proxy from your broker giving you the right to vote your shares at the applicable special meeting. |
Q: | Will a proxy solicitor be used? |
A: | IRT has engaged D.F. King & Co., Inc. (D.F. King) to assist in the solicitation of proxies for the IRT special meeting, and IRT estimates it will pay D.F. King a fee of approximately $8,500. IRT has also agreed to reimburse D.F. King for reasonable and documented out-of-pocket expenses incurred in connection with the proxy solicitation and to indemnify D.F. King against certain claims, costs, damages, liabilities, judgments and expenses. |
TSRE will not be engaging a proxy solicitor to assist in the solicitation of proxies for the TSRE special meeting.
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Q: | Who can answer my questions? |
A: | If you have any questions about the Merger or the other matters to be voted on at the special meetings or how to submit your proxy, or if you need additional copies of this joint proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact: |
If you are an IRT stockholder:
Independence Realty Trust, Inc. Attention: Secretary Cira Centre 2929 Arch Street, 17th Floor Philadelphia, PA 19104 (215) 243-9000
or
D.F. King & Co., Inc. 48 Wall Street New York, NY 10005 Telephone: Banks and brokers: (212) 493-3910 Stockholders: (866) 406-2284 |
If you are a TSRE stockholder:
Trade Street Residential, Inc. Attention: Secretary 19950 West Country Club Drive Suite 800 Aventura, FL 33180 (786) 248-5200 |
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The following summary highlights some of the information contained in this joint proxy statement/prospectus. This summary may not contain all of the information that is important to you. For a more complete description of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, IRT and TSRE encourage you to read carefully this entire 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 the information that might be important to you with respect to the Merger and the other matters being considered at the applicable special meeting. See also Where You Can Find More Information; Incorporation by Reference beginning on page 173.
Independence Realty Trust, Inc.
IRT is a Maryland corporation that has elected to be taxed as a REIT under the Code. IRT conducts its business through a traditional umbrella partnership REIT (UPREIT) structure in which IRTs properties are owned by IROP directly or through subsidiaries. IRT is the sole general partner of IROP. Substantially all of IRTs assets are held by, and substantially all of IRTs operations are conducted through, IROP. IRT owns apartment properties in geographic submarkets that it believes support strong occupancy and have the potential for growth in rental rates.
IRT is externally advised by its advisor, Independence Realty Advisors, LLC (the Advisor), a wholly-owned subsidiary of RAIT, pursuant to an advisory agreement and subject to the oversight of the IRT Board. The Advisor is responsible for managing IRTs day-to-day business operations and identifying properties for IRT to acquire.
RAIT Residential, the property manager for IRTs properties, is a full-service apartment property management company that, as of March 31, 2015, employed approximately 420 staff and professionals and manages approximately 16,000 apartment units. RAIT Residential provides services to IRT in connection with the rental, leasing, operation and management of IRTs properties.
IRT common stock is listed on the NYSE MKT, trading under the symbol IRT.
IRT was incorporated in the state of Maryland in 2009. IRTs principal executive offices are located at Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania 19104, and its telephone number is (215) 243-9000.
OP Merger Sub, a direct wholly-owned subsidiary of IROP, is a Delaware limited liability company formed on May 8, 2015 for the purpose of entering into the Merger Agreement. OP Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement.
IRT LP LLC, a direct wholly-owned subsidiary of IRT, is a Delaware limited liability company. IRT LP LLC is a holding company that holds 100 IROP Units.
Additional information about IRT and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
Trade Street Residential, Inc.
TSRE is a Maryland corporation that has elected to be taxed as a REIT under the Code. TSRE conducts its business through an UPREIT structure in which TSREs properties are owned by TSR OP directly or through
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subsidiaries. TSRE is a full service, vertically integrated, self-administered and self-managed corporation incorporated in the state of Maryland in 2012, to acquire, own, operate and manage conveniently located, garden-style and mid-rise apartment communities in mid-sized cities and suburban submarkets of larger cities primarily in the southeastern United States and Texas. As of March 31, 2015, TSRE owned and operated 19 apartment communities containing 4,989 apartment units in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Texas. TSREs apartment communities are characterized by attractive features including substantial landscaping, well-maintained exteriors and high quality interior finishes, and amenities such as swimming pools, clubhouses and fitness facilities and controlled-access gated entrances.
TSRE common stock is listed on the NASDAQ Global Market, trading under the symbol TSRE.
TSREs principal executive offices are located at 19950 West Country Club Drive, Suite 800, Aventura, Florida 33180, and its telephone number is (786) 248-5200.
Additional information about TSRE and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference on page 173.
The Combined Company
References to the Combined Company are to IRT after the effective time of the Merger. The Combined Company will be named Independence Realty Trust, Inc. and will be a Maryland corporation. The Combined Company will be a leading regional market multifamily platform operating across select target markets in the United States. The Combined Company is expected to have a pro forma equity market capitalization of approximately $422.1 million and a pro forma total market capitalization of $1.4 billion, each as of March 31, 2015 and based on the closing price of IRT common stock of $8.57 per share on May 8, 2015. The Combined Companys asset base will consist primarily of approximately 14,044 multifamily units in 50 properties in 24 geographic markets.
The business of the Combined Company will be operated through IROP and its subsidiaries, which, after completion of the Merger, will include TSR OP.
The common stock of the Combined Company will continue to be listed on the NYSE MKT, trading under the symbol IRT.
The Combined Companys principal executive offices will be located at Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania, and its telephone number will be (215) 243-9000.
The Merger Agreement
IRT, IROP, OP Merger Sub, IRT LP LLC, TSRE and TSR OP have entered into the Merger Agreement attached as Annex A to this joint proxy statement/prospectus, which is incorporated herein by reference. IRT and TSRE encourage you to carefully read the Merger Agreement in its entirety because it is the principal document governing the Merger and the other transactions contemplated by the Merger Agreement.
The Merger Agreement provides that the closing of the Company Merger will take place at the offices of Morrison & Foerster LLP in Washington, D.C. at 9:29 a.m. Eastern Time on the second business day after the satisfaction or waiver of the conditions to closing set forth in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the closing), immediately after the Partnership Merger, or at such other place, date and time as IRT and TSRE may agree in writing.
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The Merger
Subject to the terms and conditions of the Merger Agreement, (i) at the effective time of the Partnership Merger, OP Merger Sub will merge into TSR OP, with TSR OP continuing as the surviving entity, and (ii) at the effective time of the Company Merger, TSRE will merge into IRT LP LLC, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT. Upon the closing of the Merger, IROP will own all of the limited partnership interests in TSR OP and IRT LP LLC will own the general partnership interest in TSR OP. Immediately following the consummation of the Merger, IRT will cause TSR OP to become a wholly-owned subsidiary of IROP.
References to the Combined Company are to IRT after the effective time of the Merger. The shares of common stock of the Combined Company will continue to be listed and traded on the NYSE MKT under the symbol IRT.
Upon completion of the Merger, we estimate that continuing IRT stockholders will own approximately 66.5% of the issued and outstanding common stock of the Combined Company, and former TSRE stockholders will own approximately 33.5% of the issued and outstanding common stock of the Combined Company.
The Merger Consideration
At the effective time of the Company Merger, each issued and outstanding share of TSRE common stock will convert into the right to receive (i) $3.80 in cash, without interest, subject to increase, at the election of IRT, to up to $4.56 (such cash amount, the Per Share Cash Amount), and (ii) a number of shares of IRT common stock equal to the quotient, or Exchange Ratio, determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000 (the cash and shares of IRT common stock received in exchange for the TSRE common stock, the Company Merger Consideration). At the effective time of the Partnership Merger, each issued and outstanding TSR OP Unit, other than TSR OP Units owned by TSRE or one of its subsidiaries, will convert into the right to receive (i) the Per Share Cash Amount and (ii) a number of IROP Units equal to the Exchange Ratio (the cash and IROP Units received in exchange for the TSR OP Units, the Partnership Merger Consideration and, together with the Company Merger Consideration, the Merger Consideration). Holders of TSRE common stock and TSR OP Units will not receive any fractional shares of IRT common stock or fractional IROP Units in the Merger and instead will be paid cash (without interest) in lieu of any fractional share or unit interest to which they would otherwise be entitled. Neither the Per Share Cash Amount nor the Exchange Ratio will change as a result of a change in the market price of IRT common stock, although the aggregate value of the Merger Consideration will fluctuate with changes in the market price of IRT common stock and the Per Share Cash Amount that IRT elects.
Based on the closing price of IRT common stock on the NYSE MKT of $8.14 on July 30, 2015, the latest practicable date before the date of this joint proxy statement/prospectus, and based on a $3.80 Per Share Cash Amount and a resulting Exchange Ratio of 0.4108, the aggregate value of the per share Merger Consideration would equal $7.14, comprised of $3.80 of cash and 0.4108 of a share of IRT common stock with a market value of $3.34.
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The following table depicts the total value of the Merger Consideration that a holder of TSRE common stock will receive based on various elections that IRT can make regarding the Per Share Cash Amount at a number of assumed per share prices of IRT common stock at the time the Merger is consummated. The table that follows sets forth the Per Share Cash Amount, the resulting Exchange Ratio (rounded for illustration purposes), and the value of the total Merger Consideration holders of TSRE common stock will receive if the price per share of IRT common stock on the closing date of the Merger is $7.00, $7.50, $8.00, $8.50, $9.00, $9.50 and $10.00. The amounts depicted in the following table are intended to be illustrative only and do not purport to include the exact value of the Merger Consideration holders of TSRE common stock will receive in the Merger, which will depend on the exact Per Share Cash Amount that IRT elects and the exact price of IRT common stock on the closing date of the Merger.
Per Share Cash Amount |
Exchange Ratio(1) |
Value of Merger Consideration if IRT Stock Price is $7.00 |
Value of Merger Consideration if IRT Stock Price is $7.50 |
Value of Merger Consideration if IRT Stock Price is $8.00 |
Value of Merger Consideration if IRT Stock Price is $8.50 |
Value of Merger Consideration if IRT Stock Price is $9.00 |
Value of Merger Consideration if IRT Stock Price is $9.50 |
Value of Merger Consideration if IRT Stock Price is $10.00 |
||||||||||||||||||||||||||
$ | 3.80 | 0.4108 | $ | 6.68 | $ | 6.88 | $ | 7.09 | $ | 7.29 | $ | 7.50 | $ | 7.70 | $ | 7.91 | ||||||||||||||||||
$ | 3.95 | 0.3946 | $ | 6.71 | $ | 6.91 | $ | 7.11 | $ | 7.30 | $ | 7.50 | $ | 7.70 | $ | 7.90 | ||||||||||||||||||
$ | 4.10 | 0.3784 | $ | 6.75 | $ | 6.94 | $ | 7.13 | $ | 7.32 | $ | 7.51 | $ | 7.69 | $ | 7.88 | ||||||||||||||||||
$ | 4.25 | 0.3622 | $ | 6.79 | $ | 6.97 | $ | 7.15 | $ | 7.33 | $ | 7.51 | $ | 7.69 | $ | 7.87 | ||||||||||||||||||
$ | 4.40 | 0.3459 | $ | 6.82 | $ | 6.99 | $ | 7.17 | $ | 7.34 | $ | 7.51 | $ | 7.69 | $ | 7.86 | ||||||||||||||||||
$ | 4.56 | 0.3286 | $ | 6.86 | $ | 7.02 | $ | 7.19 | $ | 7.35 | $ | 7.52 | $ | 7.68 | $ | 7.85 |
(1) | The Exchange Ratio represents the number of shares of IRT common stock that a holder of TSRE common stock will receive in exchange for each share of TSRE common stock that they own and equals the quotient determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000. The Exchange Ratio is dependent solely on the Per Share Cash Amount elected by IRT and will not fluctuate as a result of changes in the market price of IRT common stock. |
You are urged to obtain current market prices of shares of IRT common stock and TSRE common stock. You are cautioned that the trading price of the common stock of the Combined Company after the Merger may be affected by factors different from those currently affecting the trading prices of IRT common stock and TSRE common stock, and therefore, the historical trading prices of IRT common stock and TSRE common stock may not be indicative of the trading price of the Combined Company. See the risks related to the Merger and the other transactions contemplated by the Merger Agreement described under the section Risk FactorsRisk Factors Relating to the Merger beginning on page 37.
Concurrently with the execution of the Merger Agreement, (i) IRT entered into voting agreements with funds managed or advised by Senator and funds managed or advised by Monarch, and (ii) TSRE entered into a voting agreement with RAIT. As of the TSRE Record Date, Senator and Monarch owned approximately 25.3% and 23.0%, respectively, of the outstanding shares of TSRE common stock. As of the IRT Record Date, RAIT owned approximately 22.8% of the outstanding shares of IRT common stock.
Pursuant to the terms of the voting agreements, each of the stockholders party to the voting agreements has agreed, subject to the terms and conditions contained in each voting agreement, to, among other things, vote all of its shares of IRT common stock or TSRE common stock, as applicable, whether currently owned or acquired at any time prior to the termination of the applicable voting agreement, in favor of the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units in the Partnership Merger) or in favor of the Company Merger and the other transactions contemplated by the Merger Agreement, as applicable. In addition, the voting agreements with Senator and Monarch provide that they each will vote their
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TSRE common stock against any acquisition proposal, and both the voting agreements with Senator and Monarch and the voting agreement with the RAIT provide that they each will vote their shares of TSRE common stock or IRT common stock, as applicable, against any action which would reasonably be expected to adversely affect or interfere with the consummation of the Merger or the other transactions contemplated by the Merger Agreement.
Each of the stockholders party to the voting agreements has also agreed to comply with certain restrictions on the transfer of such stockholders shares subject to the terms of the applicable voting agreement. Each of the voting agreements terminates upon the earlier to occur of (i) the effective time of the Merger; (ii) the termination of the Merger Agreement pursuant to its terms; (iii) any modification, waiver, change or amendment to the Merger Agreement that is materially adverse to the stockholder or that results in a material decrease in the amount or change in the form of the Merger Consideration; and (iv) October 15, 2015, as may be extended to December 31, 2015 pursuant to the terms the Merger Agreement.
The foregoing summary of the voting agreements is subject to, and qualified in its entirety by reference to, the full text of each of the voting agreements. Copies of each of the voting agreements are attached as Annex B, Annex C, Annex D and Annex E to this joint proxy statement/prospectus and are incorporated herein by reference. For more information, see Voting Agreements beginning on page 154.
Financing Related to the Merger
IRT intends to finance the cash portion of the Merger Consideration and the fees, expenses and costs incurred in connection with the Merger and other transactions related to the Merger, and to repay or refinance certain of TSREs borrowings, using a combination of some or all of the following resources:
| IRTs available cash on hand; |
| the assumption and/or refinancing of certain of TSREs existing mortgage debt; |
| borrowings under the KeyBank Senior Facility for up to $325.0 million with KeyBank NA; |
| borrowings under the KeyBank Interim Facility for up to $120.0 million with KeyBank NA; and |
| if market conditions allow, proceeds from the sale of IRT stock. |
The closing of the KeyBank Facilities remains subject to the negotiation and entry into definitive documentation and the satisfaction or waiver of customary conditions contained therein.
To the extent IRT does not utilize the KeyBank Facilities, IRT intends to finance the cash portion of the Merger Consideration and the fees, expenses and costs incurred in connection with the Merger and other transactions related to the Merger, and repay or refinance certain of TSREs borrowings, using borrowings under the DB Term Loan Facility for up to $500.0 million, for which IRT has received a commitment from DBNY.
IRT has entered into the DB Commitment Letter pursuant to which, on and subject to the terms and conditions therein, DBNY has committed to provide the DB Term Loan Facility in an aggregate principal amount of up to $500.0 million, subject to customary conditions as set forth in the DB Commitment Letter. The DB Commitment Letter permits IRT to use alternative financing, including the KeyBank Facilities, in connection with the consummation of the Merger, and IRT is under no obligation to enter into definitive documentation for the DB Term Loan Facility or to draw upon the financing commitment from DBNY. The DB Commitment Letter expires on the earliest of (i) October 15, 2015 (or such later date as may be agreed in good faith by the parties to the DB Commitment Letter to the extent the outside termination date of the Merger Agreement is extended), (ii) the date on which the Merger Agreement is terminated or expires in accordance with its terms, and (iii) the date of the closing of the Merger without the use of the DB Term Loan Facility.
IRT currently intends to utilize a portion of the financing it obtains in connection with the Merger to pay off its existing revolving credit facility.
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IRTs ability to finance the Merger is not a condition to its obligation to complete the Merger. For more information regarding the financing related to the Merger, see The Merger AgreementFinancing Related to the Merger beginning on page 130.
Recommendation of the IRT Board
The IRT Board has unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to, and in the best interests of IRT and its stockholders, (ii) approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (iii) authorized and approved the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units in the Partnership Merger). The IRT Board unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units in the Partnership Merger) and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger.
Recommendation of the TSRE Board
The TSRE Board has (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of TSRE and its stockholders and (ii) approved the Merger Agreement and authorized the performance by TSRE thereunder. The TSRE Board recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
Summary of Risk Factors Related to the Merger
You should consider carefully all of the risk factors together with all of the other information included in this joint proxy statement/prospectus before deciding how to vote. The risks related to the Merger and the other transactions contemplated by the Merger Agreement are described under the section Risk FactorsRisk Factors Relating to the Merger beginning on page 37 and include:
| IRT and TSRE stockholders will be diluted by the Merger. |
| The Merger Agreement contains provisions that could discourage a potential competing acquirer of TSRE or could result in a competing acquisition proposal being at a lower price. |
| There can be no assurance that IRT will be able to secure the financing necessary to pay the cash portion of the Merger Consideration on acceptable terms, in a timely manner, or at all. |
| The Merger is subject to a number of conditions which, if not satisfied or waived, would adversely impact the parties ability to complete the Merger. |
| The Merger Consideration will not be adjusted in the event of any change in the stock prices of either IRT or TSRE. |
| Failure to complete the Merger could negatively impact the stock prices and the future business and financial results of both IRT and TSRE. |
| The pendency of the Merger could adversely affect the business and operations of IRT and TSRE. |
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| A pending purported class action lawsuit or other lawsuits could prevent or delay the consummation of the Merger and result in substantial costs. |
The special meeting of the stockholders of IRT will be held at IRTs offices at the Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, PA 19104 on September 15, 2015, commencing at 9:00 a.m., local time.
At the IRT special meeting, stockholders of IRT as of the IRT Record Date will be asked to consider and vote upon the following matters:
(i) | a proposal to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger); and |
(ii) | a proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). |
Approval of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of the holders of at least a majority of all votes cast on such proposal.
Approval of the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of at least a majority of all votes cast on such proposal.
At the close of business on the IRT Record Date, directors and executive officers of IRT were entitled to vote 131,780 shares of IRT common stock, or approximately 0.4% of the shares of IRT common stock issued and outstanding on that date. IRT currently expects that the IRT directors and executive officers will vote their shares of IRT common stock in favor of the proposal to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units in the Partnership Merger) as well as the other proposal to be considered at the IRT special meeting, although none of them is contractually obligated to do so.
RAIT, which was entitled to vote 7,269,719 shares of IRT common stock, or approximately 22.8% of the shares of IRT common stock issued and outstanding at the close of business on the IRT Record Date, has entered into a voting agreement that obligates it to vote FOR the issuance of IRT common stock in the Merger.
Your vote as an IRT stockholder is very important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the IRT special meeting in person.
The special meeting of the stockholders of TSRE will be held at the 8th Floor Conference Room at West Country Club Drive, Aventura, Florida 33180 on September 15, 2015, commencing at 10:00 a.m., local time.
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At the TSRE special meeting, TSRE stockholders as of the TSRE Record Date will be asked to consider and vote upon the following matters:
(i) | a proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement; and |
(ii) | a proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. |
Approval of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on such proposal.
Approval of the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of a majority of all votes cast on such proposal.
At the close of business on the TSRE Record Date, directors and executive officers of TSRE were entitled to vote 229,468 shares of TSRE common stock, or approximately 0.6% of the shares of TSRE common stock issued and outstanding on that date. Additionally, TSRE currently expects that the TSRE directors and executive officers will vote their shares of TSRE common stock in favor of the TSRE proposal to approve the Company Merger as well as the other proposal to be considered at the TSRE special meeting, although none of them is contractually obligated to do so.
Senator and Monarch, which collectively were entitled to vote 17,768,733 shares of TSRE common stock, or approximately 48.3% of the shares of TSRE common stock issued and outstanding at the close of business on the TSRE Record Date, have entered into voting agreements that obligate them to vote FOR the TSRE proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
Your vote as a TSRE stockholder is very important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the TSRE special meeting in person.
Opinions of Financial Advisors
Opinion of IRTs Financial Advisor
Deutsche Bank has acted as financial advisor to IRT in connection with the Merger. At the May 10, 2015 meeting of the IRT Board, Deutsche Bank rendered its oral opinion to the IRT Board, subsequently confirmed by delivery of a written opinion dated May 11, 2015, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Deutsche Banks opinion, the Merger Consideration to be paid by IRT pursuant to the Merger Agreement was fair, from a financial point of view, to IRT. Deutsche Banks opinion noted that, pursuant to the Merger Agreement, IRT may, subject to limitations provided therein, elect to increase the cash portion of the Merger Consideration to more than $3.80 per share of TSRE common stock or TSR OP Unit, which would result in a decrease in the number of shares of IRT common stock and the number of IROP Units included in the Merger Consideration. Deutsche Banks opinion also noted that, pursuant to the Merger Agreement, the cash portion of the Merger Consideration may be further adjusted if IRT has made such an election to increase the cash portion of the Merger Consideration and the stock portion of the Merger Consideration (calculated using the closing price of IRT common stock on the NYSE MKT on the trading day prior to the closing date of the Merger) would be less
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than 40% of the total Merger Consideration. Deutsche Bank noted that for purposes of its opinion, the IRT Board instructed Deutsche Bank to assume, and Deutsche Bank assumed, that the cash portion of the Merger Consideration will be $3.80 per share of TSRE common stock or TSR OP Unit, as applicable.
The full text of Deutsche Banks written opinion, dated May 11, 2015, which sets forth the assumptions made, procedures followed, matters considered and limitations, qualifications and conditions on the review undertaken in connection with the opinion, is included in this document as Annex F and is incorporated herein by reference. The summary of Deutsche Banks opinion set forth in this document is qualified in its entirety by reference to the full text of the opinion. Deutsche Banks opinion was addressed to, and for the use and benefit of, the IRT Board in connection with its evaluation of the Merger. Deutsche Banks opinion does not constitute a recommendation as to how any holder of IRT common stock should vote with respect to the Merger or any other matter. Deutsche Banks opinion was limited to the fairness of the Merger Consideration to be paid by IRT pursuant to the Merger Agreement, from a financial point of view, to IRT as of the date of the opinion and Deutsche Bank did not express any opinion as to the underlying decision by IRT to engage in the Merger or the relative merits of the Merger as compared to any alternative transactions or business strategies.
See The MergerOpinion of IRTs Financial Advisor beginning on page 84.
Opinion of TSREs Financial Advisor
The TSRE Board retained J.P. Morgan Securities LLC (J.P. Morgan) to act as its financial advisor in connection with the proposed Merger. At the meeting of the TSRE Board on May 10, 2015, J.P. Morgan rendered its oral opinion to the TSRE Board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger, was fair, from a financial point of view, to such holders. The oral opinion was subsequently confirmed in writing by delivery of J.P. Morgans written opinion dated May 11, 2015.
The full text of the written opinion of J.P. Morgan, dated May 11, 2015, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in rendering its opinion, is attached as Annex G to this joint proxy statement/prospectus and is incorporated herein by reference. TSREs stockholders are urged to read the opinion in its entirety. J.P. Morgans opinion is addressed to the TSRE Board, is directed only to the fairness from a financial point of view of the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger as of the date of the opinion and does not constitute a recommendation to any stockholder of TSRE as to how such stockholder should vote with respect to the Merger or any other matter.
See The MergerOpinion of TSREs Financial Advisor beginning on page 95.
Treatment of the TSRE Amended and Restated 2013 Equity Incentive Plan
At the effective time of the Merger, each outstanding share of TSRE common stock subject to vesting or other forfeiture conditions that remains unvested or otherwise subject to forfeiture conditions immediately prior to the effective time of the Merger shall automatically become vested and free of any such forfeiture conditions and will be automatically converted into and cancelled in exchange for the right to receive an amount equal to the (i) Per Share Cash Amount and (ii) a number of shares of common stock in IRT equal to the Exchange Ratio, less any required withholding taxes which may be satisfied via net settlement.
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Directors and Management of the Combined Company After the Merger
As of the effective time of the Company Merger, the board of directors of the Combined Company will be increased to seven members, with the five current IRT directors, Scott F. Schaeffer, William C. Dunkelberg, Robert F. McCadden, DeForest B. Soaries, Jr., and Sharon M. Tsao, continuing as directors of the Combined Company. In addition, Richard H. Ross, the Chief Executive Officer of TSRE, and Mack D. Pridgen III, the Chairman of the TSRE Board, will join the board of directors of the Combined Company, to serve until the next annual meeting of the stockholders of the Combined Company (and until their successors have been duly elected and qualified).
The executive officers of IRT immediately prior to the effective time of the Company Merger will continue to serve as the executive officers of the Combined Company, with Scott F. Schaeffer continuing to serve as the Chief Executive Officer of the Combined Company.
Interests of IRTs Directors, Executive Officers and Affiliates in the Merger
Holders of IRT common stock should be aware that certain of IRTs affiliates have interests in the Merger and the other transactions contemplated by the Merger Agreement that are different from, or in addition to, the interests of holders of IRT common stock generally, which may create potential conflicts of interest or the appearance thereof. The IRT Board was aware of these interests, among other matters, in approving the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and in recommending that holders of IRT common stock vote for the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). These interests include those discussed below.
Concurrently with the execution and delivery of the Merger Agreement, TSRE entered into a voting agreement with RAIT, which owned approximately 22.8% of the outstanding shares of IRT common stock as of the IRT Record Date. Pursuant to the voting agreement, RAIT has agreed to vote in favor of the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), subject to the terms and conditions of contained in the voting agreement.
The Advisor is a wholly-owned subsidiary of RAIT, and RAIT owns a 75% controlling equity interest in IRTs property manager, RAIT Residential. The Advisor is responsible for managing IRTs day-to-day business operations and identifying properties for IRT to acquire, while RAIT Residential provides services to IRT in connection with the rental, leasing, operation and management of its properties. All of the executive officers of IRT are also employees of RAIT. Each of Scott F. Schaeffer, IRTs Chairman of the Board and Chief Executive Officer, and James J. Sebra, IRTs Chief Financial Officer and Treasurer, also hold the same positions at RAIT. IRTs executive officers have been granted restricted stock awards and stock appreciation rights under IRTs Long Term Incentive Plan. IRT has an advisory agreement with the Advisor and expects to amend the terms of this advisory agreement to extend the term and modify the method to calculate the Advisors advisory fee. See The MergerInterests of IRTs Directors, Executive Officers and Affiliates in the Merger beginning on page 104. While the changes to such methods would not necessarily increase the amount of advisory fees paid to the Advisor, due to the increased size of the Combined Company, the Advisor expects to receive increased advisory fees if the Merger is completed. IRT expects to have RAIT Residential serve as the property manager for each of the properties acquired from TSRE as a result of the Merger. While the terms of each property management agreement are expected to be substantially similar to those IRT has used for its properties currently in IRTs portfolio, due to the increased size of the Combined Company, RAIT Residential expects to receive increased property management fees if the Merger is completed.
For more information about these interests, see The MergerInterests of IRTs Directors, Executive Officers and Affiliates in the Merger beginning on page 104.
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Interests of TSREs Directors and Executive Officers in the Company Merger
In considering the recommendation of the TSRE Board to approve the Company Merger and the other transactions contemplated by the Merger Agreement, TSRE stockholders should be aware that TSREs directors and executive officers have certain interests in the Merger that may be different from, or in addition to, the interests of TSRE stockholders generally, including certain contractual change of control payments, benefits and incentive awards in connection with the Merger, as described below.
Pursuant to the terms of their employment agreements with TSRE, Richard H. Ross, TSREs Chief Executive Officer, and Randall C. Eberline, TSREs Chief Accounting Officer, will be entitled to: (i) all accrued but unpaid wages through the termination date; (ii) all accrued but unused and unpaid vacation; (iii) any earned but unpaid bonuses relating to the prior year; (iv) all approved, but unreimbursed, business expenses; (v) if the executive is participating in TSREs group medical, vision and dental plan immediately prior to the date of termination, a lump sum payment equal to 18 times (or such lesser period that the executive (and his eligible dependents) are entitled to under COBRA) the amount of monthly employer contribution that TSRE made to an issuer to provide medical, vision and dental insurance to the executive (and his eligible dependents) in the month immediately preceding the date of termination; and (vi) a separation payment equal to the sum of three times the executives (a) then current base salary and (b) average annual bonus for the two annual bonus periods completed prior to the termination (if the change in control occurs prior to the date the executive was eligible to earn two bonuses, the average bonus for the two-year period will be deemed to be the executives target bonus in the year of termination), with such separation payment being payable in a lump sum within 60 days from the date of termination, subject to the executive executing a release that becomes effective and certain other conditions. Additionally all of the executives outstanding unvested equity-based awards (including restricted stock and restricted stock units) granted pursuant to TSREs Amended and Restated 2013 Equity Incentive Plan will vest and become immediately exercisable and unrestricted, without any action by the TSRE Board or any committee thereof.
Concurrently with the execution and delivery of the Merger Agreement, IRT entered into separate voting agreements with funds affiliated with Senator and Monarch, which collectively owned approximately 48.3% of the outstanding shares of TSRE common stock as of the TSRE Record Date. Pursuant to the voting agreements, Senator and Monarch have each agreed to vote in favor of the Company Merger and the other transactions contemplated by the Merger Agreement, subject to the terms and conditions of the applicable voting agreements, as described under Voting Agreements beginning on page 154. In addition, Senator and Monarch each also entered into a lock-up agreement in favor of IRT. Pursuant to the terms of the lock-up agreements, and subject to certain exceptions, each of Senator and Monarch are subject to restrictions on the sale of its shares of IRT common stock for a period of 180 days following the closing of the Merger. Michael Simanovsky and Adam Sklar, each of whom is a member of the TSRE Board, are employees of Senator and Monarch, respectively.
Listing of Shares of the IRT Common Stock; Delisting and Deregistration of TSRE Common Stock
It is a condition to each companys obligation to complete the Merger that the shares of IRT common stock issuable in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) be approved for listing on the NYSE MKT, subject to official notice of issuance. IRT has agreed to use its reasonable best efforts to cause the shares of IRT common stock to be issued in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) to be approved for listing on the NYSE MKT, subject to official notice of issuance. After the Merger is completed, the shares of TSRE common stock currently listed on the NASDAQ Global Market will cease to be listed on the NASDAQ Global Market and will be deregistered under the Exchange Act.
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Stockholder Appraisal Rights in the Merger
No dissenters or appraisal rights, or rights of objecting stockholders under Title 3 Subtitle 2 of the Maryland General Corporation Law (the MGCL) will be available with respect to the Company Merger or the other transactions contemplated by the Merger Agreement.
Conditions to Completion of the Merger
A number of customary conditions must be satisfied or waived, where legally permissible, before the Merger can be consummated. These include, among others:
| approval by TSRE stockholders of the Company Merger and the other transactions contemplated by the Merger Agreement; |
| approval by IRT stockholders of the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger); |
| the absence of any law, injunction, judgment, order or ruling prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; |
| the Form S-4 registration statement, of which this joint proxy statement/prospectus is a part, having been declared effective by the SEC and no stop order suspending the effectiveness of such Form S-4 having been issued and no proceeding to that effect having been commenced or threatened by the SEC and not withdrawn; |
| the shares of IRT common stock to be issued in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) having been approved for listing on the NYSE MKT, subject to official notice of issuance; |
| the representations and warranties of each party made in the Merger Agreement must generally be true and correct when made and as of the closing, subject to customary materiality qualifications; |
| the performance by the parties in all material respects of their covenants, obligations and agreements under the Merger Agreement; |
| the delivery of tax opinions related to each of TSREs and IRTs qualification and taxation as a REIT; |
| the delivery of tax opinions that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code; |
| certain of TSREs lenders entering into amendments to their loan documents that will, among other things, allow IRT to assume these loans, subject to waiver in the event such amendments are not obtained by a certain date; |
| the termination of a certain stockholders agreement between TSRE and certain affiliates of Senator; |
| the termination of the TSRE 401(k) plan; and |
| the absence of a material adverse effect on either party prior to the closing. |
Neither IRT nor TSRE can give any assurance as to when or if all of the conditions to the consummation of the Merger will be satisfied or waived or that the Merger will occur on the anticipated timeline or at all.
For more information regarding the conditions to the consummation of the Merger and a complete list of such conditions, see The Merger AgreementConditions to Completion of the Merger beginning on page 125.
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Regulatory Approvals Required for the Merger
IRT and TSRE 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 Merger or the other transactions contemplated by the Merger Agreement.
No Solicitation and Change in Recommendation
Under the Merger Agreement, TSRE 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, an acquisition proposal, (ii) enter into any agreement, letter of intent, memorandum of understanding or other similar instrument with respect to an acquisition 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 acquisition proposal.
However, prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by TSRE stockholders, TSRE may, under certain specified circumstances, conduct, engage or participate in discussions or negotiations with and provide non-public information regarding itself to a third party making an unsolicited acquisition proposal. Under the Merger Agreement, TSRE is required to notify IRT within 24 hours if it receives any acquisition proposal or any request for information or inquiry that expressly contemplates or that could reasonably be expected to lead to an acquisition proposal.
Prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by TSRE stockholders, the TSRE Board may, under certain specified circumstances, withdraw its recommendation of the Company Merger if (i) TSRE receives an unsolicited bona fide written acquisition proposal that the TSRE Board determines, after consultation with independent financial advisors and outside legal counsel, constitutes a superior proposal or (ii) in response to certain intervening events which were not known to the TSRE Board as of the date of the Merger Agreement, the TSRE Board determines, after consultation with outside legal counsel, that failure to take such action would be inconsistent with the directors duties under applicable law. In addition, prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by TSRE stockholders, the TSRE Board may, under certain specified circumstances, enter into an agreement with respect to an acquisition proposal if TSRE receives an unsolicited bona fide written acquisition proposal that the TSRE Board determines, after consultation with independent financial advisors and outside legal counsel, constitutes a superior proposal.
For more information regarding the limitations on TSRE and the TSRE Board to consider other competing proposals, see The Merger AgreementCovenants and AgreementsNo Solicitation of Transactions beginning on page 119.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the effective time of the Partnership Merger by the mutual written consent of IRT and TSRE, even after approval of TSRE stockholders or approval of IRT stockholders.
In addition, the Merger Agreement may also be terminated prior to the effective time of the Partnership Merger by either TSRE or IRT under the following conditions, each subject to certain exceptions:
| a governmental entity of competent jurisdiction has issued or enacted any law or taken any other action that has become final that has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Merger; |
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| the Merger has not been consummated on or before October 15, 2015 (as may be extended, the End Date); provided that if ten business days prior to the End Date all of the conditions of IRT to consummate the Merger have been satisfied, other than the condition whereby certain of TSREs lenders must enter into amendments to their loan documents that will, among other things, allow IRT to assume these loans, and IRT has a commitment for the financing that is necessary to pay the cash portion of the Merger Consideration that is effective until at least December 31, 2015, then IRT may elect to extend the End Date to December 31, 2015; |
| all of the conditions of IRT to consummate the Merger have been satisfied (other than those conditions that by their nature are to be satisfied at closing) and IRT is unable to effect the closing because it is unable to obtain the financing that is necessary to pay the cash portion of the Merger Consideration; |
| there has been a breach by the other party of any representation or warranty or failure to perform any covenant or agreement set forth in the Merger Agreement on the part of such other party has occurred that would cause any of the closing conditions of such other party not to be satisfied and which either cannot be cured or which is not cured within 20 days of notice thereof; |
| stockholders of TSRE failed to approve the Company Merger and the other transactions contemplated by the Merger Agreement at a duly convened special meeting; |
| stockholders of IRT failed to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) at a duly convened special meeting; |
| the TSRE Board has made an adverse recommendation change with respect to the Merger; or |
| if TSRE enters into a letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, joint venture agreement, partnership agreement or other similar agreement relating to an acquisition proposal. |
The Merger Agreement may also be terminated by TSRE if:
| closing has not occurred within two business days after TSRE has delivered written notice to IRT that all of the conditions of IRT to consummate the Merger have been satisfied (other than those conditions that by their nature are to be satisfied at closing) and TSRE is ready, willing and able to effect the closing; |
| the aggregate amount of cash consideration to be paid in the Merger would exceed 60% of the total Merger Consideration; and |
| the percentage decline, if any, from the 20-day volume weighted average price per share of IRT common stock as of the trading day prior to the date of the Merger Agreement to the 20-day volume weighted average price per share of IRT common stock as of the date five days prior to closing date of the Merger exceeds by 15% or more the percentage decline, if any, from the average closing value of the MSCI US REIT Index for the period of 20 consecutive trading days ending on the trading day prior to the date of the Merger Agreement to the average closing value of the MSCI US REIT Index for the period of 20 consecutive trading days ending on the date five days prior to the closing date of the Merger. For example, if the average closing value of the MSCI US REIT Index declines by 3% during the applicable measurement period, TSRE would be entitled to terminate the agreement if the volume weighted average price per share of IRT common stock declines by 18% or more over the same period. |
For more information regarding the rights of IRT and TSRE to terminate the Merger Agreement, see The Merger AgreementTermination of the Merger Agreement beginning on page 127.
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Generally, all fees and expenses incurred in connection with the Merger and the transactions contemplated by the Merger Agreement will be paid by the party incurring those fees and expenses. However, TSRE will be obligated to pay IRT a $12.0 million termination fee if the Merger Agreement is terminated as a result of (i) (a) the stockholders of TSRE failing to approve the Company Merger and the other transactions contemplated by the Merger Agreement at a duly convened special meeting, the TSRE Board making an adverse recommendation change, or the Merger not being consummated prior to the End Date and (b) an acquisition proposal was announced and not withdrawn prior to such termination and TSRE subsequently consummates a transaction regarding, or executes a definitive agreement with respect to, an acquisition proposal within 12 months of the termination of the Merger Agreement, or (ii) TSRE entering into an agreement relating to an acquisition proposal. IRT will be obligated to pay TSRE a $25.0 million reverse termination fee if the Merger Agreement is terminated in certain circumstances where IRT has failed to consummate the Merger (including as a result of the failure to obtain the financing necessary to pay the cash portion of the Merger Consideration) at a time when all of the conditions of IRT to consummate the Merger have been satisfied (other than those conditions that by their nature are to be satisfied at closing and the condition whereby certain of TSREs lenders must enter into amendments to their loan documents that will, among other things, allow IRT to assume these loans).
For more information regarding the termination fees, see The Merger AgreementTermination of the Merger AgreementTermination Fee and Expenses Payable by TSRE to IRT beginning on page 129 and The Merger AgreementTermination of the AgreementTermination Fee and Expenses Payable by IRT to TSRE beginning on page 130.
Estimated Transaction Expenses
As of the date of this joint proxy statement/prospectus, IRT has incurred or expects to incur aggregate expenses, consisting primarily of legal, advisory and commercial banking expenses, of approximately $38.1 million in connection with the Merger and the other transactions contemplated by the Merger Agreement, including $18.8 million of yield maintenance on TSRE mortgages that will be refinanced as part of the Merger. IRT estimates that approximately $5.5 million of these transaction expenses are contingent upon the completion of the Merger. IRT has also agreed to reimburse TSRE for all or a portion of TSREs expenses in an aggregate amount not to exceed $5.0 million if the Merger Agreement is terminated by either IRT or TSRE because IRT stockholders fail to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) at a duly held meeting.
As of the date of this joint proxy statement/prospectus, TSRE has incurred or expects to incur aggregate expenses, consisting primarily of legal and advisory expenses, of approximately $7.0 million in connection with the Merger and the other transactions contemplated by the Merger Agreement. Up to approximately $3.3 million of these transaction expenses are contingent upon the completion of the Merger. TSRE has also agreed to reimburse IRT for all or a portion of IRTs expenses in an aggregate amount not to exceed $5.0 million if (i) the Merger Agreement is terminated by either IRT or TSRE because TSRE stockholders fail to approve the Company Merger and the other transactions contemplated by the Merger Agreement at a duly held meeting, (ii) the Merger Agreement is terminated by either IRT or TSRE as a result of the TSRE Board making an adverse recommendation change or (iii) if TSRE terminates the Merger Agreement because the percentage decline, if any, from the 20-day volume weighted average price per share of IRT common stock as of the trading day prior to the date of the Merger Agreement to the 20-day volume weighted average price per share of IRT common stock as of the date five days prior to closing date of the Merger exceeds by 15% or more the percentage decline, if any, from the average closing value of the MSCI US REIT Index for the period of 20 consecutive trading days ending on the trading day prior to the date of the Merger Agreement to the average closing value of the MSCI US REIT Index for the period of 20 consecutive trading days ending on the date five days prior to the closing date of the Merger.
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For more information regarding the expense reimbursement, see The Merger AgreementTermination of the Merger AgreementTermination Fee and Expenses Payable by TSRE to IRT beginning on page 129 and The Merger AgreementTermination of the AgreementTermination Fee and Expenses Payable by IRT to TSRE beginning on page 130.
Litigation Relating to the Merger
On June 11, 2015, three purported stockholders filed a complaint against TSRE and the members of the TSRE Board in the Circuit Court of Maryland for Baltimore City. On July 15, 2015, the plaintiffs amended their complaint and added Senator, Monarch and BHR Capital LLC (BHR) as defendants. The amended complaint purports to assert class action claims alleging that the members of the TSRE Board breached their fiduciary duties to TSRE and TSREs minority stockholders by approving the Merger for inadequate consideration, that the process leading up to the Merger was flawed, and that three directors of TSRE, by virtue of their affiliations with certain stockholders of TSRE, engaged in an alleged self-interested scheme to force the sale of TSRE. The amended complaint alleges that the stockholder defendants aided and abetted these alleged violations and were unjustly enriched by the Merger. Among other relief, the complaint seeks compensatory damages, together with pre- and post-judgment interest; a finding that the individual director defendants are liable for breaching their fiduciary duties; an order requiring that the directors affiliated with the stockholder defendants disgorge all profits, compensation and other benefits obtained by them as a result of their conduct in connection with the Merger; and an award of the plaintiffs costs and disbursements of this action, including attorneys fees. The amended complaint does not seek an injunction against the stockholder vote or the closing of the Merger. The deadline for an answer or other responsive pleading by the defendants has not yet passed. TSRE and the director defendants intend to vigorously defend against the claim.
Material U.S. Federal Income Tax Consequences of the Merger
TSRE and IRT expect that the Company Merger of TSRE into IRT LP LLC will qualify as a reorganization within the meaning of Section 368(a) of the Code. The closing of the Company Merger is conditioned on the receipt by each of IRT and TSRE of an opinion from its respective counsel, dated as of the closing date of the Company Merger, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. If the stock price of IRT common stock as of the close of the day before the Company Merger would cause the Per Share Cash Amount to be more than 60% of the total consideration to be received by the TSRE stockholders in the Company Merger, the transaction would not qualify as a reorganization within the meaning of Section 368(a) of the Code, and such condition would not be met. In that case, the Company Merger would not occur unless the parties submitted to the stockholders a request for the waiver of such condition. Such a waiver does not have to be requested.
Assuming that the Company Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders of shares of TSRE common stock generally will only recognize gain for U.S. federal income tax purposes to the extent of the cash consideration received in the Company Merger and the cash received in lieu of fractional shares of Combined Company common stock, and will not recognize any loss in connection with the Company Merger.
For further discussion of the material U.S. federal income tax consequences of the Company Merger and the ownership of common stock of the Combined Company, see Material U.S. Federal Income Tax Consequences beginning on page 134.
Holders of shares of TSRE common stock, TSR OP Units and IROP Units should 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 Merger.
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Accounting Treatment of the Merger
IRT prepares its financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The Merger will be accounted for by applying the acquisition method of accounting. See The MergerAccounting Treatment.
Comparison of Rights of Stockholders of IRT and Stockholders of TSRE
If the Merger is consummated, stockholders of TSRE will become stockholders of the Combined Company. The rights of TSRE stockholders are currently governed by and subject to the provisions of Maryland law, and the charter and bylaws of TSRE. Upon consummation of the Merger, the rights of the former TSRE stockholders who receive shares of IRT common stock in the Merger will continue to be governed by Maryland law but will be governed by the charter and bylaws of IRT, rather than the charter and bylaws of TSRE.
For a summary of certain differences between the rights of IRT stockholders and TSRE stockholders, see Comparison of Rights of Stockholders of IRT and Stockholders of TSRE beginning on page 168.
Selected Historical Financial Information of IRT
The following selected historical financial information for each of the years during the three-year period ended December 31, 2014 and the selected balance sheet data as of December 31, 2014 and 2013 has been derived from IRTs audited consolidated financial statements contained in its Annual Report on Form 10-K filed with the SEC on March 16, 2015, which has been incorporated into this joint proxy statement/prospectus by reference. The selected historical financial information for each of the years ended December 31, 2011 and 2010 and as of December 31, 2012, 2011 and 2010 has been derived from IRTs audited consolidated financial statements for such years, which have not been incorporated into this joint proxy statement/prospectus by reference.
The selected historical financial information for each of the three-month periods ended March 31, 2015 and 2014, and as of March 31, 2015 has been derived from IRTs unaudited condensed consolidated financial statements contained in IRTs Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, which has been incorporated into this joint proxy statement/prospectus by reference. In IRTs opinion, such unaudited financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim March 31, 2015 financial information. Interim results for the three months ended and as of March 31, 2015 are not necessarily indicative of, and are not projections for, the results to be expected for the fiscal year ending December 31, 2015.
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You should read this selected historical financial information together with the financial statements included in reports that are incorporated by reference in this joint proxy statement/prospectus and their accompanying notes and managements discussion and analysis of operations and financial condition of IRT contained in such reports.
(in thousands, except share and per share data) |
For the Three-Month Periods Ended March 31, |
For the Years Ended December 31, | ||||||||||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Operating Data: |
||||||||||||||||||||||||||||
Total revenue |
$ | 21,700 | $ | 8,135 | $ | 49,203 | $ | 19,943 | $ | 16,629 | $ | 8,668 | $ | 5 | ||||||||||||||
Property operating expenses |
10,138 | 3,988 | (23,427 | ) | (9,429 | ) | (8,066 | ) | (4,477 | ) | | |||||||||||||||||
Total expenses |
17,920 | 6,787 | (40,662 | ) | (15,010 | ) | (12,897 | ) | (7,311 | ) | (1 | ) | ||||||||||||||||
Interest expense |
(4,022 | ) | (1,299 | ) | (8,496 | ) | (3,659 | ) | (3,305 | ) | (1,727 | ) | | |||||||||||||||
Net income (loss) |
(241 | ) | 2,935 | 2,944 | 1,274 | 427 | (370 | ) | 4 | |||||||||||||||||||
Net income (loss) allocable to common shares |
(233 | ) | 2,935 | 2,940 | 615 | (123 | ) | (112 | ) | 4 | ||||||||||||||||||
Earnings (loss) per share: |
||||||||||||||||||||||||||||
Basic |
$ | (0.01 | ) | $ | 0.19 | $ | 0.14 | $ | 0.12 | $ | (0.45 | ) | $ | (5.60 | ) | $ | 0.20 | |||||||||||
Diluted |
$ | (0.01 | ) | $ | 0.19 | $ | 0.14 | $ | 0.12 | $ | (0.45 | ) | $ | (5.60 | ) | $ | 0.20 | |||||||||||
Other Data: |
||||||||||||||||||||||||||||
Property portfolio occupancy |
94.0 | % | 93.9 | % | 92.7 | % | 94.6 | % | 92.0 | % | 91.4 | % | | |||||||||||||||
Common shares outstanding |
31,894,751 | 17,742,540 | 31,800,076 | 9,652,540 | 345,063 | 20,000 | 20,000 | |||||||||||||||||||||
Limited partnership units outstanding |
1,282,449 | | 1,282,449 | | 5,274,900 | 5,274,900 | | |||||||||||||||||||||
Cash distributions declared per common share/unit |
$ | 0.1800 | $ | 0.1800 | $ | 0.7200 | $ | 0.6263 | $ | 0.6000 | $ | 0.3000 | $ | |
(in thousands) | As of March 31, | As of December 31, | ||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||||||
Investments in real estate |
$ | 662,606 | $ | 665,736 | $ | 174,321 | $ | 141,282 | $ | 128,124 | $ | | ||||||||||||
Total assets |
694,032 | 694,150 | 181,871 | 146,197 | 131,352 | 209 | ||||||||||||||||||
Total indebtedness |
422,613 | 418,901 | 103,303 | 92,413 | 82,175 | | ||||||||||||||||||
Total liabilities |
437,177 | 431,116 | 106,963 | 95,346 | 84,294 | 2 | ||||||||||||||||||
Total equity |
256,855 | 263,034 | 74,908 | 50,851 | 47,058 | 207 |
Selected Historical Financial Information of TSRE
The following selected historical financial information for each of the years during the three-year period ended December 31, 2014 and the selected balance sheet data as of December 31, 2014 and 2013 have been derived from TSREs audited consolidated financial statements contained in its Annual Report on Form 10-K filed with the SEC on March 13, 2015, which has been incorporated into this joint proxy statement/prospectus by reference. The selected historical financial information for the year ended December 31, 2011 and as of December 31, 2012 and 2011 has been derived from TSREs audited consolidated financial statements for such year, which have not been incorporated into this joint proxy statement/prospectus by reference.
The selected historical financial information for each of the three-month periods ended March 31, 2015 and 2014, and as of March 31, 2015 has been derived from TSREs unaudited consolidated financial statements contained in TSREs Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, which has been incorporated into this joint proxy statement/prospectus by reference. In TSREs opinion, such unaudited financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair
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presentation of the interim March 31, 2015 financial information. Interim results for the three months ended and as of March 31, 2015 are not necessarily indicative of, and are not projections for, the results to be expected for the fiscal year ending December 31, 2015.
The information for the periods prior to June 1, 2012 reflect the assets, liabilities and operations of Trade Street Company retroactively adjusted to reflect the legal capital of Trade Street Residential, Inc. Trade Street Company is not a legal entity, but instead represents a combination of certain real estate entities and management operations based on common ownership and control by the Trade Street Funds and Trade Street Capital.
TSRE is an emerging growth company under the federal securities laws and, as such, has elected to comply with reduced public company reporting requirements. Accordingly, TSRE is not required to provide historical financial information for years prior to the year ended December 31, 2011.
You should read this selected historical financial information together with the financial statements included in reports that are incorporated by reference in this joint proxy statement/prospectus and their accompanying notes and managements discussion and analysis of operations and financial condition of TSRE contained in such reports.
For the Three-Month Periods Ended March 31, |
For the Years Ended December 31, | |||||||||||||||||||||||
(in thousands, except per share data) | 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||
Total property revenues(1) |
$ | 15,629 | $ | 11,410 | $ | 56,867 | $ | 28,957 | $ | 14,460 | $ | 9,025 | ||||||||||||
Total property expenses |
6,353 | 5,301 | 24,781 | 13,185 | 7,453 | 4,457 | ||||||||||||||||||
Total other expense, net(2)(3) |
9,751 | 22,224 | 63,973 | 45,655 | 15,867 | 6,926 | ||||||||||||||||||
Total other income, net(4) |
| 34 | 1,570 | 7,055 | 313 | 1,129 | ||||||||||||||||||
Loss from continuing operations |
(475 | ) | (16,081 | ) | (30,317 | ) | (22,828 | ) | (8,547 | ) | (1,229 | ) | ||||||||||||
Income (loss) from discontinued operations(5) |
| | | 6,272 | (4 | ) | (2,569 | ) | ||||||||||||||||
Net loss |
(475 | ) | (16,081 | ) | (30,317 | ) | (16,556 | ) | (8,551 | ) | (3,798 | ) | ||||||||||||
Net loss attributable to common stockholders of Trade Street Residential, Inc.(6) |
$ | (446 | ) | $ | (15,194 | ) | $ | (27,797 | ) | $ | (5,611 | ) | $ | (7,218 | ) | $ | (3,421 | ) | ||||||
Income (loss) per common sharebasic and diluted |
||||||||||||||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | (0.48 | ) | $ | (0.79 | ) | $ | (1.36 | ) | $ | (3.17 | ) | $ | (8.85 | ) | ||||||
Discontinued operations |
| | | 0.72 | | (26.68 | ) | |||||||||||||||||
Weighted average number of shares outstandingbasic and diluted |
36,519 | 31,746 | 35,325 | 8,762 | 2,278 | 96 | ||||||||||||||||||
Cash dividend per common share |
$ | 0.09500 | $ | 0.09500 | $ | 0.38000 | $ | 0.43300 | $ | 0.16155 | $ | | ||||||||||||
Cash flows data: |
||||||||||||||||||||||||
Operating activities |
$ | 1,228 | $ | 3,498 | $ | 15,066 | $ | (3,264 | ) | $ | (1,160 | ) | $ | 3,044 | ||||||||||
Investing activities |
$ | (15,115 | ) | $ | (95,435 | ) | $ | (127,217 | ) | $ | (49,406 | ) | $ | 2,893 | $ | (30,635 | ) | |||||||
Financing activities |
$ | 11,047 | $ | 98,752 | $ | 116,422 | $ | 56,809 | $ | 2,519 | $ | 26,532 | ||||||||||||
Other data: |
||||||||||||||||||||||||
Funds from Operation (FFO)(7) |
$ | 3,484 | $ | (11,401 | ) | $ | (4,576 | ) | $ | (5,836 | ) | $ | (2,166 | ) | $ | 2,934 | ||||||||
Core FFO(7) |
$ | 3,729 | $ | 955 | $ | 10,688 | $ | (836 | ) | $ | 1,474 | $ | 4,856 | |||||||||||
Net Operating Income (NOI)(8) |
$ | 9,276 | $ | 6,109 | $ | 32,086 | $ | 15,772 | $ | 7,337 | $ | 4,919 | ||||||||||||
Number of properties at end of the period |
19 | 20 | 19 | 15 | 13 | 13 |
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(1) | Amounts exclude TSREs discontinued operations, which are described in Note L to the consolidated financial statements contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference. |
(2) | Total other expenses, net, for the years ended December 31, 2014 and 2012 include approximately $1.0 million and $1.9 million, respectively, of expenses incurred as a result of recapitalization activities. |
(3) | Total other expenses, net, for the years ended December 31, 2014 and 2013, include approximately $8.0 million and $12.4 million of impairment losses on the land investments, respectively (See Note L to the consolidated financial statements contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference). |
(4) | Total other income, net, for the year ended December 31, 2013, includes a $6.9 million bargain purchase gain from the Fountains Southend acquisition (See Note C to the consolidated financial statements contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference). |
(5) | Reflects net gains from sales and operating results of apartment communities sold in the applicable years. |
(6) | Net loss attributable to common stockholders for the years ended December 31, 2014 and 2013 include the following respective benefits: $1.2 million resulting from TSREs redemption of all outstanding shares of Class A preferred stock in October 2014 and $11.7 million resulting from extinguishments related to Class B contingent units, less related adjustments attributable to participating securities of $2.5 million in February 2014 (see Note G to the consolidated financial statements contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference). |
(7) | FFO for the year ended December 31, 2014 and 2012 includes recapitalization costs of approximately $1.0 million and $1.9 million, respectively. For a definition and reconciliation of FFO and Core FFO to net income (loss), the most directly comparable GAAP measurement and a statement disclosing the reasons why TSREs management believes that the presentation of FFO and Core FFO provides useful information to investors and, to the extent material, any additional purposes for which TSREs management uses FFO and Core FFO, see Managements Discussion and Analysis of Financial Condition and Results of OperationsNon-GAAP Financial Measures contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference. |
(8) | For a definition and reconciliation of NOI to net income (loss), the most directly comparable GAAP measurement and a statement disclosing the reasons why TSREs management believes that the presentation of NOI provides useful information to investors and, to the extent material, any additional purposes for which TSREs management uses NOI, see Managements Discussion and Analysis of Financial Condition and Results of OperationsNon-GAAP Financial Measures contained in TSREs Annual Report on Form 10-K, which has been incorporated into this joint proxy statement/prospectus by reference. |
As of March 31, | As of December 31, | |||||||||||||||||||
(in thousands) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
(unaudited | ) | |||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Real estate assets, at cost |
$ | 584,017 | $ | 568,542 | $ | 340,425 | $ | 175,354 | $ | 110,683 | ||||||||||
Land held for future development |
$ | | $ | | $ | 31,963 | $ | 42,623 | $ | 18,171 | ||||||||||
Real estate held for sale |
$ | 3,492 | $ | 3,492 | $ | | $ | 58,638 | $ | 85,853 | ||||||||||
Total assets |
$ | 576,090 | $ | 568,668 | $ | 387,636 | $ | 291,910 | $ | 235,200 | ||||||||||
Indebtedness(1) |
$ | 359,589 | $ | 344,756 | $ | 249,584 | $ | 133,246 | $ | 81,559 | ||||||||||
Total stockholders equity(2) |
$ | 205,832 | $ | 210,002 | $ | 128,403 | $ | 46,239 | $ | 84,337 |
(1) | Excludes liabilities aggregating approximately $39.5 million and $39.6 million related to real estate held for sale (Fontaine Woods, Beckanna, Terrace at River Oaks and Oak Reserve, respectively) included in discontinued operations as of December 31, 2012 and 2011, respectively. |
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(2) | Excludes redeemable preferred stock of approximately $26.8 million recorded as temporary equity as of December 31, 2012. |
Selected Unaudited Pro Forma Consolidated Financial Information
The following tables show summary unaudited pro forma condensed consolidated financial information about the combined financial condition and operating results of IRT and TSRE after giving effect to the Merger. The unaudited pro forma condensed consolidated statements of income for the three months ended March 31, 2015 and the year ended December 31, 2014 give effect to the Merger as if it had occurred on January 1, 2014, the beginning of the earliest period presented. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2015 gives effect to the Merger as if it had occurred on March 31, 2015. The historical consolidated financial statements of TSRE have been adjusted to reflect certain reclassifications in order to conform to IRTs financial statement presentation.
The unaudited pro forma condensed consolidated financial statements were prepared using the acquisition method of accounting with IRT considered the accounting acquirer of TSRE. Under the acquisition method of accounting, the purchase price is allocated to the underlying TSRE tangible and intangible assets acquired and liabilities assumed based on their respective fair values with the excess purchase price, if any, allocated to goodwill.
The summary unaudited pro forma condensed consolidated financial information listed below has been derived from and should be read in conjunction with (i) the more detailed unaudited pro forma condensed consolidated financial information, including the notes thereto, appearing elsewhere in this joint proxy statement/prospectus and (ii) the historical consolidated financial statements and related notes of both IRT and TSRE, which are incorporated herein by reference. See Unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page 157 and Where You Can Find More Information; Incorporation by Reference beginning on page 173.
The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are estimates based upon information and assumptions available at the time of the filing of this joint proxy statement/prospectus. Future results may vary significantly from the results reflected in such statements.
(in thousands) | As of March 31, 2015 | |||||||||||||||
IRT Historical |
IRT Historical, As Adjusted |
TSRE Historical |
Consolidated Pro Forma |
|||||||||||||
Balance Sheet Data |
||||||||||||||||
Investments in real estate at cost |
$ | 689,867 | $ | 714,898 | $ | 587,509 | $ | 1,364,588 | ||||||||
Total Assets |
$ | 694,032 | $ | 729,346 | $ | 576,090 | $ | 1,389,588 | ||||||||
Indebtedness |
$ | 422,613 | $ | 457,988 | $ | 359,589 | $ | 1,000,555 | ||||||||
Total Equity |
$ | 256,855 | $ | 256,794 | $ | 205,832 | $ | 363,800 |
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(in thousands, except share and per share data) | For the Three Months Ended March 31, 2015 | |||||||||||||||
IRT Historical |
IRT Historical, As Adjusted |
TSRE Historical |
Consolidated Pro Forma |
|||||||||||||
Operating Data |
||||||||||||||||
Total revenue |
$ | 21,700 | $ | 22,362 | $ | 15,629 | $ | 37,991 | ||||||||
Property operating expenses |
10,138 | 10,422 | 6,353 | 16,775 | ||||||||||||
Total expenses |
17,920 | 16,434 | 12,481 | 27,506 | ||||||||||||
Interest expense |
(4,022 | ) | (4,269 | ) | (3,623 | ) | (9,190 | ) | ||||||||
Net income (loss) |
(241 | ) | 1,660 | (475 | ) | 1,296 | ||||||||||
Net income (loss) allocable to common shares |
$ | (233 | ) | $ | 1,614 | $ | (446 | ) | $ | 1,260 | ||||||
Per Share Data |
||||||||||||||||
Earnings (loss) per share: |
||||||||||||||||
Basic |
$ | (0.01 | ) | $ | 0.05 | $ | 0.03 | |||||||||
Diluted |
$ | (0.01 | ) | $ | 0.05 | $ | 0.03 | |||||||||
Weighted-Average Shares: |
||||||||||||||||
Basic |
31,768,468 | 31,768,468 | 47,949,251 | |||||||||||||
Diluted |
31,768,468 | 33,181,815 | 49,362,598 |
(in thousands, except share and per share data) | For the Year Ended December 31, 2014 | |||||||||||||||
IRT Historical |
IRT Historical, As Adjusted |
TSRE Historical |
Consolidated Pro Forma |
|||||||||||||
Operating Data |
||||||||||||||||
Total revenue |
$ | 49,203 | $ | 88,329 | $ | 56,867 | $ | 147,283 | ||||||||
Property operating expenses |
23,427 | 41,598 | 24,781 | 67,274 | ||||||||||||
Total expenses |
40,662 | 70,880 | 65,199 | 167,469 | ||||||||||||
Interest expense |
(8,496 | ) | (16,150 | ) | (13,964 | ) | (35,835 | ) | ||||||||
Net income (loss) |
2,944 | 4,198 | (30,317 | ) | (47,707 | ) | ||||||||||
Net income (loss) allocable to common shares |
$ | 2,940 | $ | 4,079 | (27,797 | ) | (45,921 | ) | ||||||||
Per Share Data |
||||||||||||||||
Earnings (loss) per share: |
||||||||||||||||
Basic |
$ | 0.14 | $ | 0.19 | $ | (1.22 | ) | |||||||||
Diluted |
$ | 0.14 | $ | 0.19 | $ | (1.22 | ) | |||||||||
Weighted-Average Shares: |
||||||||||||||||
Basic |
21,315,928 | 21,315,928 | 37,496,711 | |||||||||||||
Diluted |
21,532,671 | 21,532,671 | 37,496,711 |
Unaudited Comparative Per Share Information
The following table sets forth for the three months ended March 31, 2015 and the year ended December 31, 2014 selected per share information for IRT common stock on a historical and pro forma basis and for TSRE common stock on a historical and pro forma equivalent basis after giving effect to the Merger using the acquisition method of accounting. Except for the historical information as of and for the year ended December 31, 2014, the information in the table is unaudited. You should read the table below together with the historical consolidated financial statements and related notes of IRT and TSRE contained in their respective Quarterly Reports on Form 10-Q for the three months ended March 31, 2015 and in their respective Annual Reports on Form 10-K for the year ended December 31, 2014, which are incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
The pro forma consolidated TSRE equivalent information shows the effect of the Company Merger from the perspective of an owner of TSRE common stock and the information was computed by multiplying the IRT pro forma combined information by an Exchange Ratio of 0.4108. This computation does not include the benefit to TSRE stockholders of the cash component of the Merger Consideration.
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The unaudited pro forma consolidated per share data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are estimates based upon information and assumptions available at the time of the filing of this joint proxy statement/prospectus.
The pro forma income from continuing operations per share includes the combined income from continuing operations of IRT and TSRE on a pro forma basis as if the Merger was consummated on January 1, 2014.
IRT | TSRE | |||||||||||||||
Historical | Pro Forma Combined |
Historical | Pro Forma Equivalent |
|||||||||||||
For the Three Months Ended March 31, 2015 |
||||||||||||||||
Income (loss) from continuing operations available to common stockholders per common share, basic |
$ | (0.01 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.00 | ||||||
Income (loss) from continuing operations available to common stockholders per common share, diluted |
$ | (0.01 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.00 | ||||||
Cash dividends declared per common share |
$ | 0.18 | $ | 0.18 | $ | 0.095 | $ | 0.07 | ||||||||
As of March 31, 2015 |
||||||||||||||||
Book value per common share |
$ | 8.09 | $ | 7.50 | $ | 5.64 | $ | 3.09 | ||||||||
For the Year Ended December 31, 2014 |
||||||||||||||||
Income (loss) from continuing operations available to common stockholders per common share, basic |
$ | 0.14 | $ | (1.22 | ) | $ | (0.79 | ) | $ | (0.20 | ) | |||||
Income (loss) from continuing operations available to common stockholders per common share, diluted |
$ | 0.14 | $ | (1.22 | ) | $ | (0.79 | ) | $ | (0.20 | ) | |||||
Cash dividends declared per common share |
$ | 0.72 | $ | 0.72 | $ | 0.38 | $ | 0.30 |
Comparative IRT and TSRE Market Price and Dividend Information
IRTs Market Price Data
IRT common stock has been listed and traded on the NYSE MKT under the symbol IRT since August 13, 2013. This table sets forth, for the periods indicated, the high and low sales prices per share of IRT common stock, as reported by the NYSE MKT, and distributions declared per share of IRT common stock.
Price Per Share |
Dividends Declared Per Share(1) |
|||||||||||
High | Low | |||||||||||
2013 |
||||||||||||
First Quarter |
N/A | N/A | N/A | |||||||||
Second Quarter |
N/A | N/A | N/A | |||||||||
Third Quarter |
$ | 8.50 | $ | 7.90 | $ | 0.16 | ||||||
Fourth Quarter |
8.85 | 7.95 | 0.16 | |||||||||
2014 |
||||||||||||
First Quarter |
$ | 9.07 | $ | 8.15 | $ | 0.18 | ||||||
Second Quarter |
9.50 | 8.70 | 0.18 | |||||||||
Third Quarter |
10.84 | 9.40 | 0.18 | |||||||||
Fourth Quarter |
10.29 | 8.96 | 0.18 | |||||||||
2015 |
||||||||||||
First Quarter |
$ | 9.78 | $ | 9.07 | $ | 0.18 | ||||||
Second Quarter |
9.65 | 7.45 | 0.18 | |||||||||
Third Quarter (through July 30, 2015) |
8.57 | 7.36 | 0.18 |
(1) | Common stock cash distributions currently are declared monthly by IRT and paid in the month subsequent to the declaration. |
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TSREs Market Price Data
TSRE common stock is listed on the NASDAQ Global Market under the symbol TSRE. From July 2008 until May 14, 2013, TSREs common stock traded on the OTC Pink market. The following table sets forth the quarterly high and low per share of TSREs common stock as reported on NASDAQ and the OTC Pink market, as applicable, as adjusted to reflect the reverse stock split that was effected on January 17, 2013 and the quarterly distributions paid or payable per share to TSREs stockholders.
Price Per Share |
Dividends Declared and Paid Per Share(1) |
|||||||||||
High | Low | |||||||||||
2013 |
||||||||||||
First Quarter |
$ | 20.00 | $ | 12.00 | $ | 0.0855 | ||||||
Second Quarter |
17.00 | 7.81 | 0.1575 | |||||||||
Third Quarter |
9.00 | 6.42 | 0.0950 | |||||||||
Fourth Quarter |
7.34 | 6.10 | 0.0950 | |||||||||
2014 |
||||||||||||
First Quarter |
$ | 8.50 | $ | 6.25 | $ | 0.0950 | ||||||
Second Quarter |
8.46 | 7.07 | 0.0950 | |||||||||
Third Quarter |
7.51 | 6.58 | 0.0950 | |||||||||
Fourth Quarter |
8.15 | 6.58 | 0.0950 | |||||||||
2015 |
||||||||||||
First Quarter |
$ | 8.08 | $ | 6.69 | $ | 0.0950 | ||||||
Second Quarter |
7.44 | 6.65 | 0.0950 | |||||||||
Third Quarter (through July 30, 2015) |
7.22 | 6.63 | (2) |
(1) | Common stock cash distributions currently are declared quarterly by TSRE. |
(2) | TSRE has not yet declared a dividend for the third quarter of 2015. |
Recent Closing Prices
The table below sets forth the closing per share sales prices of IRT common stock as reported on the NYSE MKT and TSRE common stock as reported on the NASDAQ Global Market on May 8, 2015, the last full trading day before the public announcement of the execution of the Merger Agreement by IRT and TSRE, and on July 30, 2015, the latest practicable trading day before the date of this joint proxy statement/prospectus. The TSRE pro forma equivalent closing share price is equal to (i) cash consideration of $3.80 plus (ii) the closing price of a share of IRT common stock on each such date multiplied by 0.4108 (the Exchange Ratio assuming cash consideration of $3.80).
IRT Common Stock |
TSRE Common Stock |
TSRE Pro Forma Equivalent |
||||||||||
May 8, 2015 |
$ | 8.57 | $ | 7.08 | $ | 7.32 | ||||||
July 30, 2015 |
$ | 8.14 | $ | 7.08 | $ | 7.14 |
The market price of IRT common stock and TSRE common stock will fluctuate between the date of this joint proxy statement/prospectus and the effective time of the Merger. Because the number of shares of IRT common stock to be issued in the Company Merger for each share of TSRE common stock pursuant to the Merger Agreement is not dependent on changes in the market price of IRT common stock or TSRE common stock, the market value of IRT common stock to be received by TSRE stockholders at the effective time of the Company Merger may vary significantly from the prices shown in the table above.
Following the transaction, IRT common stock will continue to be listed on the NYSE MKT and, until the completion of the Merger, TSRE common stock will continue to be listed on the NASDAQ Global Market.
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In addition to the other information included in this joint proxy statement/prospectus, including the matters addressed in the section entitled Cautionary Statement Concerning Forward-Looking Statements, whether you are an IRT stockholder or a TSRE stockholder, you should carefully consider the following risks before deciding how to vote your shares of common stock of IRT and/or TSRE. In addition, you should read and consider the risks associated with each of the businesses of IRT and TSRE because these risks will also affect the Combined Company. These risks can be found in the respective Annual Reports on Form 10-K for the year ended December 31, 2014 and subsequent Quarterly Reports on Form 10-Q of IRT and TSRE, each of which is filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. 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. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
Risk Factors Relating to the Merger
IRT and TSRE stockholders will be diluted by the Merger.
The Merger will dilute the ownership position of IRT stockholders and result in TSRE stockholders having an ownership stake in the Combined Company that is smaller than their current stake in TSRE. Upon completion of the Merger, we estimate that continuing IRT stockholders will own approximately 66.5% of the issued and outstanding common stock of the Combined Company, and former TSRE stockholders will own approximately 33.5% of the issued and outstanding common stock of the Combined Company. Consequently, IRT stockholders and TSRE stockholders, as a general matter, will have less influence over the management and policies of the Combined Company after the effective time of the Company Merger than each currently exercise over the management and policies of IRT and TSRE, as applicable.
The Merger Agreement contains provisions that could discourage a potential competing acquirer of TSRE or could result in a competing acquisition proposal being at a lower price than a potential acquiror might otherwise propose to pay.
The Merger Agreement contains provisions that restrict the ability of TSRE to solicit, initiate, encourage or knowingly facilitate any third-party proposals to acquire beneficial ownership of at least 20% of the assets of, equity interest in, or businesses of TSRE or any subsidiary of TSRE. Prior to receiving TSRE stockholder approval of the Company Merger, TSRE may negotiate with a third party after receiving an unsolicited written proposal if the TSRE Board determines in good faith that the unsolicited proposal could reasonably be likely to result in a transaction that is more favorable to TSRE stockholders than the Merger, and the TSRE Board determines that failure to negotiate would be inconsistent with its duties under applicable law. Once a third party proposal is received, TSRE must notify IRT within 24 hours following receipt of the proposal and keep IRT informed of the status and terms of the proposal and associated negotiations. In response to such a proposal, the TSRE Board may, under certain circumstances, withdraw or modify its recommendation to TSRE stockholders with respect to the Merger. TSRE may also terminate the Merger Agreement to enter into an agreement to consummate a competing transaction with a third party, if the TSRE Board determines in good faith that the competing proposal is more favorable to TSRE stockholders and pays a $12.0 million termination fee to IRT. See The Merger AgreementCovenants and AgreementsNo Solicitation of Transactions beginning on page 119 and The Merger AgreementTermination of the Merger AgreementTermination Fee and Expenses Payable by TSRE to IRT beginning on page 129.
These provisions could discourage a potential acquirer that may have an interest in acquiring all or a significant part of TSRE from considering or proposing such an acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower per share value than it might otherwise have proposed to pay because of the added expense that the termination fee would impose on the transaction.
37
There can be no assurance that IRT will be able to secure the financing necessary to pay the cash portion of the Merger Consideration on acceptable terms, in a timely manner, or at all.
In order to finance the cash portion of the Merger Consideration, IRT expects to use the KeyBank Senior Facility, which will be in the aggregate principal amount of up to $325.0 million, and the KeyBank Interim Facility, which will be in the aggregate principal amount of up to $120.0 million, each with KeyBank NA. In addition, IRT has obtained a commitment from DBNY for the DB Term Loan Facility in an aggregate principal amount of up to $500.0 million, as set forth in the DB Commitment Letter. However, IRT has not entered into a definitive agreement for the debt financing, nor any alternative form of financing. There can be no assurance that IRT will be able to secure financing to pay the cash portion of the Merger Consideration on acceptable terms, in a timely manner, or at all. IRTs ability to secure such financing is not a condition to the consummation of the Merger, and, in certain circumstances, IRT may be required to pay a $25.0 million reverse termination fee if it is unable to obtain the financing necessary to pay the cash portion of the Merger Consideration. See The Merger AgreementFinancing Related to the Merger beginning on page 130.
The Merger is subject to a number of conditions which, if not satisfied or waived, would adversely impact the parties ability to complete the Merger.
The Merger, which is expected to close during the third quarter of 2015, is subject to certain closing conditions, including, among others (i) the approval of the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) by a majority of the votes cast by IRT stockholders at the IRT special meeting and the approval for listing on the NYSE MKT of such shares, (ii) the approval of the Company Merger by the holders of a majority of the issued and outstanding shares of TSRE common stock entitled to vote at the TSRE special meeting, (iii) the absence of any law, judgment, order or injunction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement, (iv) the SEC having declared effective the Registration Statement on Form S-4 of which this joint proxy statement/prospectus forms a part, pursuant to which the shares of IRT common stock to be issued as the stock portion of the Merger Consideration will be registered under the Securities Act, (v) the accuracy of the other parties representations and warranties and compliance with covenants, subject in each case to customary materiality standards, (vi) the absence of any material adverse effect with respect to either party, (vii) delivery of certain tax opinions related to each of TSREs and IRTs qualification and taxation as a REIT and the qualification of the Company Merger as a reorganization within the meaning of Section 368(a) of the Code, and (viii) the receipt of certain consents from TSREs lenders.
There can be no assurance these conditions will be satisfied or waived, if permitted. Therefore, there can be no assurance with respect to the timing of the closing of the Merger or that the Merger will be completed at all.
The Merger Consideration will not be adjusted in the event of any change in the stock prices of either IRT or TSRE.
As provided in the Merger Agreement, holders of TSRE common stock are entitled to receive the Merger Consideration, which consists of a cash portion and a stock portion. Neither the Per Share Cash Amount nor the Exchange Ratio will change as a result of a change in the market price of IRT common stock, although the aggregate value of the Merger Consideration will fluctuate with changes in the market price of IRT common stock and the Per Share Cash Amount that IRT elects. The market price of IRT common stock may change as a result of a variety of factors (many of which are beyond IRTs control), including the following:
| market reaction to the announcement of the Merger, the issuance of shares of IRT common stock in connection with the Merger and the prospects of the Combined Company; |
| changes in the respective businesses, operations, assets, liabilities, financial position and prospects of IRT, TSRE or the Combined Company or in the market assessments thereof; |
| changes in the operating performance of IRT, TSRE or similar companies; |
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| changes in market valuations of similar companies; |
| market assessments of the likelihood that the Merger will be completed; |
| changes in prevailing interest rates or other equity or debt financing terms, including changes that make IRTs financing of the cash portion of the Merger Consideration more expensive than originally expected or render the TSRE acquisition dilutive to current IRT stockholders; |
| interest rates on debt investments available to investors, general market and economic conditions and other factors generally affecting the value of an investment in IRT common stock; |
| federal, state and local legislation, governmental regulation and legal developments in the businesses in which IRT and TSRE operate; |
| dissident stockholder activity; |
| changes that affect the commercial real estate market generally; |
| changes in the U.S. or global economy or capital, financial or securities markets generally; and |
| other factors beyond the control of IRT and TSRE, including those described or referred to elsewhere in this Risk Factors section. |
Changes in the market price of shares of IRT common stock prior to the completion of the Merger will affect the market value of the stock portion of the Merger Consideration. The market price of a share of IRT common stock at the completion of the Merger may vary from its price on the date the Merger Agreement was executed, on the date of this joint proxy statement/prospectus or on the date of IRTs special meeting and TSREs special meeting. For example, based on the range of closing market prices of IRT common stock during the period from May 8, 2015, the last trading day before public announcement of the Merger, through July 30, 2015, the latest practicable trading day before the date of this joint proxy statement/prospectus, the Exchange Ratio of 0.4108 (which assumes that IRT does not elect to increase the cash portion of the Merger Consideration) represented a market value for the share portion of the Merger Consideration ranging from a low of $3.04 to a high of $3.70. Because the Merger will be completed after the date of the special meetings, at the time of your special meeting, you will not know the exact market price of the shares of IRT common stock that TSRE stockholders will receive upon completion of the Merger. You should therefore consider that:
| If the market price of shares of IRT common stock increases between the date of the Merger Agreement or the date of the IRT and TSRE special meetings and the closing of the Merger, TSRE stockholders will receive shares of IRT common stock that have a market value upon completion of the Merger that is greater than the market value of such shares on the date of the Merger Agreement or the date of the special meetings, respectively. |
| If the market price of shares of IRT common stock declines between the date of the Merger Agreement or the date of the IRT and TSRE special meetings and the closing of the Merger, TSRE stockholders will receive shares of IRT common stock that have a market value upon completion of the Merger that is less than the market value of such shares on the date of the Merger Agreement or the date of the special meetings, respectively. |
Therefore, while the number of shares of IRT common stock to be issued per share of TSRE common stock will not change based on the market price of IRT common stock, (i) IRT stockholders cannot be sure of the market value of the Merger Consideration that will be paid to TSRE stockholders upon completion of the Merger and (ii) TSRE stockholders cannot be sure of the market value of the Merger Consideration they will receive upon completion of the Merger.
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Failure to complete the Merger could negatively impact the stock prices and the future business and financial results of both IRT and TSRE.
If the Merger is not completed, the ongoing businesses of IRT and TSRE could be adversely affected and each of IRT and TSRE may be subject to a variety of risks associated with the failure to complete the Merger, including the following:
| TSRE being required, under certain circumstances, to pay to IRT a termination fee of $12.0 million or up to $5.0 million in expense reimbursement; |
| IRT being required, under certain circumstances, to pay to TSRE a reverse termination fee of $25.0 million or up to $5.0 million in expense reimbursement; |
| IRT and/or TSRE having to pay certain costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and |
| diversion of IRT and TSRE management focus and resources from operational matters and other strategic opportunities while working to implement the Merger. |
If the Merger is not completed, these risks could materially affect the business, financial results and stock prices of both IRT and TSRE. See The Merger AgreementTermination of the Merger Agreement beginning on page 127 for more information regarding the specific circumstances under which terminations fees and expense reimbursements are payable.
The pendency of the Merger could adversely affect the business and operations of IRT and TSRE.
Prior to the effective time of the Company Merger, some tenants or vendors of each of IRT and TSRE may delay or defer decisions regarding whether to continue to do business with IRT or TSRE, as applicable, which could negatively affect the revenues, earnings, cash flows and expenses of IRT and TSRE, regardless of whether the Merger is completed. Similarly, current and prospective employees of IRT and TSRE may experience uncertainty about their future roles with the Combined Company following the Merger, which may materially adversely affect the ability of each of IRT and TSRE to attract and retain key personnel during the pendency of the Merger. In addition, due to operating restrictions in the Merger Agreement, each of IRT and TSRE may be unable, during the pendency of the Merger, 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.
Some of the directors and executive officers of TSRE have interests in the Merger that are different from, or in addition to, those of the other TSRE stockholders.
Some of the directors and executive officers of TSRE have arrangements that provide them with interests in the Merger that are different from, or in addition to, those of the stockholders of TSRE generally. These interests include, among other things, a sizeable separation payment to certain executive officers if terminated upon, or following, consummation of the Merger and (ii) the entry into voting agreements and lock-up agreements by Senator and Monarch, which are each significant stockholders of TSRE and the employer of certain members of the TSRE Board. These interests, among other things, may influence or may have influenced the directors and executive officers of TSRE to support or approve the Merger. See The MergerInterests of TSREs Directors and Executive Officers in the Merger beginning on page 105.
A pending purported class action lawsuit or other lawsuits could prevent or delay the consummation of the Merger and result in substantial costs.
Since the announcement of the Merger on May 11, 2015 through the date of this joint proxy statement/prospectus, a purported class action lawsuit has been filed by three stockholders of TSRE in Maryland state court seeking, among other things, compensatory damages. The plaintiffs assert claims of breach of fiduciary duty
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against the members of the TSRE Board and unjust enrichment against three members of the TSRE Board. It is possible that additional lawsuits may be filed against TSRE or IRT asserting similar or different claims, including seeking to enjoin the Merger. If the purported class action is further amended or other potential future lawsuits are filed, they could prevent or delay completion of the Merger and result in substantial costs to TSRE and/or IRT, including costs associated with the indemnification of directors. There can be no assurance that any of the defendants will prevail in the pending litigation or in any future litigation. The defense or settlement of any lawsuit or claim may adversely affect the Combined Companys business, financial condition, or results of operations. See Litigation Relating to the Merger beginning on page 107 of this joint proxy statement/prospectus.
The Combined Companys operating results after the Merger may materially differ from the pro forma information presented in this joint proxy statement/prospectus.
The Combined Companys operating results after the Merger may be materially different from those shown in the pro forma information presented in this joint proxy statement/prospectus, which represents only a combination of IRTs historical results with those of TSRE. The Merger, financing and transaction costs related to the Merger could be higher or lower than currently estimated, depending on how difficult it will be to integrate IRTs business with that of TSRE. For more information, see Unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page 157.
Risk Factors Relating to the Combined Company Following the Merger
Risks Related to the Combined Companys Operations
The Combined Company expects to incur substantial expenses related to the Merger.
The Combined Company expects to incur substantial expenses in connection with completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of TSRE with those of IRT. There are several systems that must be integrated, including accounting and finance and asset management. While IRT has assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of the Combined Companys integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Combined Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses following the completion of the Merger.
Following the Merger, the Combined Company may be unable to integrate the businesses of IRT and TSRE successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated timeframe.
The Merger involves the combination of two companies that currently operate as independent public companies. The Combined Company is expected to benefit from the elimination of duplicative costs associated with supporting a public company platform and the leveraging of state of the art technology and systems. These savings are expected to be realized upon full integration, which is expected to occur over the 12-month period following the closing of the Merger. However, the Combined Company will be required to devote significant management attention and resources to integrating the business practices and operations of IRT and TSRE. Potential difficulties the Combined Company may encounter in the integration process include the following:
| the inability to successfully combine the businesses of IRT and TSRE in a manner that permits the Combined Company to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all; |
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| the complexities associated with managing the combined businesses out of several different locations and integrating personnel from the two companies; |
| the additional complexities of combining two companies with different histories, cultures, markets and tenant bases; |
| potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and |
| performance shortfalls as a result of the diversion of managements attention caused by completing the Merger and integrating the companies operations. |
For all these reasons, it is possible that the integration process could result in the distraction of the Combined Companys management, the disruption of the Combined Companys ongoing business or inconsistencies in the Combined Companys operations, services, standards, controls, procedures and policies, any of which could adversely affect the ability of the Combined Company to maintain relationships with tenants, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect the business and financial results of the Combined Company.
The Combined Companys anticipated level of indebtedness will increase upon completion of the Merger, which will increase the related risks IRT now faces.
In connection with the Merger, the Combined Company may assume certain indebtedness of TSRE and will be subject to increased risks associated with debt financing, including an increased risk that the Combined Companys cash flow could be insufficient to meet required payments on its debt. At March 31, 2015, IRT had indebtedness of $422.6 million, which consisted entirely of outstanding mortgage debt. Taking into account IRTs existing indebtedness, additional indebtedness IRT will incur in connection with obtaining the financing necessary to consummate the Merger, and the assumption of certain of TSREs indebtedness in the Merger, the Combined Companys pro forma consolidated indebtedness as of March 31, 2015, after giving effect to the Merger, would be approximately $1,000.6 million, all of which would be secured, consisting of $276.6 million of borrowings under the KeyBank Senior Facility, $120.0 million of borrowings under the KeyBank Interim Facility, and $604.0 million of mortgage debt.
The Combined Companys increased indebtedness could have important consequences to holders of its common stock, including TSRE stockholders who receive IRT common stock in the Merger, including:
| increasing the Combined Companys vulnerability to general adverse economic and industry conditions; |
| limiting the Combined Companys ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; |
| requiring the use of a substantial portion of the Combined Companys cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements; |
| limiting the Combined Companys flexibility in planning for, or reacting to, changes in its business and its industry; and |
| putting the Combined Company at a disadvantage compared to its competitors with less indebtedness. |
In addition, if the Combined Company defaults under any of its outstanding loans, it will automatically be in default under any other loan that has cross-default provisions, and it may lose the properties securing these loans.
The future results of the Combined Company will suffer if the Combined Company is unable to effectively manage its expanded operations following the Merger.
Following the Merger, the Combined Company will have an expanded portfolio and operations and may continue to expand its operations through additional acquisitions and other strategic transactions. As a result, the
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Combined Company will face competition for tenants in additional markets, may face new challenges in attracting and retaining such tenants and will likely compete with more investors for acquisition opportunities. The future success of the Combined Company will depend, in part, upon its ability to attract and retain tenants in these new markets, manage its expansion opportunities, integrate new operations into its existing business in an efficient and timely manner, successfully monitor its operations and costs, and maintain necessary internal controls. The Combined Company cannot assure you that it will be able to maintain current rents and occupancy at the properties it acquires, that expansion or acquisition opportunities will be successful, or that the Combined Company will realize any expected revenue enhancements or other benefits from such transactions.
Counterparties to certain significant agreements with IRT or TSRE may exercise contractual rights under such agreements in connection with the Merger.
IRT and TSRE are each party to certain agreements that give the counterparty certain rights following a change in control, including in some cases the right to terminate the applicable agreement. Under some such agreements, the Merger will constitute a change in control and, therefore, the counterparty may exercise certain rights under the applicable agreement upon the closing of the Merger. Certain TSRE leases, management and service contracts, and debt obligations contain such provisions, and certain agreements between IRT and its lenders also contain such provisions. Any such counterparty may request modifications of their respective agreements as a condition to granting a waiver or consent under their agreement. There can be no assurances that such counterparties will not exercise their rights under these agreements, including termination rights where available, or that the exercise of any such rights under, or modification of, these agreements will not adversely affect the business or operations of the Combined Company.
Risks Related to an Investment in the Combined Companys Common Stock
The market price of the Combined Companys common stock may decline as a result of the Merger.
The market price of the Combined Companys common stock may decline as a result of the Merger if the Combined Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the Merger on the Combined Companys financial results is not consistent with the expectations of financial or industry analysts.
In addition, upon consummation of the Merger, IRT stockholders and TSRE stockholders will own interests in a Combined Company operating an expanded business with a different mix of properties, risks and liabilities. Current stockholders of IRT and TSRE may not wish to continue to invest in the Combined Company, or for other reasons may wish to dispose of some or all of their shares of the Combined Companys common stock. If, following the effective time of the Company Merger, large amounts of the Combined Companys common stock are sold, the price of the Combined Companys common stock could decline.
The Combined Company cannot assure you that it will be able to continue paying dividends at or above the rate currently paid by IRT and TSRE.
The stockholders of the Combined Company may not receive dividends at the same rate they received dividends as stockholders of IRT or TSRE following the Merger for various reasons, including the following:
| the Combined Company may not have enough cash to pay such dividends due to changes in the Combined Companys cash requirements, capital spending plans, cash flow or financial position; |
| decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Combined Companys board of directors, which reserves the right to change IRTs current dividend practices at any time and for any reason; |
| IRT historically has paid monthly dividends on shares of its common stock while TSRE historically has paid quarterly dividends on shares of its common stock; |
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| the Combined Company may desire to retain cash to maintain or improve its credit ratings; and |
| the amount of dividends that the Combined Companys subsidiaries may distribute to the Combined Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur. |
Stockholders of the Combined Company will have no contractual or other legal right to dividends that have not previously been declared by the Combined Companys board of directors.
The Combined Company may need to incur additional indebtedness in the future.
In connection with executing the Combined Companys business strategy following the Merger, the Combined Company expects to evaluate the possibility of acquiring additional properties and making strategic investments, and the Combined Company may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for the Combined Company, including hindering the Combined Companys ability to adjust to changing market, industry or economic conditions; limiting the Combined Companys ability to access the capital markets to refinance maturing debt or to fund acquisitions; limiting the amount of free 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 market price of shares of the common stock of the Combined Company may be affected by factors different from those affecting the price of shares of IRT common stock or TSRE common stock before the Merger.
Following the Merger, the results of operations of the Combined Company, as well as the market price of the common stock of the Combined Company, may be affected by other factors in addition to those currently affecting IRTs or TSREs results of operations and the market prices of IRT common stock and TSRE common stock. These factors include:
| a greater number of shares of the Combined Company common stock outstanding as compared to the number of currently outstanding shares of IRT common stock; |
| different stockholders; and |
| different assets and capitalizations. |
Accordingly, the historical market prices and financial results of IRT and TSRE may not be indicative of these matters for the Combined Company after the Merger. For a discussion of the businesses of IRT and TSRE and certain risks to consider in connection with investing in those businesses, see the documents incorporated by reference by IRT and TSRE into this joint proxy statement/prospectus referred to under See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
After the Merger is completed, TSRE stockholders who receive shares of the Combined Companys common stock in the Merger will have different rights that may be less favorable than their current rights as TSRE stockholders.
After the closing of the Merger, TSRE stockholders who receive shares of the Combined Companys common stock in the Merger will have different rights than they currently have as TSRE stockholders. For a detailed discussion of the significant differences between the current rights as a stockholder of TSRE and the rights as a stockholder of the Combined Company following the Merger, see Comparison of Rights of Stockholders of IRT and Stockholders of TSRE beginning on page 168.
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The Combined Company may incur adverse tax consequences if IRT or TSRE has failed, or if the Combined Company fails, to continue to qualify as a REIT for U.S. federal income tax purposes.
Each of IRT and TSRE 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 each intends to continue to do so through the time of the Merger, and the Combined Company intends to continue operating in such a manner following the Merger. None of IRT, TSRE or the Combined Company has requested or plans to request a ruling from the Internal Revenue Service (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, TSRE or the Combined Company, as the case may be, may affect any such companys ability to qualify as a REIT. In order to qualify as a REIT, each of IRT, TSRE and the Combined Company must satisfy a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. In addition, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.
If any of IRT, TSRE or the Combined Company 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:
| such company 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); |
| such company could be subject to the federal alternative minimum tax and possibly increased state and local taxes for such periods; |
| unless such company 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 up to ten years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, such company could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election. |
The Combined Company will inherit any liability with respect to unpaid taxes of IRT or TSRE for any periods prior to the Company Merger. In addition, under the investment company rules under Section 368 of the Code, if both IRT and TSRE are investment companies under such rules (without regard to their REIT status), the failure of either IRT or TSRE to qualify as a REIT could cause the Company Merger to be taxable to IRT or TSRE, respectively, and its stockholders. As a result of all these factors, IRTs, TSREs or the Combined Companys failure to qualify as a REIT could impair the Combined Companys ability to expand its business and raise capital, and would materially adversely affect the value of its stock. In addition, for years in which the Combined Company does not qualify as a REIT, it will not otherwise be required to make distributions to stockholders.
In certain circumstances, even if the Combined Company qualifies as a REIT, it and its subsidiaries may be subject to certain U.S. federal, state, and other taxes, which would reduce the Combined Companys cash available for distribution to its stockholders.
Even if each of IRT, TSRE and the Combined Company has, as the case may be, qualified and continues to qualify as a REIT, the Combined Company may be subject to U.S. federal, state, or other taxes. For example, net income from the sale of properties that are dealer properties sold by a REIT (a prohibited transaction under the Code) will be subject to a 100% tax. In addition, the Combined Company may not be able to make sufficient distributions to avoid income and excise taxes applicable to REITs. Alternatively, the Combined Company may decide to retain income it earns from the sale or other disposition of its property and pay income tax directly on
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such income. In that event, the Combined Companys stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, might not have any benefit from their deemed payment of such tax liability. The Combined Company and its subsidiaries may also be subject to U.S. federal taxes other than U.S. federal income taxes, as well as state and local taxes (such as state and local income and property taxes), either directly or at the level of its operating partnership, or at the level of the other companies through which the Combined Company indirectly owns its assets. Any U.S. federal or state taxes the Combined Company (or any of its subsidiaries) pays will reduce cash available for distribution by the Combined Company to stockholders. See Material U.S. Federal Income Tax Consequences beginning on page 134.
The Merger may not be consummated if it would fail to qualify as a reorganization.
If the closing price of IRT common stock as of the trading day immediately prior to the closing date of the Company Merger would cause the Per Share Cash Amount to be greater than 60% of the value of the total Merger Consideration to be received by the TSRE stockholders in the Merger, the Company Merger would not qualify as a reorganization within the meaning of Section 368(a) of the Code. Were this to occur, certain conditions to the closing of the Merger would not be satisfied and the Company Merger would not occur unless the parties submitted to their respective stockholders a request for the waiver of such conditions. The Merger Agreement does not require any party to request such a waiver.
IRT and TSRE face other risks.
The foregoing risks are not exhaustive, and you should be aware that, following the Merger, the Combined Company will face various other risks, including those discussed in reports filed by IRT and TSRE with the SEC. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which IRT and TSRE operate and beliefs of, and assumptions made by, IRT management and TSRE management and involve uncertainties that could significantly affect the financial results of IRT, TSRE or the Combined Company. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. Such forward-looking statements include, but are not limited to, statements about the anticipated benefits of the business combination transaction involving IRT and TSRE, including future financial and operating results, and the Combined Companys plans, objectives, expectations and intentions. All statements that address operating performance, events or developments that IRT and TSRE expect or anticipate will occur in the future 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 TSRE believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, IRT and TSRE 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:
| the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; |
| the inability to complete the Merger or failure to satisfy other conditions to completion of the Merger; |
| the inability to complete the Merger within the expected time period or at all, including due to the failure to obtain the IRT stockholder approval, the TSRE stockholder approval or the failure to satisfy other conditions to completion of the Merger; |
| risks related to disruption of managements attention from the ongoing business operations due to the proposed Merger; |
| the effect of the announcement of the proposed Merger on IRTs or TSREs relationships with their respective customers, tenants, lenders, operating results and businesses generally; |
| the ability of IRT to obtain funding to finance the cash portion of the Merger Consideration; |
| each of IRTs and TSREs success, or the success of the Combined Company, in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate acquisitions or investments; |
| changes in national, regional and local economic climates; |
| changes in financial markets and interest rates, or to the business or financial condition of IRT, TSRE or the Combined Company or their respective businesses; |
| the nature and extent of future competition; |
| each of IRTs and TSREs ability, or the ability of the Combined Company, to pay down, refinance, restructure and/or extend its indebtedness as it becomes due; |
| the ability and willingness of IRT, TSRE and the Combined Company to maintain its qualification as a REIT; |
| availability to IRT, TSRE and the Combined Company of financing and capital; |
| the performance of TSREs, IRTs and the Combined Companys portfolio; |
| the impact of any financial, accounting, legal or regulatory issues or litigation that may affect IRT, TSRE or the Combined Company; |
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| risks associated with acquisitions, including the integration of the combined companies businesses; and |
| those additional risks and factors discussed in reports filed with the SEC by IRT and TSRE 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. |
Should one or more of the risks or uncertainties described above or elsewhere in this joint proxy statement/prospectus occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this joint proxy statement/prospectus.
All forward-looking statements, expressed or implied, included in this joint proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that IRT, TSRE or persons acting on their behalf may issue.
Neither IRT nor TSRE undertakes any duty to update any forward-looking statements appearing in this joint proxy statement/prospectus except as may be required by applicable law.
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Independence Realty Trust, Inc.
IRT is a Maryland corporation that has elected to be taxed as a REIT under the Code. IRT conducts its business through a traditional UPREIT structure in which IRTs properties are owned by IROP directly or through subsidiaries. IRT is the sole general partner of IROP. Substantially all of IRTs assets are held by, and substantially all of IRTs operations are conducted through, IROP. IRT owns apartment properties in geographic submarkets that it believes support strong occupancy and have the potential for growth in rental rates.
IRT is externally advised by the Advisor, a wholly-owned subsidiary of RAIT, pursuant to an advisory agreement and subject to the oversight of the IRT Board. The Advisor is responsible for managing IRTs day-to-day business operations and identifying properties for IRT to acquire.
RAIT Residential, the property manager, for IRTs properties, is a full-service apartment property management company that, as of March 31, 2015, employed approximately 420 staff and professionals and manages approximately 16,000 apartment units. RAIT Residential provides services to IRT in connection with the rental, leasing, operation and management of IRTs properties.
IRT common stock is listed on the NYSE MKT, trading under the symbol IRT.
IRT was incorporated in the state of Maryland in 2009. IRTs principal executive offices are located at Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania 19104, and its telephone number is (215) 243-9000.
OP Merger Sub, a direct wholly-owned subsidiary of IROP, is a Delaware limited liability company formed on May 8, 2015 for the purpose of entering into the Merger Agreement. OP Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement.
IRT LP LLC, a direct wholly-owned subsidiary of IRT, is a Delaware limited liability company. IRT LP LLC is a holding company that holds 100 IROP Units.
Additional information about IRT and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
Trade Street Residential, Inc.
TSRE is a Maryland corporation that has elected to be taxed as a REIT under the Code. TSRE conducts its business through an UPREIT structure in which TSREs properties are owned by TSR OP directly or through subsidiaries. TSRE is a full service, vertically integrated, self-administered and self-managed corporation incorporated in the state of Maryland in 2012, to acquire, own, operate and manage conveniently located, garden-style and mid-rise apartment communities in mid-sized cities and suburban submarkets of larger cities primarily in the southeastern United States and Texas. As of March 31, 2015, TSRE owned and operated 19 apartment communities containing 4,989 apartment units in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Texas. TSREs apartment communities are characterized by attractive features including substantial landscaping, well-maintained exteriors and high quality interior finishes, and amenities such as swimming pools, clubhouses and fitness facilities and controlled-access gated entrances.
TSRE common stock is listed on the NASDAQ Global Market, trading under the symbol TSRE.
TSREs principal executive offices are located at 19950 West Country Club Drive, Suite 800, Aventura, Florida 33180, and its telephone number is (786) 248-5200.
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Additional information about TSRE and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference on page 173.
References to the Combined Company are to IRT after the effective time of the Company Merger. The Combined Company will be named Independence Realty Trust, Inc. and will be a Maryland corporation. The Combined Company will be a leading regional market multifamily platform. The Combined Company is expected to have a pro forma equity market capitalization of approximately $422.1 million and a pro forma total market capitalization of $1.4 billion, each as of March 31, 2015 and based on the closing price of IRT common stock of $8.57 per share on May 8, 2015. The Combined Companys asset base will consist primarily of approximately 14,044 multifamily units in 50 properties in 24 geographic markets.
The business of the Combined Company will be operated through IROP and its subsidiaries, which, after completion of the Merger, will include TSR OP.
The common stock of the Combined Company will continue to be listed on the NYSE MKT, trading under the symbol IRT.
The Combined Companys principal executive offices will be located at Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania, and its telephone number will be (215) 243-9000.
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DESCRIPTION OF IRT CAPITAL STOCK
The following discussion is a summary of the terms of the capital stock of IRT and should be read in conjunction with Comparison of Rights of Stockholders of IRT and Stockholders of TSRE beginning on page 168. The summary set forth below does not purport to be complete and is subject to and qualified in its entirety by reference to relevant provisions of Maryland law, the IRT charter and the IRT bylaws. You are urged to read those documents carefully. Copies of the IRT charter and the IRT bylaws are incorporated by reference as exhibits to the registration statement on Form S-4, of which this proxy statement/prospectus forms a part, and will be sent to stockholders of IRT and TSRE upon request. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
IRT is authorized to issue 350,000,000 shares of stock, consisting of 300,000,000 shares of common stock, $0.01 par value per share, and 50,000,000 shares of preferred stock, $0.01 par value per share. The IRT charter authorizes the IRT Board, with the approval of a majority of the entire IRT Board and without any action on the part of IRTs stockholders, subject to any preferential rights of any class or series of preferential stock, to amend the IRT charter from time to time to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series. As of the IRT Record Date, IRT had 31,933,217 outstanding shares of common stock and no outstanding shares of preferred stock. Under Maryland law, stockholders generally are not liable for a corporations debts or obligations.
All shares of IRT common stock that may be issued in connection with the Merger will be duly authorized, validly issued, fully paid and non-assessable. Holders of IRT common stock:
| are entitled to receive distributions as authorized by the IRT Board and declared by IRT out of legally available funds; |
| in the event of any voluntary or involuntary liquidation or dissolution of IRT, are entitled to share ratably in the distributable assets of IRT remaining after satisfaction of the prior preferential rights of any outstanding preferred stock and the satisfaction of all of IRTs debts and liabilities; and |
| do not have preference, conversion, exchange, sinking fund, redemption rights or preemptive rights to subscribe for any of IRTs securities and generally have no appraisal rights unless the IRT Board determines that appraisal rights apply, with respect to all or any classes or series of shares, to one or more transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled to exercise appraisal rights. |
Shares of IRT common stock will be held in uncertificated form, which will eliminate the physical handling and safekeeping responsibilities inherent in owning transferable stock certificates and eliminate the need to return a duly executed stock certificate to effect a transfer.
Except as otherwise provided, all shares of common stock will have equal voting rights. Because stockholders do not have cumulative voting rights, holders of a majority of the outstanding shares of IRT common stock can elect the entire IRT Board. The voting rights per share of IRT equity securities issued in the future will be established by the IRT Board.
Under Maryland law and the IRT charter, IRT generally may not, without the affirmative vote of stockholders entitled to cast at least a majority of all the votes entitled to be cast on the matter:
| amend the IRT charter, except to increase or decrease the number of authorized shares of stock of any class or series or the aggregate number of authorized shares of stock, change its name, change the name |
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or other designation or the par value of any class or series of stock, change the aggregate par value of IRT stock or effect certain reverse stock splits; |
| sell all or substantially all of its assets other than in the ordinary course of its business; |
| cause a merger, conversion or consolidation of the company; |
| effect a statutory share exchange; or |
| dissolve the company. |
Each stockholder entitled to vote on a matter may do so at a meeting in person or by proxy directing the manner in which he or she desires that his or her vote be cast or without a meeting by a consent in writing or by electronic transmission. Any proxy must be filed with IRTs secretary before or at the meeting at which the vote is taken. Pursuant to Maryland law, the IRT charter and the IRT bylaws, any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting (a) by the unanimous consent in writing or by electronic transmission of each stockholder entitled to vote on the matter or (b) if the action is advised and submitted for stockholder approval by the IRT Board, by a consent in writing or by electronic transmission of stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting. The IRT bylaws and Maryland law require IRT to provide notice of any action taken by less than unanimous written consent to each stockholder not later than ten days after the effective time of such action.
Restrictions on Ownership and Transfer
In order to maintain its qualification as a REIT, IRT must meet several requirements concerning the ownership of outstanding IRT capital stock. Specifically, no more than 50% in value of outstanding IRT capital stock may be owned, directly or indirectly, by five or fewer individuals (determined with attribution to the owners of any entity owning the Combined Companys stock), as defined in the Code to include specified private foundations, employee benefit plans and trusts, and charitable trusts, at all times during the last half of a taxable year. Moreover, 100 or more persons must own the outstanding shares of IRT capital stock during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.
Because the IRT Board believes it is essential for IRT to continue to qualify as a REIT and for other corporate purposes, the IRT charter, subject to the exceptions described below, provides that no person may beneficially or constructively own more than 9.8% in value of the aggregate of the outstanding shares of IRT stock and 9.8%, in value or in number of shares, whichever is more restrictive, of any class or series of the outstanding shares of IRT capital stock, including IRT common stock.
The IRT charter provides for certain circumstances where the IRT Board, in its sole discretion, may except a holder of IRT capital stock (prospectively or retroactively) from the 9.8% ownership limitation and impose other limitations and restrictions on ownership. The IRT Board has granted such an exception for RAIT. Additionally, the IRT charter prohibits, subject to the exceptions described below, any transfer of capital stock that would:
| result in IRT capital stock being beneficially owned by fewer than 100 persons, determined without reference to any rules of attribution; |
| result in IRT being closely held under U.S. federal income tax laws (regardless of whether the ownership interest is held during the last half of a taxable year); |
| cause IRT to own, actually or constructively, 9.8% or more of the ownership interests in a tenant of IRTs real property; or |
| cause IRT to fail to qualify, under U.S. federal income tax laws or otherwise, as a REIT. |
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Any attempted transfer of IRT capital stock which, if effective, would result in IRT capital stock being beneficially owned by fewer than 100 persons, will be null and void, with the intended transferee acquiring no rights in such shares of capital stock, and any other prohibited transfer of shares of IRT capital stock described above will result in the number of shares that would cause such person to violate the above restrictions (rounded up to the nearest whole share) to be designated as shares-in-trust and transferred automatically to a trust effective at the close of business on the business day before the purported transfer of such shares. IRT will designate the trustee, but the trustee will not be affiliated with IRT and any prohibited owner. The beneficiary of the trust will be one or more nonprofit organizations that are named by IRT and whose beneficial ownership does not violate any of the ownership restrictions set forth above. If the transfer to the trust would not be effective for any reason to prevent a violation of the limitations on ownership and transfer, then the shares will be transferred to that number of trusts, each having a distinct trustee and a charitable beneficiary or beneficiaries that are distinct from those of the other trust, such that there will not be a violation of the above ownership restrictions.
Shares-in-trust will remain shares of issued and outstanding capital stock and will be entitled to the same rights and privileges as all other stock of the same class or series. The trust will receive all dividends and other distributions on the shares-in-trust and will hold such dividends or other distributions in trust for the benefit of the beneficiary. The trustee will vote all shares-in-trust and, subject to Maryland law, will have the authority to rescind as void any vote cast by the prohibited owner prior to IRTs discovery that the shares have been transferred to the trust and to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary. However, if IRT has already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
Within 20 days of receiving notice from IRT that shares of IRT capital stock have been transferred to the trust, the trustee will sell the shares held by the trust to a person, designated by the trustee, whose ownership of the shares will not violate the above ownership limitations. Upon the sale, the interest of the beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited owner and to the beneficiary as follows:
The prohibited owner will receive from the trust the lesser of:
| the price per share such prohibited owner paid for the shares of capital stock that were designated as shares-in-trust or, if the prohibited owner did not give value for the shares (such as in the case of a devise or gift), the market price per share on the date of the event causing the shares to be held as shares-in-trust; or |
| the price per share received by the trust from the sale of such shares-in-trust. |
The trustee may reduce the amount payable to the prohibited owner by the amount of dividends and other distributions which have been paid to the prohibited owner and are owed by the prohibited owner to the trustee. The trust will immediately distribute to the beneficiary any amounts received by the trust in excess of the amounts to be paid to the prohibited owner. If, prior to IRTs discovery that shares of IRT capital stock have been transferred to the trust, the shares are sold by the prohibited owner, then such shares shall be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for the shares that exceeds the amount such prohibited owner was entitled to receive, the excess shall be paid to the trustee upon demand.
In addition, the shares-in-trust will be deemed to have been offered for sale to IRT, or IRTs designee, at a price per share equal to the lesser of:
| the price per share in the transaction that resulted in the transfer to the trust or, in the case of a gift or devise, the market price per share on the date of the gift or devise; or |
| the market price per share on the date that IRT, or IRTs designee, accepts such offer. |
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IRT may reduce the amount payable to the prohibited owner by the amount of dividends and other distributions which have been paid to the prohibited owner and are owed by the prohibited owner to the trustee. IRT may pay the amount of such reduction to the trustee for the benefit of the beneficiary. IRT will have the right to accept such offer until the trustee has sold such shares-in-trust. Upon a sale to IRT, the interest of the beneficiary in the shares sold will terminate and the trustee shall distribute the net proceeds to the prohibited owner.
Any person who owns, directly or indirectly, more than 5%, or such lower percentages as required under the Code, of the outstanding shares of IRT capital stock must, within 30 days of the end of each taxable year, provide to IRT a written statement or affidavit stating such persons name and address, the number of shares of capital stock owned directly or indirectly, and a description of how such shares are held. In addition, each direct or indirect stockholder must provide IRT such additional information as it may request in order to determine the effect, if any, of such ownership on IRTs status as a REIT and to ensure compliance with the ownership limit.
The IRT Board may exempt a person (prospectively or retroactively) from the ownership limit or establish or increase an excepted holder limit for such person and may also increase the ownership limit for one or more persons and decrease the ownership limit for all other persons.
The restrictions on ownership and transfer described above will continue to apply until the IRT Board determines that it is no longer in the best interests of IRT to attempt to qualify, or to continue to qualify, as a REIT or that compliance is no longer required for REIT qualification.
The ownership limit in the IRT charter may have the effect of delaying, deferring or preventing a takeover or other transaction or change in control of IRT that might involve a premium price for your shares or otherwise be in your interest as a stockholder.
The transfer agent for the IRT common stock is American Stock Transfer & Trust Company, LLC.
IRT currently does not have a stockholder rights plan.
IRT common stock is listed and traded on the NYSE MKT under the symbol IRT. It is a condition to the consummation of the Merger that the shares of IRT common stock to be issued in connection with the Merger be approved for listing on the NYSE MKT, subject to official notice of issuance.
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Date, Time, Place and Purpose of IRTs Special Meeting
The special meeting of the stockholders of IRT will be held at IRTs offices at the Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, PA 19104 on September 15, 2015, commencing at 9:00 a.m., local time. The purpose of the IRT special meeting is:
(i) | to consider and vote on a proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger); and |
(ii) | to consider and vote on a proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). |
Recommendation of the IRT Board
The IRT Board has unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to, and in the best interests of IRT and its stockholders, (ii) approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (iii) authorized and approved the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). The IRT Board unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Company Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). For the reasons for this recommendation, see The MergerRecommendation of IRT Board and Its Reasons for the Merger beginning on page 78.
IRT Record Date; Who Can Vote at the IRT Special Meeting
Only holders of record of IRT common stock at the close of business on July 8, 2015, the IRT Record Date, are entitled to notice of, and to vote at, the IRT special meeting and any adjournment or postponement of the IRT special meeting. As of the IRT Record Date, there were 31,933,217 shares of IRT common stock outstanding and entitled to vote at the IRT special meeting, held by approximately 35 stockholders of record.
Each share of IRT common stock owned on the IRT Record Date is entitled to one vote on each proposal at the IRT special meeting.
Vote Required for Approval; Quorum
Approval of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of at least a majority of all votes cast on such proposal. Approval of the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) requires the affirmative vote of at least a majority of all votes cast on such proposal.
IRTs bylaws provide that the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter will constitute a quorum at a meeting of its stockholders. Shares that are voted and shares abstaining from voting are treated as being present at the IRT special meeting for purposes of determining whether a quorum is present.
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Abstentions and Broker Non-Votes
Abstentions and broker non-votes, if any, will be counted in determining the presence of a quorum. Abstentions will have no effect on either (i) the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) or (ii) the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Broker non-votes, if any, will have no effect on either the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) or the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock to TSRE stockholders in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Because there are no discretionary (or routine) matters to be voted on at the IRT special meeting, IRT does not expect to receive any broker non-votes.
IRT stockholders may submit their votes for or against the proposals submitted at the IRT special meeting in person or by proxy. IRT stockholders may be able to submit a proxy in the following ways:
| Internet. IRT stockholders may submit a proxy over the Internet by going to the website listed on their proxy card or voting instruction card. Once at the website, they should follow the instructions to submit a proxy. |
| Telephone. IRT stockholders may submit a proxy using the toll-free number listed on their proxy card or voting instruction card. |
| Mail. IRT stockholders may submit a proxy by completing, signing, dating and returning their proxy card or voting instruction card in the preaddressed postage-paid envelope provided. |
IRT stockholders should refer to their proxy cards or the information forwarded by their broker or other nominee to see which options are available to them.
The internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow them to confirm that their instructions have been properly recorded. If you submit a proxy over the internet or by telephone, then you need not return a written proxy card or voting instruction card by mail. The internet and telephone facilities available to record holders will close at 11:59 p.m. Eastern Time on September 14, 2015.
The method by which IRT stockholders submit a proxy will in no way limit their right to vote at the IRT special meeting if they later decide to attend the IRT special meeting and vote in person. If shares of IRT common stock are held in the name of a broker or other nominee, IRT stockholders must obtain a legal proxy, executed in their favor, from the broker or other nominee, to be able to vote in person at the IRT special meeting.
All shares of IRT common stock entitled to vote and represented by properly completed proxies received prior to the IRT special meeting, and not revoked, will be voted at the IRT special meeting as instructed on the proxies. If IRT stockholders of record return properly executed proxies but do not indicate how their shares of IRT common stock should be voted on a proposal, the shares of IRT common stock represented by their properly executed proxy will be voted as the IRT Board recommends and, therefore, FOR the proposal to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), and FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common
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stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
If IRT stockholders hold shares of IRT common stock in an account of a broker or other nominee and they wish to vote such shares, they must return their voting instructions to the broker or other nominee.
If IRT stockholders hold shares of IRT common stock in an account of a broker or other nominee and attend the IRT special meeting, they should bring a legal proxy from their broker or other nominee authorizing them to vote.
Shares of IRT common stock held by brokers and other nominees will be present for purposes of determining a quorum but will NOT be voted unless such IRT stockholders instruct such brokers or other nominees how to vote.
Revocation of Proxies or Voting Instructions
IRT stockholders of record may change their vote or revoke their proxy at any time before it is exercised at the IRT special meeting by:
| submitting notice in writing to IRTs Corporate Secretary at Independence Realty Trust, Inc., Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, PA 19104, Attn: Secretary that you are revoking your proxy; |
| executing and delivering a later-dated proxy card or submitting a later-dated proxy by telephone or on the internet; or |
| voting in person at the IRT special meeting. |
Attending the IRT Special Meeting Without Voting Will Not Revoke Your Proxy
IRT stockholders who hold shares of IRT common stock in an account of a broker or other nominee may revoke their voting instructions by following the instructions provided by their broker or other nominee.
IRT will appoint an Inspector of Election for the IRT special meeting to tabulate votes and abstentions.
The solicitation of proxies from IRT stockholders is made on behalf of the IRT Board. IRT will pay the cost of soliciting proxies from IRT stockholders. IRTs directors, officers and employees, as well as the Advisor and RAIT, may solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to IRTs directors, officers or employees, the Advisor or RAIT for such services. IRT also has engaged D.F. King to assist it in the solicitation of proxies for the IRT special meeting, and IRT estimates it will pay D.F. King a fee of approximately $8,500. IRT has also agreed to reimburse D.F. King for reasonable and documented out-of-pocket expenses incurred in connection with the proxy solicitation and to indemnify D.F. King against certain claims, costs, damages, liabilities, judgments and expenses.
In accordance with the regulations of the SEC and NYSE MKT, IRT also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of shares of IRT common stock.
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PROPOSALS SUBMITTED TO IRT STOCKHOLDERS
(Proposal 1 on the IRT Proxy Card)
IRT stockholders are asked to approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
Pursuant to the Merger Agreement, approval of this proposal is a condition to the closing of the Merger. If the proposal is not approved, the Merger will not be completed.
IRT is requesting that IRT stockholders approve the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Approval of the proposal to approve the issuance of IRT common stock in the Merger requires the affirmative vote of a majority of all votes cast at the IRT special meeting.
Recommendation of the IRT Board
The IRT Board unanimously recommends that IRT stockholders vote FOR the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
(Proposal 2 on the IRT Proxy Card)
The IRT special meeting may be adjourned one or more times to another date, time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies, if necessary or appropriate, to obtain additional votes in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). If, at the IRT special meeting, the number of shares of IRT common stock present in person or represented by proxy and voting in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) is insufficient to approve the proposal, IRT intends to move to adjourn the IRT special meeting in order to enable the IRT Board to solicit additional proxies for approval of the proposal.
IRT is asking IRT stockholders to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Approval of this proposal requires the affirmative vote of a majority of all votes cast at the IRT special meeting.
Recommendation of the IRT Board
The IRT Board unanimously recommends that IRT stockholders vote FOR the proposal to approve one or more adjournments of the IRT special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
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At this time, IRT does not intend to bring any other matters before the IRT special meeting, and IRT does not know of any matters to be brought before the IRT special meeting by others. If, however, any other matters properly come before the IRT special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes, acting at the IRT special meeting or any adjournment or postponement thereof will be deemed authorized to vote the shares represented thereby in accordance with the discretion of such persons or such substitutes on any such matter.
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Date, Time, Place and Purpose of the TSRE Special Meeting
The special meeting of the stockholders of TSRE will be held at the 8th Floor Conference Room at 19950 West Country Club Drive, Aventura, Florida 33180 on September 15, 2015, commencing at 10:00 a.m., local time. The purpose of the TSRE special meeting is:
1. | to consider and vote on a proposal to approve the Company Merger and other transactions contemplated by the Merger Agreement; and |
2. | to consider and vote on a proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and other transactions contemplated by the Merger Agreement. |
Recommendation of the TSRE Board
The TSRE Board has (i) determined that the Merger, the Merger Agreement, and the other transactions contemplated by the Merger Agreement, are advisable and in the best interests of TSRE and its stockholders and (ii) approved the Merger Agreement and authorized the performance by TSRE thereunder. The TSRE Board recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. For the reasons for this recommendation, see The MergerRecommendation of TSRE Board and Its Reasons for the Merger beginning on page 81.
TSRE Record Date; Who Can Vote at the TSRE Special Meeting
Only holders of record of TSRE common stock at the close of business on July 8, 2015, the TSRE Record Date, are entitled to notice of, and to vote at, the TSRE special meeting and any adjournment or postponement of the TSRE special meeting. As of the TSRE Record Date, there were 36,799,570 shares of TSRE common stock outstanding and entitled to vote at the TSRE special meeting, held by approximately 42 stockholders of record.
Each share of TSRE common stock owned on TSREs record date is entitled to one vote on each proposal at the TSRE special meeting.
Vote Required for Approval; Quorum
Approval of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on such proposal. Approval of the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement each requires the affirmative vote of a majority of the votes cast on such proposal.
TSREs bylaws provide that the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast constitutes a quorum at a meeting of its stockholders. Shares that are voted and shares abstaining from voting are treated as being present at the TSRE special meeting for purposes of determining whether a quorum is present.
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Abstentions and Broker Non-Votes
Abstentions and broker non-votes, if any, will be counted in determining the presence of a quorum, but will have the same effect as votes cast AGAINST the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. However, abstentions and broker non-votes, if any, will have no effect on the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. Because there are no discretionary (or routine) matters to be voted on at the TSRE special meeting, TSRE does not expect to receive any broker non-votes.
TSRE stockholders may submit their votes for or against the proposals submitted at the TSRE special meeting either in person or by proxy. TSRE stockholders may submit a proxy in the following ways:
| Internet. TSRE stockholders may submit a proxy over the internet by going to the website listed on their proxy card or voting instruction card. Once at the website, they should follow the instructions to submit a proxy. |
| Telephone. TSRE stockholders may submit a proxy using the toll-free number listed on their proxy card or voting instruction card. |
| Mail. TSRE stockholders may submit a proxy by completing, signing, dating and returning their proxy card or voting instruction card in the preaddressed postage-paid envelope provided. |
TSRE stockholders should refer to their proxy cards or the information forwarded by their broker or other nominee to see which options are available to them.
The internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow them to confirm that their instructions have been properly recorded. If you submit a proxy over the internet or by telephone, then you need not return a written proxy card or voting instruction card by mail. The internet and telephone facilities available to record holders will close at 11:59 p.m. Eastern Time on September 14, 2015.
The method by which TSRE stockholders submit a proxy will in no way limit their right to vote at the TSRE special meeting if they later decide to attend the TSRE special meeting and vote in person. If shares of TSRE common stock are held in the name of a broker or other nominee, TSRE stockholders must obtain a proxy, executed in their favor, from the broker or other nominee, to be able to vote in person at the TSRE special meeting.
All shares of TSRE common stock entitled to vote and represented by properly completed proxies received prior to the TSRE special meeting, and not revoked, will be voted at the TSRE special meeting as instructed on the proxies. If TSRE stockholders of record return properly executed proxies but do not indicate how their shares of TSRE common stock should be voted on a proposal, the shares of TSRE common stock represented by their properly executed proxy will be voted as the TSRE Board recommends and therefore, FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. If a TSRE stockholder does not provide voting instructions to their broker or other nominee, it will have the same effect as a vote cast AGAINST the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and will have no effect on the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
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If TSRE stockholders hold shares of TSRE common stock in an account of a broker or other nominee and they wish to vote such shares, they must return their voting instructions to the broker or other nominee.
If TSRE stockholders hold shares of TSRE common stock in an account of a broker or other nominee and attend the TSRE special meeting, they should bring a legal proxy from their broker or other nominee authorizing them to vote.
If a TSRE stockholder does not provide voting instructions to their broker or other nominee, it will have the same effect as a vote cast AGAINST the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement and will have no effect on the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
Revocation of Proxies or Voting Instructions
TSRE stockholders of record may change their vote or revoke their proxy at any time before it is exercised at the TSRE special meeting by:
| submitting notice in writing to TSREs Corporate Secretary at Trade Street Residential, Inc., 19950 West Country Club Drive, Aventura, Florida 33180, Attn: Secretary that you are revoking your proxy; |
| executing and delivering a later-dated proxy card or submitting a later-dated proxy by telephone or on the internet; or |
| voting in person at the TSRE special meeting. |
Attending the TSRE Special Meeting Without Voting Will Not Revoke Your Proxy.
TSRE stockholders who hold shares of TSRE common stock in an account of a broker or other nominee may revoke their voting instructions by following the instructions provided by their broker or other nominee.
TSRE will appoint an Inspector of Election for the TSRE special meeting to tabulate affirmative and negative votes and abstentions.
The solicitation of proxies from TSRE stockholders is made on behalf of the TSRE Board. TSRE will pay the cost of soliciting proxies from TSRE stockholders. Directors, officers and employees of TSRE may solicit proxies on behalf of TSRE in person or by telephone, facsimile or other means, but will not receive any additional compensation for doing so. TSRE has not engaged a third-party proxy solicitor to assist in the solicitation of proxies for the TSRE special meeting.
In accordance with the regulations of the SEC and NASDAQ, TSRE also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of shares of TSRE common stock.
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PROPOSALS SUBMITTED TO TSRE STOCKHOLDERS
(Proposal 1 on the TSRE Proxy Card)
TSRE stockholders are asked to approve the Company Merger and the other transactions contemplated by the Merger Agreement. For a summary and detailed information regarding this proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement, see the information about the Merger Agreement and the Merger throughout this joint proxy statement/prospectus, including the information set forth in sections entitled The Merger beginning on page 65 and The Merger Agreement beginning on page 110. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.
Pursuant to the Merger Agreement, approval of this proposal is a condition to the closing of the Merger. If the proposal is not approved, the Merger will not be completed even if the other proposals related to the Merger are approved.
TSRE is requesting that TSRE stockholders approve the Company Merger and the other transactions contemplated by the Merger Agreement. Approval of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of TSRE common stock entitled to vote on such proposal.
Recommendation of the TSRE Board
The TSRE Board has (i) determined that the Merger, the Merger Agreement, and the other transactions contemplated thereby, are advisable and in the best interests of TSRE and its stockholders, and (ii) approved the Merger Agreement and authorized the performance by TSRE thereunder. The TSRE Board recommends that TSRE stockholders vote FOR the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
(Proposal 2 on the TSRE Proxy Card)
The TSRE special meeting may be adjourned one or more times to another date, time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies, if necessary or appropriate, to obtain additional votes in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
If, at the TSRE special meeting, the number of shares of TSRE common stock present or represented by proxy and voting in favor of the Company Merger proposal is insufficient to approve the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement, TSRE intends to move to adjourn the TSRE special meeting in order to enable the TSRE Board to solicit additional proxies for approval of the proposal.
TSRE is requesting that TSRE stockholders approve one or more adjournments of the TSRE special meeting, to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement. Approval of this proposal requires the affirmative vote of a majority of the votes cast at the TSRE special meeting.
Recommendation of the TSRE Board
The TSRE Board recommends that TSRE stockholders vote FOR the proposal to approve one or more adjournments of the TSRE special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement.
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At this time, TSRE does not intend to bring any other matters before the TSRE special meeting, and TSRE does not know of any matters to be brought before the TSRE special meeting by others. If, however, any other matters properly come before the TSRE special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes, acting at the TSRE special meeting or any adjournment or postponement thereof will be deemed authorized to vote the shares represented thereby in accordance with the discretion of such persons or such substitutes on any such matter.
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The following is a description of the material aspects of the Merger. While IRT and TSRE believe that the following description covers the material terms of the Merger, the description may not contain all of the information that is important to IRT stockholders and TSRE stockholders and is qualified in its entirety by reference to the Merger Agreement attached to this joint proxy statement/prospectus. IRT and TSRE encourage IRT stockholders and TSRE 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 Merger.
The IRT Board has unanimously declared advisable, and unanimously approved, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. The TSRE Board has declared advisable and approved the Merger Agreement and authorized the performance by TSRE thereunder. Pursuant to the Merger Agreement, (i) OP Merger Sub will be merged into TSR OP at the effective time of the Partnership Merger, with TSR OP continuing as the surviving entity, and (ii) TSRE will be merged into IRT LP LLC at the effective time of the Company Merger, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT As a result of the Merger, TSRE stockholders and holders of TSR OP Units will receive the Merger Consideration described below under The Merger AgreementMerger Consideration; Effects of the Merger. Upon the closing of the Merger, IROP will own all of the limited partnership interests in TSR OP and IRT LP LLC will own the general partnership interest in TSR OP. Immediately following the consummation of the Merger, IRT will cause TSR OP to become a wholly-owned subsidiary of IROP.
TSRE was created out of Feldman Mall Properties, Inc. (Feldman), a regional mall REIT formed through an initial public offering and related formation transaction in 2004 that lost substantially all of its properties to foreclosure or distressed sale during the financial crisis. In June 2012, two separate funds contributed to Feldman thirteen apartment communities and four parcels of land capable of development in exchange for common stock representing approximately 97.0% of the outstanding common stock of Feldman. At that time, Feldman was re-named Trade Street Residential, Inc.
TSRE consummated its initial public offering in May 2013 and utilized the net proceeds from the offering to fund the acquisition of additional apartment communities. In January 2014, TSRE consummated a public rights offering and sale of $150.0 million of shares of its common stock, the net proceeds from which were used to pay the purchase price for additional acquired apartment communities. The rights offering was backstopped by Senator, and Senator acquired approximately 9.3 million shares of TSRE common stock, or approximately 25.6% of TSRE common stock outstanding after the rights offering. In addition, in the rights offering Monarch, acquired approximately 8.5 million shares of TSRE common stock, representing approximately 23.2% of TSRE common stock outstanding immediately after the rights offering. In exchange for its agreement to backstop the rights offering, Senator was granted the right to designate two members of the TSRE Board. Following the rights offering in January 2014, Senator designated two individuals to serve on the TSRE Board, and in February 2014 a representative of Monarch was appointed to the TSRE Board to fill a vacancy created by a director resignation.
In May 2014, at the regular quarterly meeting of the TSRE Board, TSREs then Chief Investment Officer informed the TSRE Board that in his opinion TSRE would be unlikely to find apartment communities to acquire that meet TSREs investment criteria and are also accretive to stockholders. The TSRE Board discussed the fact that as a micro-capitalization REIT with a fixed cost structure designed for a substantially larger company, TSREs blended cost of capital would likely remain above the 5.5% to 6.0% capitalization rates represented by the newer apartment communities that TSRE sought to acquire. In June 2014, the TSRE Board decided to retain an investment banking firm to assist the TSRE Board in evaluating TSREs strategic alternatives for maximizing stockholder value.
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On June 19, 2014, following interviews with multiple investment banking firms that have experience in the REIT industry, TSRE executed an engagement letter with J.P. Morgan to act as a financial advisor to the TSRE Board in its evaluation of strategic alternatives to maximize stockholder value, and J.P. Morgan was authorized to approach, on a confidential basis, a limited number of multifamily companies who were most likely to be interested in some form of strategic transaction with TSRE.
Between July 1, 2014 and July 18, 2014, TSRE entered into confidentiality agreements with IRT, one other publicly-traded interested party (the Second Interested Party), and two other private multifamily companies. The TSRE Board, after consultation with J.P. Morgan, believed the foregoing companies would be the parties most interested in a business combination with TSRE. TSRE provided certain non-public information to each of those parties after July 18, 2014. Between July 18, 2014 and July 25, 2014, each of the foregoing companies provided verbal non-binding indications of interest in pursuing a business combination transaction with TSRE. During that period, IRT indicated that it would be interested in pursuing an all-cash business combination transaction with TSRE at a price per share of TSREs outstanding common stock of $8.25, subject to additional due diligence. The Second Interested Party indicated that it would be interested in pursuing an all-stock business combination transaction with TSRE at a price per share of TSREs outstanding common stock in the range of $8.00 and $8.25. The two private multifamily companies indicated an interest in pursuing an all-cash business combination transaction with TSRE at a price per share of TSREs outstanding common stock in the range of $7.25 to $7.50 per share. The TSRE Board determined that the prices indicated by the two private multifamily companies were, at that time, below a level acceptable to justify additional discussions.
The IRT Board held a telephonic meeting on July 31, 2014, at which IRTs management described the status of IRTs proposal to acquire TSRE to the IRT Board.
Between August 1, 2014 and August 8, 2014, TSRE and its advisors held discussions with each of IRT and the Second Interested Party regarding the price and structure of a potential business combination transaction. On August 8, 2014, both IRT and the Second Interested Party provided TSRE with non-binding verbal indications of interest in pursuing a business combination with TSRE. The revised non-binding price per share of TSREs outstanding common stock at which both IRT and the Second Interested Party indicated they would be willing to effect a business combination was $8.25; however, the proposed transaction structures were different. The Second Interested Party indicated its desire to pursue an all-stock merger transaction with TSRE at a fixed exchange ratio with a pricing collar, while IRT indicated its desire to pursue an all-cash transaction with TSRE contingent on raising additional equity capital and obtaining debt refinancing commitments. Both IRT and the Second Interested Party indicated the prices they were respectively willing to pay were conditioned on TSREs completion of a pipeline portfolio acquisition of newly-developed apartment communities for which TSRE had obtained acquisition letters of intent.
On August 12, 2014, the TSRE Board held its regular quarterly meeting with management, J.P. Morgan and Morrison & Foerster LLP, TSREs legal advisor (Morrison & Foerster). Representatives of J.P. Morgan presented preliminary financial analysis and described the non-binding verbal indications of interests received to date and the various communications that had occurred with each of IRT and the Second Interested Party. J.P. Morgan also presented the various strategic alternatives available to TSRE, as well as the potential execution risk associated with each alternative. After deliberations, the TSRE Board instructed J.P. Morgan to communicate with both IRT and the Second Interested Party that their indicated prices per share were less than the price that the TSRE Board believed would be acceptable to TSRE stockholders under current market conditions. In addition, J.P. Morgan was also instructed to communicate with IRT that IRTs lack of committed financing placed it at a competitive disadvantage to the Second Interested Party with respect to a prospective business combination transaction with TSRE and encouraged IRT to secure a committed financing package in the near term.
On August 13, 2014, J.P. Morgan, on behalf of TSRE, had a telephone conversation with the management team of the Second Interested Party during which J.P. Morgan communicated the view of the TSRE Board that the proposed price per share from the Second Interested Party was inadequate. Subsequent to that telephone
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conversation, representatives of the Second Interested Party informed TSRE and its advisors that, based on its further due diligence review of TSREs assets, the costs of repaying certain TSRE debt, and market conditions generally, it may be interested in pursuing a business combination transaction with TSRE at a price per share of TSREs outstanding common stock of $7.62.
On August 18, 2014, J.P. Morgan, on behalf of TSRE, had a telephone conversation with certain members of the senior management team of IRT. On August 21, 2014, IRT, through its financial advisor, Deutsche Bank, communicated that its non-binding indication of interest was withdrawn and it was no longer interested in pursuing a business combination transaction with TSRE.
On October 6, 2014, the Second Interested Party informed TSRE and its advisors that it was no longer interested in a business combination with TSRE at any price.
On October 13, 2014, the TSRE Board held a telephonic special meeting during which the TSRE Board discussed the results of the strategic alternative review process. After a discussion of the results of the process, the TSRE Board agreed to reconvene in a few weeks to consider launching a formal, public and expanded process of evaluating all strategic alternatives.
On October 30, 2014, the TSRE Board held a special meeting in New York City to review TSREs current capital, operating and strategic position and to consider the continuation of exploration of strategic alternatives to maximize stockholder value. At the beginning of the meeting, a representative of Morrison & Foerster advised the members of the TSRE Board of their individual duties as directors of a Maryland corporation under Maryland law. J.P. Morgan made a preliminary presentation to the TSRE Board regarding (i) current multifamily REIT market fundamentals, (ii) a preliminary valuation of TSRE, (iii) the range of strategic alternatives to maximize stockholder value that might be available to TSRE, and (iv) an extensive list of parties that might have an interest in pursuing a transaction with TSRE designed to enhance stockholder value. The TSRE Board held a discussion about the following strategic alternatives (a) remaining an independent public company, (b) the potential sale of all or a significant portion of common stock in the company currently owned by Senator and Monarch and thereafter remaining an independent public company, (c) the potential merger or sale of 100% of the outstanding common stock of TSRE, (d) the reverse merger of TSRE with a larger and better capitalized REIT, and (e) the sale of all of TSREs assets pursuant to a plan of liquidation. Following J.P. Morgans presentation and the discussion, the TSRE Board unanimously agreed to continue its engagement of J.P. Morgan as TSREs financial advisor, to authorize J.P. Morgan to approach a broad range of potentially interested parties to a strategic transaction and to publicly announce that the TSRE Board had unanimously decided to engage in a process to evaluate strategic alternatives to maximize stockholder value.
On November 3, 2014, TSRE publicly announced that the TSRE Board had begun a review of strategic alternatives to enhance stockholder value, which could include (among other alternatives) a sale, merger, acquisition or other form of business combination, a sale or acquisition of assets and a debt or equity recapitalization. TSRE also publicly announced that it had engaged J.P. Morgan as its financial advisor and Morrison & Foerster as its legal advisor in connection with such review.
Between November 3, 2014 and December 10, 2014, J.P. Morgan, working with Morrison & Foerster and Richard H. Ross, TSREs chief executive officer, contacted 107 parties who J.P. Morgan believed might be interested in pursuing a strategic transaction with TSRE. Of those parties contacted, 47 parties executed a Non-Disclosure and Standstill Agreement (each, an NDA) with TSRE to facilitate confidential discussions regarding a potential transaction and to provide access to certain confidential information.
On December 10, 2014, the TSRE Board held a special telephonic meeting to receive an update regarding the initial phase of the TSRE Board process of reviewing strategic alternatives. Representatives from J.P. Morgan and Morrison & Foerster described the initial phase of the process, including (i) the negotiation and execution of NDAs with 47 parties, (ii) the process of providing certain confidential information to interested parties by
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means of a virtual data room and the volume of activity by interested parties in the virtual data room, (iii) feedback received from potential interested parties who had not submitted an indication of interest in pursuing a transaction, and (iv) the contents of the written indications of interest received from 11 separate interested parties.
As part of its presentation, J.P. Morgan reported the details of the 11 preliminary written non-binding indications of interest in pursuing a strategic transaction with TSRE. The proposed transaction structures included the merger or acquisition of 100% of TSREs outstanding common stock, acquisition of 100% of the assets of TSRE, acquisition of 75% of TSREs outstanding common stock, and reverse merger of an existing multifamily company into TSRE. Neither IRT nor the Second Interested Party submitted an indication of interest despite being invited to do so. The indicated prices per share of TSREs outstanding common stock (or implied prices per share with respect to Companies 8 through 11, all of whom proposed asset purchases) contained in the written non-binding indications of interest were:
| Company 1$8.66 to $9.41 |
| Company 2$8.14 |
| Company 3$7.75 |
| Company 4$7.50 to $7.75 |
| Company 5$7.61 |
| Company 6$7.25 |
| Company 7$7.00 |
| Company 8$7.96 |
| Company 9$6.69 |
| Company 10$4.78 |
| Company 11$4.50 |
Members of the TSRE Board asked the J.P. Morgan representatives a number of questions regarding the reasons why certain parties did not submit indications of interest and regarding certain specific matters set forth in the indications of interest from those interested parties who submitted written indications of interest. It was noted that both Company 1 and Company 2 had proposed a transaction that would result in TSRE remaining in existence as a public company with less than 100% of TSREs outstanding common stock being acquired by the interested party in the proposed transaction. Members of the TSRE Board asked the J.P. Morgan and Morrison & Foerster representatives several questions regarding the relative benefits to TSREs stockholders and to Company 1 or Company 2 if less than 100% of TSREs outstanding common stock was acquired in a transaction and existing TSRE stockholders retained a significant minority of TSREs outstanding common stock that continued to be listed on the NASDAQ Global Market.
Following a discussion, the TSRE Board (i) instructed J.P. Morgan to make inquiries of Company 1 and Company 2 regarding their intentions for TSRE as a public company following a transaction and (ii) asked J.P. Morgan to develop a preliminary view regarding (a) the ongoing valuation of TSRE as a standalone controlled public company following such transaction and (b) the anticipated trading volume or other liquidity with respect to TSREs common stock following such transaction.
On December 12, 2014, the TSRE Board held a special telephonic meeting to receive an update regarding conversations with Company 1 and Company 2 about the questions posed by the TSRE Board at the December 10, 2014 special meeting and to define the process for the next phase of the TSRE Boards review of strategic alternatives for maximizing stockholder value. J.P. Morgan reported that Company 1 had indicated it was willing to acquire 100% of TSREs outstanding common stock, but that the offer price per share of TSREs
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outstanding common stock previously indicated by Company 1 would be lower in such event. J.P. Morgan reported that Company 2 was unwilling to consider anything other than a transaction pursuant to which 25% of TSREs outstanding common stock remained outstanding and listed on the NASDAQ Global Market. The TSRE Board then held a discussion regarding the relative merits of the indications of interest received by TSRE and the potential risks posed by any transaction in which less than 100% of TSREs outstanding common stock was acquired and TSRE remained in existence as a public company.
Following the discussion, the TSRE Board agreed to move forward with Phase 2 of its evaluation of strategic alternatives to maximize stockholder value. The TSRE Board instructed J.P. Morgan to inform Company 1 and Company 2 that each of them was invited to participate in Phase 2 of the process of evaluating strategic alternatives and to instruct Company 3, Company 4, Company 5, Company 6, Company 7 and Company 8 that they could participate if they were able to increase their indicated price per share for TSREs outstanding common stock. Furthermore, in the case of Company 4, they were asked to consider an all-cash, fully financed offer and, in the case of Company 8, they were asked to structure their offer as a purchase of 100% of TSREs outstanding common stock, rather than their contemplated acquisition of TSREs assets.
Between December 12, 2014 and December 15, 2014, representatives of J.P. Morgan held numerous telephone conversations with each of the parties that had submitted an indication of interest following which Company 1, Company 2 and Company 3 were invited to review a broader range of confidential materials about TSRE, conduct site visits and schedule interviews with Mr. Ross and other members of TSRE management.
On December 16, 2014, TSRE received an indication of interest from a private REIT that owned a large number of apartment communities (the Private REIT). The Private REIT proposed a reverse merger transaction that provided no cash or other liquidity to TSREs stockholders. In addition, the Private REITs proposed transaction structure was complex, difficult to evaluate, appeared on its face to provide a lower price per share for TSREs outstanding common stock than the other alternatives and was inconsistent with the alternatives that the TSRE Board considered in evaluating potential alternatives. Accordingly, no further dialogue occurred with the Private REIT at that time.
On December 16, 2014, Company 8 informed TSRE that it was willing to pursue an acquisition of 100% of TSREs outstanding common stock at a price per share in excess of that indicated in its initial indication of interest. After informing the TSRE Board and receiving permission from the chairman of the TSRE Board and Mr. Ross, Company 8 was formally invited to participate in Phase 2 of the process.
On December 23, 2014, Company 1, who had presented the highest indicated price per share for TSREs outstanding common stock of all of the interested parties, contacted TSRE to inform it that Company 1 was no longer interested in a transaction to acquire all of TSREs outstanding common stock but would be interested in acquiring certain of TSREs assets. In response, TSRE requested that Company 1 send a revised proposal at their earliest convenience. On or about January 6, 2015, Company 1 revised their indicated price per share for TSREs outstanding common stock to $6.97 per share, but indicated that its financing situation was uncertain. Following this exchange, TSRE terminated discussions with Company 1.
On January 13, 2015, the TSRE Board held an informal call with J.P. Morgan, Morrison & Foerster, and management to receive an update on a report from J.P. Morgan regarding the status of the due diligence process being conducted by interested parties and the timing for obtaining best and final offers. J.P. Morgan reported that Company 1 had been removed from the process and Company 2, Company 3 and Company 8 continued to actively conduct due diligence. The TSRE Board gave instructions to send to Company 2, Company 3 and Company 8 a formal invitation to submit a best and final non-binding offer to acquire TSRE, which final non-binding offers would be due in February 2015.
On January 15 and 16, 2015, representatives of Company 2 and Company 3 met with Mr. Ross and other members of TSREs management team to discuss TSREs apartment communities and its financial condition and results of operations. Although invited to meet with TSREs management team, Company 8 declined to do so.
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On January 21, 2015, Company 8 informed TSRE that Company 8 was not prepared to submit a final offer in excess of $7.25 per share of TSREs outstanding common stock. TSRE advised Company 8 to continue its due diligence review and encouraged Company 8 to submit a written offer at the appointed time based on its additional due diligence.
On or about January 27, 2015, Company 2, Company 3 and Company 8 were provided a bid draft of a merger agreement prepared by Morrison & Foerster. Morrison & Foerster informed each interested party that it should submit a markup of the bid draft as well as a best and final non-binding bid for 100% of TSREs outstanding common stock by February 10, 2015.
On February 10, 2015, the Company reported to the TSRE Board that J.P. Morgan had received no written bids and no markups of the bid draft of the merger agreement. During this time, Company 3 verbally indicated that its current view on value was approximately $6.50 per share.
On February 23, 2015, at the quarterly meeting of the TSRE Board, after being advised by Morrison & Foerster of their duties as directors of a Maryland corporation under Maryland law, the TSRE Board received an update from J.P. Morgan about the latest phase of the TSRE Boards strategic alternative review process, during which J.P. Morgan reported that no formal bids to acquire TSRE or markups of the bid draft of the merger agreement had been received and that Company 2 and Company 8 had formally withdrawn from the process. Company 3 continued to conduct due diligence, and two new parties had signed NDAs and had conducted some due diligence in the virtual data room, but had not made a formal proposal to acquire TSRE. The TSRE Board asked the J.P. Morgan representatives a number of questions regarding the reasons why certain parties did not submit indications of interest and feedback about TSRE that J.P. Morgan had received from the interested parties.
The TSRE Board instructed Mr. Ross and J.P. Morgan to begin evaluating certain alternatives to an all-cash transaction for 100% of TSREs outstanding common stock, including the possibility of a debt recapitalization with a special dividend to TSREs stockholders, the potential to recycle capital by selling non-strategic assets in non-core markets, and the possibility of a merger with Company 12, a publicly registered non-listed multifamily REIT who had not participated in the strategic alternative review process but had recently contacted members of the TSRE Board to express interest in a possible transaction. The TSRE Board held a discussion regarding remaining alternatives, including (i) a debt recapitalization with a special dividend to TSREs stockholders, (ii) the sale of non-strategic assets in non-core markets and utilizing net proceeds to acquire new strategic assets, (iii) a merger with Company 12, and (iv) discussing with parties who had previously indicated an interest in a strategic transaction with TSRE, including IRT, possible alternative transaction structures to an all-cash purchase of 100% of TSREs outstanding common stock. To streamline the review process, the TSRE Board appointed an ad hoc committee consisting of Mr. Ross, Mack D. Pridgen III, the chairman of the TSRE Board, and Michael Simanovsky, a member of the TSRE Board who was designated by Senator, to begin the process of contacting parties who might have an interest in different transaction structures and to report progress back to the TSRE Board.
Shortly after the February 23, 2015 meeting of the TSRE Board, representatives of J.P. Morgan and the ad hoc committee contacted Company 4, the Private REIT and another publicly registered non-listed multifamily company that had previously executed an NDA but had not submitted an indication of interest (Company 13), about their interest in a strategic transaction.
On March 4, 2015, the ad hoc committee members had a telephone conference with the chief executive officer of Company 13. On March 26, 2015, Mr. Ross provided Company 13 with additional due diligence materials regarding TSRE. On or about March 26, 2015, Company 13 communicated to Mr. Ross a verbal expression of interest in merging with TSRE at a valuation that reflected a premium to the likely fair market values of Company 13s assets, taken as a whole, and/or a discount to TSREs net asset value. After consulting with the other members of the ad hoc committee and representatives of J.P. Morgan, Mr. Ross communicated to the chief executive officer of Company 13 that the TSRE Board was not interested in pursuing a merger transaction with Company 13 at the relative valuations proposed by Company 13.
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During the week of March 16, 2015, Company 4 contacted Mr. Ross and J.P. Morgan regarding a potential transaction. On March 24, 2015, Company 4 submitted a revised bid of $7.50 per share of TSREs outstanding common stock, however the ad hoc committee expressed concerned regarding Company 4s proposed method of financing the cash portion of the proposed transaction with TSRE and their ability to enter into a transaction without financing contingencies.
On March 24, 2015, the ad hoc committee members had a telephone conference with representatives of Company 12 regarding potential transaction structures, and Company 12 stated its intention to submit a proposal to TSRE. Company 12 never submitted a formal proposal.
On March 27 and 28, 2015, Mr. Ross, as authorized by the ad hoc committee, had discussions with a key executive of Company 7 regarding a potential transaction. Company 7 stated at the time that it was finalizing its evaluation and expected to submit a proposal to the TSRE Board. These discussions did not subsequently result in any submission of a proposal by Company 7.
On March 27 and 28, 2015, Mr. Ross, as authorized by the ad hoc committee, had several discussions with Mr. Sebra, the chief financial officer of IRT, providing him with additional due diligence information about TSRE.
On April 1, 2015, TSRE received a written non-binding proposal from IRT to acquire 100% of TSREs outstanding common stock at a price of $7.60 per share payable 50% in cash and 50% in IRT common stock. IRT proposed a floating exchange ratio with a collar, with the number of shares of IRT common stock deliverable in the transaction to be determined based on a 20-day volume weighted average closing price (VWAP) of IRT common stock determined immediately prior to signing. The proposal did not mention financing and stated that it was submitted with the full support of IRTs senior management team and the chairman of the IRT Board.
On April 2, 2015, Mr. Ross and representatives of J.P. Morgan had a telephone conference with Mr. Sebra and representatives of Deutsche Bank during which Mr. Ross communicated the ad hoc committees desire to gain a better understanding of IRTs proposed method of financing the cash portion of the proposed transaction with TSRE and enter into a transaction without financing contingencies. Mr. Ross also discussed with Mr. Sebra IRTs externally-managed structure, any internalization plans and other due diligence questions posed by both principals.
On April 3, 2015, Mr. Ross and representatives of J.P. Morgan had a telephone conference with Company 4 during which Mr. Ross communicated the ad hoc committees desire to gain a better understanding of Company 4s proposed method of financing the cash portion of the proposed transaction with TSRE and enter into a transaction without financing contingencies. Company 4 subsequently informed TSRE that it was unable to meet the ad hoc committees request for entering into a transaction without financing contingencies, and TSRE terminated discussions with Company 4.
On April 7, 2015, Mr. Ross and representatives of J.P. Morgan had a telephone conference with Mr. Sebra and Farrell Ender, IRTs President. During the telephone conference, J.P. Morgan advocated the ad hoc committees position that TSREs stockholders would hold a meaningful percentage of the outstanding common stock of IRT after consummation of a transaction and that it would be appropriate for IRT to increase the size of the IRT Board by two persons and add two directors designated by the TSRE Board. J.P. Morgan also expressed to the IRT executives that the TSRE Board would require a definitive financing commitment sufficient to fund the cash portion of the consideration payable to TSREs stockholders in any transaction.
The audit committee of the IRT Board held a telephonic meeting on April 9, 2015, at which IRTs management reviewed the discussions it was having with TSREs management with respect to the proposed transaction.
The IRT Board held a telephonic meeting on April 13, 2015 to discuss the proposed merger with TSRE. At the meeting, Scott F. Schaeffer, IRTs Chairman of the Board and Chief Executive Officer, described the contemplated terms, conditions and timing of the proposed merger. Mr. Schaeffer also discussed the background
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of, alternatives to, and anticipated strategic benefits of the proposed the merger, including key assumptions underlying IRTs realization of these benefits, as well as the risks of the proposed merger. Following discussion regarding the proposed merger, Messrs. Schaeffer and Sebra addressed key financial metrics applicable to the proposed merger and various backstop financing alternatives and plans. After additional discussion, Mr. Schaeffer reviewed anticipated next steps and requested, on behalf of IRTs management, to provide TSRE with a confidential, non-binding proposal. The IRT Board unanimously approved the submission by IRT of a proposal to TSRE containing the terms described during the meeting and authorized IRTs management to continue its financial, legal and property due diligence and to proceed to negotiate terms of the proposed merger with TSRE and its representatives.
On April 13, 2015, IRT submitted a second written proposal that was identical in all material respects to its April 1, 2015 proposal except that it contained (i) a proposal that IRT expand the size of the IRT Board to seven and offer board seats to Mr. Pridgen and a highly qualified independent director mutually agreed upon by IRT and TSRE, (ii) IRTs disclosure of its expected financing sources and sources and uses of funds, and (iii) IRTs commitment to execute a definitive agreement and announce a transaction by May 6, 2015.
On April 14, 2015, the ad hoc committee and representatives of Morrison & Foerster and J.P. Morgan discussed the proposed terms in the April 13, 2015 IRT proposal. The ad hoc committee focused on the potential downside of a floating exchange ratio with a collar as proposed by IRT, the lack of a financing commitment for the cash portion of the acquisition consideration and IRTs lack of willingness to permit TSRE to designate both new directors on an expanded IRT Board. The ad hoc committee instructed representatives of J.P. Morgan to inform IRT (i) that any agreement providing for 50% stock consideration to TSREs stockholders must include a termination right exercisable by the TSRE Board in the event of a substantial decrease in the price of IRT common stock between the signing of a definitive agreement and closing of the transaction and (ii) of TSREs desire (a) to enter into a transaction without a financing contingency for the cash portion of the consideration and (b) for TSRE to have the ability to designate two new IRT board members.
On April 15, 2015, Mr. Ross and J.P. Morgan had a telephone conference with Messrs. Sebra and Ender and representatives of Deutsche Bank during which J.P. Morgan proposed that any agreement be terminable by TSRE in the event the 20-day VWAP of IRT common stock on the day before closing had declined by more than 15% from the 20-day VWAP of IRT common stock on the day before execution of the definitive agreement. J.P. Morgan also informed Messrs. Sebra and Ender that TSRE continued to desire a transaction without a financing contingency for the cash portion of the consideration, and for TSRE to have the ability to designate both new IRT board members.
On April 16, 2015, IRT submitted a new written proposal to TSRE proposing a price per share of TSREs outstanding common stock of $7.60, payable 50% in cash and 50% in stock at a fixed exchange ratio per share determined by dividing $3.80 by the 20-day VWAP of IRT common stock on the day before execution of the definitive agreement. IRT proposed that any definitive agreement would be terminable by TSRE if any decline in the 20-day VWAP of IRT common stock, determined five days prior to closing the transaction, from the 20-day VWAP as of the time of execution of the definitive agreement was at least 15% greater than any decline over the same period in the MSCI US REIT Index (RMZ). IRT also proposed that if TSRE executed such termination right, TSRE would reimburse IRT for 100% of its transaction expenses up to $2.5 million and 50% of all transaction expenses in excess of $2.5 million, up to a cap of $5.0 million. IRT also proposed that it would execute a definitive agreement only if TSREs largest stockholders, Senator and Monarch, executed definitive agreements to vote for the proposed transaction, and would open its data room for TSRE due diligence of IRT only after those stockholders signed a standstill agreement. The modified proposal eliminated the increase in the size of the IRT Board and TSREs right to appoint new directors.
The TSRE Board held a special telephonic meeting on the afternoon of April 16, 2015 for the purpose of receiving an update from the ad hoc committee and representatives of J.P. Morgan regarding the status of the TSRE Board review of strategic alternatives for maximizing stockholder value. Mr. Ross informed the TSRE
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Board about the conversations and events occurring since the TSRE Boards last meeting and provided a detailed review of the proposals and counter-proposals shared with IRT. Mr. Ross discussed the written proposal received earlier that morning, which had been provided to members of the TSRE Board in advance of the telephonic meeting. The J.P. Morgan representatives informed the TSRE Board that shortly before the meeting, IRT, through Deutsche Bank, had requested a modification to the written proposal providing IRT with the option to increase the amount of cash consideration in the proposed transaction to as much as 60% of total consideration. The J.P. Morgan representatives then discussed with the TSRE Board the conformity of the IRT proposal with the terms of comparable transactions, noting that the termination right provided to TSRE upon a material decline in the price of IRTs common stock relative to the RMZ was beneficial to TSRE and its stockholders. The J.P. Morgan representatives also updated the TSRE Board on IRTs financing alternatives and plans with respect to funding the cash portion of the acquisition consideration and that Deutsche Bank had informed J.P. Morgan that IRT expected to have a commitment for a term loan and commitments to refinance certain of TSREs first mortgage debt prior to executing a definitive agreement.
The TSRE Board then held a discussion regarding the IRT proposal, during which members of the TSRE Board asked numerous questions of Mr. Ross, the J.P. Morgan representatives and the Morrison & Foerster representative. The TSRE Board requested that J.P. Morgan request a further modification of the IRT proposal to reduce from 15% to 12.5% the percentage decline in the price of IRT common stock relative to the RMZ as a trigger for TSREs termination right, to request a voting agreement from RAIT and to further discuss with IRT the potential nominees for the two new seats on the IRT Board.
Prior to taking any action, the TSRE Board discussed the fact that Nirmal Roy, one of the TSRE directors, was employed by a fund manager who had sizable positions in the common stock of both TSRE and IRT. The TSRE Board, in consultation with Morrison & Foerster and with the unqualified consent of Mr. Roy, determined that Mr. Roy would be recused from all votes by the TSRE Board and would generally not participate in deliberations regarding a potential transaction with IRT.
The TSRE Board, with Mr. Roy abstaining, authorized the ad hoc committee to continue negotiating terms with IRT, using the earlier proposal from IRT as a basis, and directed Morrison & Foerster to begin drafting a definitive merger agreement.
Immediately after the telephonic meeting of the TSRE Board, Mr. Ross and representatives of J.P. Morgan had a telephone conference with Mr. Sebra and Deutsche Bank to communicate the TSRE Boards proposed modifications to IRTs earlier proposal. A few hours later, IRT sent to TSRE a new written proposal identical to the one sent earlier in the day but proposing that IRT have the right to increase the amount of cash consideration to 60% of the total transaction consideration, with the election of the amount of cash occurring five days prior to closing. IRT rejected the request to lower from 15% to 12.5% the relative IRT stock price decline necessary to trigger TSREs termination right. The ability of TSRE to designate two new members of the IRT Board was not addressed at that time.
On April 17, 2015, Mr. Ross met with Messrs. Sebra and Ender in IRTs office in Philadelphia, Pennsylvania to discuss diligence-related items in connection with the proposed merger.
Between April 17, 2015 and April 30, 2015, members of TSREs management team and representatives of Morrison & Foerster conducted a due diligence review of IRT, and IRTs management team and representatives of Pepper Hamilton LLP (Pepper Hamilton), IRTs legal adviser, completed their due diligence review of TSRE, including a review of TSREs debt obligations and the ability to prepay or refinance certain of those obligations.
On April 20, 2015, representatives of Morrison & Foerster provided to all parties an initial draft of an Agreement and Plan of Merger (the Proposed Merger Agreement). Under the Proposed Merger Agreement, IRT would acquire 100% of TSREs outstanding common stock and 100% of the outstanding TSR OP Units for a price of
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$7.60 per share, payable 50% to 60% in cash and 40% to 50% in either shares of IRT common stock (payable to holders of TSRE common stock) or IROP Units (payable to holders of TSR OP Units, other than TSRE and its subsidiaries). The Proposed Merger Agreement stated that the proposed Company Merger was intended to qualify as a reorganization under Section 368(a) of the Code for U.S. federal income tax purposes. In addition to the terms specified in the final IRT written proposal, including TSREs termination right in the event of a disproportionate decline in the price of IRTs common stock between the execution of the merger agreement and closing, the Proposed Merger Agreement contained two terms that had not been discussed by the parties or covered in IRTs final written proposal: (i) a proposed termination fee of $12.0 million payable by TSRE if it terminated the merger agreement to pursue a superior transaction or the TSRE Board withdrew its recommendation and TSRE ultimately consummated a superior transaction; and (ii) a proposed reverse termination fee of $40.0 million if IRT failed to consummate the merger after all of the conditions to IRTs obligation to effect the merger had been satisfied. The Proposed Merger Agreement did not provide IRT with a financing contingency and permitted TSRE to seek specific performance as well as the reverse termination fee in the event IRT failed to close the transaction. The Proposed Merger Agreement also required the appointment of two new members of the IRT Board at the time of closing, whose names were not specified in the Proposed Merger Agreement. Finally, the Proposed Merger Agreement permitted TSRE to continue paying its regular quarterly dividend to stockholders.
The IRT Board held a telephonic meeting on April 24, 2015. At this meeting, a representative of Deutsche Bank provided the IRT Board with an update on the status of the proposed merger, including a discussion of the key terms of a non-binding term sheet for the proposed merger, and reviewed certain preliminary financial information relating to TSRE with the IRT Board. In addition, IRTs management provided the IRT Board with an overview of its duties under Maryland law, as well as an update on various backstop financing alternatives for the proposed merger.
On April 27, 2015, Pepper Hamilton, on behalf of IRT, distributed to TSRE, J.P. Morgan and Morrison & Foerster a markup of the Proposed Merger Agreement. In addition to proposed language changes involving the structure of the proposed Company Merger as a reorganization under Section 368(a) of the Code for U.S. federal income tax purposes, the IRT markup of the Proposed Merger Agreement proposed certain financing conditions to closing, sought IRTs ability to terminate the merger agreement if such financing conditions were not met without the payment of a reverse termination fee and proposed a reduction of both TSREs termination fee and IRTs reverse termination fee to $9.0 million. IRT also requested that Senator and Monarch execute lockup agreements precluding their selling of shares of IRT common stock above certain volume limitations for 180 days after consummation of the merger.
On April 30, 2015, the TSRE Board held its quarterly meeting. During the meeting, representatives of J.P. Morgan provided the TSRE Board with a summary of the strategic alternative review process from June 2, 2014 through the receipt of the final IRT written proposal on April 16, 2015, including a summary of declines in indicated prices (or withdrawals from the process, in the case of Company 2) as interested parties continued to evaluate TSRE and its assets during the due diligence phase of the process, as well as information regarding reasons why certain parties declined to make definitive proposals to acquire TSRE. The J.P. Morgan representatives then summarized the IRT proposal, which had been assimilated into the Proposed Merger Agreement circulated by Morrison & Foerster, and presented an updated preliminary financial analysis that addressed financial ramifications of the proposed merger to TSREs stockholders. The TSRE Board asked representatives of J.P. Morgan and Morrison & Foerster a number of questions regarding their analysis and IRTs ability to finance the cash portion of the merger consideration. The TSRE Board directed J.P. Morgan and the ad hoc committee to continue to request the ability to designate two new members of the IRT Board at the time of closing of the Merger.
On April 30, 2015, representatives of Morrison & Foerster delivered to Pepper Hamilton, IRT and Deutsche Bank an issues list with respect to the Proposed Merger Agreement (the Issues List). On the morning of May 1, 2015, representatives of Morrison & Foerster, Pepper Hamilton, J.P. Morgan and Deutsche Bank held a
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conference call to discuss the Issues List, during which call the parties discussed changes to certain representations, warranties, covenants and conditions, and all parties discussed certain remaining business issues.
On May 4, 2015, the TSRE Board held a special meeting in New York City during which Messrs. Schaeffer, Ender and Sebra, comprising the entire senior management team of IRT, made a presentation to the TSRE Board about IRT, its apartment communities, its growth plans and strategy, its management structure, which included a discussion of a proposed change in the external management fee paid by IRT from an asset based fee to an equity based fee, its capital plans and its rationale behind pursuing a business combination with TSRE. Members of the TSRE Board asked the IRT management team a number of questions about the condition of their apartment communities, their financing plans and their capital expenditure needs. Following the departure of the IRT management team, the TSRE Board held a general discussion about the IRT management team and the information they had gathered during the meeting and agreed, with Mr. Roy abstaining, to continue pursuit of a merger transaction with IRT.
The IRT Board held a telephonic meeting on May 4, 2015. At this meeting, IRTs management provided the IRT Board with an update on the status of the proposed merger. A representative of Deutsche Bank then provided an update on the status of the negotiations of the terms of the proposed merger and a report on activity and pricing developments with respect to IRT common stock. After discussions with management and Deutsche Bank regarding the effect such pricing developments may have on the proposed merger, the IRT Board determined that IRT needed to renegotiate with TSRE the reference price per share for the purpose of calculating the exchange ratio for the stock portion of the consideration to be paid by IRT in the merger.
Early in the afternoon on May 5, 2015, after two trading days of significant declines in the price of IRT common stock on heavy trading volume, Mr. Schaeffer informed Mr. Ross that IRT would have difficulty proceeding with a merger transaction under the proposed structure given the material decline in IRTs common stock trading price. Mr. Schaeffer suggested that a reference price for fixing the exchange ratio for the IRT stock portion of the merger consideration be $9.40 per share, which was IRTs trading price at the time discussions commenced with TSRE in April. TSREs ad hoc committee, joined by representatives of J.P. Morgan and Morrison & Foerster, held a telephone conference later that afternoon and authorized J.P. Morgan and Mr. Ross to propose to IRT that the exchange ratio on the portion of the merger consideration payable in stock be based on a fixed price of $9.00 per share of IRT common stock, rather than the 20-day VWAP upon which the parties had tentatively agreed to base the exchange ratio, provided that IRT would agree to (i) remove all financing conditions, (ii) pay a $25.0 million reverse termination fee in the event IRT terminated the merger agreement or failed to consummate the merger after all of the conditions to IRTs obligation to effect the merger had been satisfied, (iii) permit TSRE to terminate the merger agreement if the Company Merger failed to qualify as a reorganization under Section 368(a) of the Code for U.S. federal income tax purposes, (iv) add Messrs. Pridgen and Ross to the IRT Board at the time of closing of the merger, (v) reduce the lockup periods for Senator and Monarch to 90 days and facilitate block trades for Senator and Monarch during the period of their lockup agreements, (vi) change IRTs external management fee structure based on IRTs proposal to an equity based fee from an asset based fee, and (vii) request that RAIT participate at its current ownership level in any equity offering by IRT to raise funding for the merger. In addition, IRT was informed that TSRE would not execute a definitive merger agreement until IRT had procured commitments that, in the judgment of the TSRE Board and representatives of, J.P. Morgan and Morrison & Foerster, provided cash financing sufficient to consummate the merger. Mr. Ross and J.P. Morgan conveyed that proposal to Mr. Schaeffer and Deutsche Bank during the evening of May 5, 2015.
Between May 6, 2015 and the evening of May 7, 2015, Messrs. Ross and Schaeffer had several telephone conferences regarding the reference price per share of IRT common stock upon which the exchange ratio would be fixed. Mr. Ross continued to insist on a $9.00 per share reference price, while Mr. Schaeffer continued to advocate a $9.40 per share reference price. Representatives of Deutsche Bank informed representatives of J.P. Morgan that IRT agreed to remove all financing conditions, pay a $25.0 million reverse termination fee in the event IRT terminated the merger agreement or failed to consummate the merger after all of the conditions to IRTs obligation to effect the merger had been satisfied, permit TSRE to terminate the merger agreement if the
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Company Merger failed to qualify as a reorganization under Section 368(a) of the Code for U.S. federal income tax purposes, add Messrs. Pridgen and Ross to the IRT Board, facilitate block trades by Senator and Monarch during any lockup period, use its best efforts to induce RAIT to participate in any equity offering by IRT to raise capital to fund the cash portion of the merger consideration and approach the Advisor to amend the advisory fees payable by IRT pursuant to the advisory agreement to 1.5% of IRT equity as opposed to 0.75% of total IRT assets.
The IRT Board held a telephonic meeting on May 7, 2015, at which IRTs management and representatives of Deutsche Bank provided the IRT Board with an update on the status of the proposed merger and various backstop financing alternatives for the merger. This status update included a review of the terms of the proposed merger that were being negotiated, including (i) the exchange ratio, (ii) TSREs ability to make distributions to its stockholders prior to the closing of the Merger, (iii) board seats for TSRE designees, (iv) any reverse termination fee payable by IRT, (v) the consequences if the Company Merger failed to qualify as a reorganization under Section 368(a) of the Code and as a result the consideration to be received by TSREs stockholders in the proposed merger were to be fully taxable, (vi) the terms of the lock-up agreements with Senator and Monarch, and (vii) whether RAIT would participate in any equity raise by IRT used to finance the proposed merger. Following the status update, the IRT Board authorized IRTs management to conduct negotiations to set the reference price per share for the purpose of calculating the exchange ratio.
On the morning of May 8, 2015, representatives of J.P. Morgan and Deutsche Bank held another call to discuss the reference price per share of IRT common stock to be used to fix the exchange ratio for the IRT stock portion of the merger consideration and discussed a compromise of $9.25 per share of IRT common stock. In the early afternoon on May 8, representatives of Deutsche Bank informed representatives of J.P. Morgan that IRT would agree to a reference price per share of $9.25 for the purpose of calculating the exchange ratio.
During the afternoon of May 8, 2015, the TSRE Board held a special telephonic meeting to hear a report from the ad hoc committee and representatives of J.P. Morgan and Morrison & Foerster regarding the discussions between the parties since May 4, 2015. Mr. Ross and the J.P. Morgan representatives described the decline in IRTs stock price on heavy trading volume on May 4, 2015 and May 5, 2015 and the subsequent communication by IRT to TSRE that it would not pursue a transaction where the exchange ratio for the stock consideration deliverable in the merger was based on a 20-day VWAP. Mr. Ross and J.P. Morgan described the negotiations that had occurred since IRT had delivered that message and the current IRT proposal. After a detailed discussion, the TSRE Board, with Mr. Roy abstaining, authorized Mr. Ross and Morrison & Foerster to finalize the merger agreement for consideration by the TSRE Board at a special meeting to be held the evening of May 10, 2015.
Late in the afternoon on May 8, 2015, representatives of Morrison & Foerster, on behalf of TSRE, delivered to IRT, Pepper Hamilton and Deutsche Bank a new draft of the Proposed Merger Agreement. Between the time such draft was distributed and late afternoon on May 10, 2015, representatives of Morrison & Foerster and Pepper Hamilton negotiated the language in the new draft of the Proposed Merger Agreement. In addition, Mr. Ross and representatives of J.P. Morgan and Morrison & Foerster had several discussions with IRT, Pepper Hamilton and Deutsche Bank regarding IRTs financing commitment, the status of certain TSRE indebtedness and the ability of IRT to consummate the merger under the existing financing commitment and in light of certain restrictive provisions in certain debt agreements with respect to certain of TSREs apartment communities. In the afternoon of May 10, 2015, the ad hoc committee had a telephone conference, attended by representatives of Morrison & Foerster and representatives of J.P. Morgan, including representatives with substantial expertise in the commercial mortgage-backed securities market, during which the ad hoc committee discussed the likelihood that the IRT financing commitment would provide adequate funding to consummate the merger and that two of TSREs mortgage loan providers would permit the assumption by IRT of certain indebtedness secured by certain of TSREs apartment communities. The ad hoc committee was satisfied that the IRT financing commitment was sufficient to provide the funding required by IRT to consummate the merger and that TSREs lenders were likely to accommodate IRTs acquisition of TSRE.
A telephonic special meeting of the IRT Board was held on May 10, 2015 beginning at approximately 8:00 p.m. EDT. All members of IRTs Board were present at the meeting. Members of IRTs management were present,
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along with representatives of Deutsche Bank, Pepper Hamilton and Duane Morris LLP (Duane Morris), IRTs Maryland counsel. Prior to the meeting, the members of the IRT Board were provided with the latest draft of the Proposed Merger Agreement, a summary of the principal terms of the latest draft of the Proposed Merger Agreement, and a presentation prepared by representatives of Deutsche Bank regarding its financial analyses of the proposed merger. At the beginning of the meeting, Messrs. Ender and Sebra provided an overview of the business rationale for the proposed merger, the benefits and risks of the proposed merger and the financial model being used to evaluate the proposed merger. Next, representatives of Duane Morris advised members of the IRT Board of their duties under Maryland law. Then, representatives of Pepper Hamilton provided the IRT Board with a summary of the principal terms of the Proposed Merger Agreement and voting agreements and lock up agreements with Senator and Monarch that would be entered into in connection with the Proposed Merger Agreement and reviewed anticipated filings that would have to be made with the SEC in connection with the proposed merger. Members of the IRT Board asked certain questions regarding the terms of the Proposed Merger Agreement.
Representatives of Deutsche Bank then reviewed with the IRT Board the analyses Deutsche Bank had prepared relating to the proposed merger. Following its presentation, a representative of Deutsche Bank rendered to the IRT Board an oral opinion, which was confirmed by delivery of a written opinion dated May 11, 2015, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in such opinion, the Merger Consideration to be paid by IRT pursuant to the Merger Agreement was fair, from a financial point of view, to IRT. IRTs management and representatives of Deutsche Bank also described to the IRT Board the terms of the proposed financing with DBNY and the terms of the commitment letters. The IRT Board proceeded to discuss the terms of the commitment letters with Deutsche Bank, Pepper Hamilton and IRTs management.
Following further discussion regarding the proposed merger, the IRT Board determined that that the Proposed Merger Agreement and the transactions provided for therein or contemplated thereby, including the Merger, were on terms and conditions that are advisable and fair to, and in the best interests of, IRT and its stockholders, and approved the Proposed Merger Agreement and the transactions provided for therein or contemplated thereby, including the Merger. The IRT Board further resolved that the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) be submitted to the holders of IRT common stock for their approval at a special meeting of the stockholders, the date, place and time of, and record date for which, would be determined at a later date by a special acquisition committee of the IRT Board. The IRT Board further resolved that it recommends that the holders of IRT common stock vote to approve the issuance of shares of IRT common stock in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). Additionally, the IRT Board passed resolutions approving, among other things, (i) an increase in the size of the IRT Board from five members to seven members and the election of Messrs. Ross and Pridgen to fill the vacancies resulting from such increase upon the closing of the Merger, (ii) IRTs entry into debt financing commitments and related agreements and the assumption of, amendment to, and refinancing of any and all of the indebtedness of TSRE and its subsidiaries, each in connection with financing the Merger, and (iii) an underwritten registered public offering of up to 15 million shares of IRT common stock.
A telephonic special meeting of the TSRE Board was held on May 10, 2015 beginning at approximately 9:00 p.m. EDT. Mr. Ross and representatives of J.P. Morgan and Morrison & Foerster attended the meeting. Prior to the meeting, the members of the TSRE Board were provided with the latest draft of the Proposed Merger Agreement, a summary of the principal terms of the latest draft of the Proposed Merger Agreement, a presentation by representatives of J.P. Morgan regarding its analysis of IRTs debt financing commitment and a presentation by representatives of J.P. Morgan regarding its financial analysis of the proposed merger consideration. At the beginning of the meeting, representatives of Morrison & Foerster advised members of the TSRE Board of their duties under Maryland law. Then, representatives of Morrison & Foerster provided the TSRE Board with a summary of the Proposed Merger Agreement and a legal analysis regarding IRTs debt financing commitment. Members of the TSRE Board asked certain questions regarding the terms of the Proposed Merger Agreement and were provided answers by the Morrison & Foerster representatives.
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Representatives of J.P. Morgan reviewed with the TSRE Board its presentation regarding IRTs debt financing commitment and the valuation of TSRE. Following its presentations, J.P. Morgan delivered to the TSRE Board its oral opinion, which was confirmed by delivery of a written opinion, dated May 11, 2015, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger was fair, from a financial point of view, to such holders.
The TSRE Board discussed the process followed by the TSRE Board since June 2, 2014 in reviewing TSREs strategic alternatives to maximize stockholder value, noting that most interested parties had either elected not to make offers to engage in a strategic transaction with TSRE or had indicated a price that was below the value of the consideration to be delivered by IRT in the merger. Following the foregoing discussions, the TSRE Board, with Mr. Roy abstaining, determined that the merger of TSRE with a wholly-owned subsidiary of IRT and the Merger of TSR OP with a wholly-owned subsidiary of IROP as provided in the Proposed Merger Agreement was advisable and in the best interest of TSRE and its stockholders, and approved the Partnership Merger and the Merger Agreement. The TSRE Board further resolved that the Company Merger be submitted to the holders of TSRE common stock for their approval at a special meeting of the stockholders, the date, place and time of, and record date for which, would be determined at a later date by the TSRE Board. The TSRE Board resolved that it recommends that the holders of TSRE common stock vote to approve the Company Merger and, to the extent required, any other transaction contemplated by the Merger Agreement, and directed TSRE to include this recommendation in the proxy statement to be disseminated in connection with the special meeting of the holders of TSRE common stock to approve the Company Merger.
Early in the morning of May 11, 2015, TSRE and IRT executed the Merger Agreement, and the parties issued a joint press release announcing the execution of the Merger Agreement.
Recommendation of the IRT Board and Its Reasons for the Merger
In evaluating the Merger, the IRT Board consulted with its legal and financial advisors and IRTs management and, after consideration, the IRT Board has unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), are fair to and in the best interests of IRT and its stockholders. The IRT Board has unanimously approved and adopted the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
THE IRT BOARD UNANIMOUSLY RECOMMENDS THAT IRT STOCKHOLDERS VOTE FOR THE ISSUANCE OF SHARES OF IRT COMMON STOCK IN THE MERGER (INCLUDING IRT COMMON STOCK ISSUABLE UPON REDEMPTION OF IROP UNITS ISSUED IN THE PARTNERSHIP MERGER).
In deciding to declare advisable and approve and adopt the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), and to recommend that IRT stockholders vote to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), the IRT Board considered various factors that it viewed as supporting its decision, including the following material factors described below:
| Strategic Benefits. The IRT Board expects that the Merger will provide a number of significant potential strategic opportunities and benefits including the following: |
| the combined scale of IRT and TSRE, with 50 properties and 14,044 units, is expected to provide an enhanced platform to pursue accretive acquisitions and transformational opportunities; |
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| the combination of IRT and TSRE is expected to result in improved operating statistics and portfolio quality, including increased portfolio occupancy, average base rents and operating margins; a reduced average property age from 25 years to 20 years; and enhanced geographic diversification; |
| as the market capitalization of the Combined Company will be almost double that of IRT, the stockholders of the Combined Company are expected to benefit from enhanced liquidity; |
| the addition of TSREs highly-complementary portfolio will expand IRTs geographic diversity into targeted regions in eight new markets, and also enhance IRTs presence in three existing markets; |
| the Combined Company is expected to have meaningful revenue and cost synergy potential, including expected net operating income accretion and significant savings in general and administrative expenses; |
| the transaction is expected to be accretive to 2016 core funds from operations per share, with meaningful identified run-rate cost savings and net operating income upside; |
| as a result of its larger size, stronger balance sheet and greater access to multiple forms of capital, the Combined Company is expected to result in a lower cost of capital over the long term than IRT on a stand-alone basis; |
| the benefits of greater operating efficiencies and lower cost of capital, if realized, will allow the Combined Company to compete more effectively for acquisition and development opportunities, while improving the financial impact of those transactions; and |
| the expectation that the Combined Company will have enhanced dividend safety and growth potential. |
| Efficiency of a Portfolio Acquisition. The opportunity to acquire through a single transaction a portfolio of high-quality properties could not be easily replicated through acquisitions of individual assets. |
| Exchange Ratio Not Dependent on Market Conditions. The IRT Board also considered that the Exchange Ratio, which will not fluctuate as a result of changes in the market prices of shares of IRT common stock or TSRE common stock, and, in fact, can change only at IRTs discretion and cannot increase, provides certainty, and even some control on the part of IRT, as to the respective pro forma percentage ownership of the Combined Company. |
| Opinion of Financial Advisor. The IRT Board considered the financial analyses it reviewed and discussed with representatives of Deutsche Bank on May 10, 2015 and the oral opinion of Deutsche Bank rendered to the IRT Board on May 10, 2015, subsequently confirmed by delivery of a written opinion dated May 11, 2015, to the effect that, as of the date of such opinion and based upon and subject to the assumptions, limitations, qualifications and conditions set forth in such opinion, the Merger Consideration to be paid by IRT pursuant to the Merger Agreement was fair, from a financial point of view, to IRT, as more fully described below in the section Opinion of IRTs Financial Advisor beginning on page 84. |
| Familiarity with Businesses. The IRT Board considered its knowledge of the business, operations, financial condition, earnings and prospects of IRT and TSRE, taking into account the results of IRTs due diligence review of TSRE, as well as its knowledge of the current and prospective environment in which IRT and TSRE operate, including economic and market conditions. |
| High Likelihood of Consummation. The IRT Board considered the commitment on the part of both parties to complete the Merger as reflected in their respective obligations under the terms of the Merger Agreement, and the likelihood that the stockholder approvals needed to complete the Merger would be obtained in a timely manner. |
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The IRT Board also considered a variety of risks and other potentially negative factors concerning the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. These factors included:
| although IRT has entered into the DB Commitment Letter for the DB Term Loan Facility, the closing of the Merger is not conditioned on IRTs ability to obtain financing for the transaction and IRT is required to use its reasonable best efforts to obtain alternate funding if necessary to complete the Merger; |
| risks related to the additional indebtedness that IRT will be required to incur to complete the Merger, including the risk of increasing IRTs vulnerability to general adverse economic and industry conditions, limiting IRTs ability to obtain additional financing as needed in the future, requiring the use of a substantial portion of IRTs cash flow from operations for the payment of principal and interest on such indebtedness (thereby reducing IRTs ability to use cash flow to fund normal expenses and other operating requirements), limiting IRTs flexibility in planning for (or reacting to) changes in IRTs business and industry and putting IRT at a disadvantage compared to competitors with less indebtedness; |
| the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Merger; |
| the risk that, notwithstanding the likelihood of the Merger being completed, the Merger may not be completed, or that completion may be unduly delayed, including the effect of the pendency of the Merger and the effect such failure to be completed may have on the trading price of IRT common stock and IRTs 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 Merger may not be fully realized or not realized at all; |
| 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 Merger and the costs of integrating the businesses of IRT and TSRE; |
| consummation of the Merger could trigger a mandatory prepayment of certain TSRE debt unless such debt can be assumed or appropriate lender consents or waivers are received. Moreover, certain TSRE debt cannot be prepaid and can only be assumed if conditions are met, thus requiring meeting such conditions for any assumption of such debt or receiving lender consents or waivers in order to avoid a default on this debt upon the consummation of the Merger. If those conditions cannot be met or such consents and waivers cannot be obtained prior to consummation of the Merger, the existing debt of TSRE might need to be repaid and/or refinanced. This may result in higher than-anticipated transaction expenses to IRT; |
| the fact that the ownership percentage of holders of IRT common stock in the Combined Company will be diluted by the Merger; |
| the restrictions on the conduct of IRTs business prior to the completion of the Merger, which could delay or prevent IRT from undertaking business opportunities that may arise or certain other specified actions it would otherwise take with respect to the operations of IRT absent the pending completion of the Merger |
| IRT may be required to pay a reverse termination fee of $25.0 million or reimburse up to $5.0 million of TSREs expenses if the Merger Agreement is terminated under certain circumstances; and |
| other matters described under the section Risk Factors and Cautionary Statement Concerning Forward-Looking Statements. |
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This discussion of the foregoing information and material 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 and the transactions contemplated by it, including the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), 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 Merger and the other transactions contemplated by the Merger Agreement, including the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger).
This 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 Concerning Forward-Looking Statements.
Recommendation of the TSRE Board and Its Reasons for the Merger
The TSRE Board has approved the Merger Agreement and determined that the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of TSRE and its stockholders. The decision of the TSRE Board to enter into the Merger Agreement was the result of careful consideration by the TSRE Board.
In reaching its decision to approve, and to recommend that TSREs stockholders approve, the Merger and the other transactions contemplated by the Merger Agreement, the TSRE Board consulted with TSREs executive management team as well as TSREs outside legal and financial advisers. The TSRE Board considered a number of factors, including the following material factors that the TSRE Board viewed as supporting its decision to approve the Merger and the other transactions contemplated by the Merger Agreement and to recommend that TSRE stockholders approve the Company Merger and the other transactions contemplated by the Merger Agreement based upon numerous factors, including the following material factors:
| Attractive Valuation: The effective Company Merger Consideration of $7.60 per share of TSRE common stock as of the date of the Merger Agreement represented an approximate 6.1% to 6.9% premium (the range depending on the Per Share Cash Amount determined by IRT) over the closing price of TSRE common stock on October 31, 2015, the date the TSRE Board announced that it was undertaking an exploration of strategic alternatives, and an approximate 3.4% to 4.2% premium (the range depending on the Per Share Cash Amount determined by IRT) over the closing price of TSRE common stock on May 8, 2015, the last trading day prior the announcement of the Merger Agreement. |
| Mix of Consideration: TSRE stockholders will receive between 40% and 50% of the Company Merger Consideration in IRT common stock and 50% to 60% of the Company Merger Consideration in cash. As a result, TSRE stockholders will receive both immediate cash value and an opportunity to continue to participate in the Combined Company as stockholders. |
| Strategic Benefits: Because TSRE stockholders will receive a portion of the Company Merger Consideration in the form of IRT common stock, TSRE stockholders will be able to participate in potential strategic opportunities and benefits including the following: |
| the scale of the Combined Company, with 50 properties and 14,044 units, is expected to provide a stronger platform to pursue accretive acquisitions and transformational opportunities; |
| the Combined Company is expected to have meaningful revenue and cost synergy potential, including expected net operating income accretion and significant savings in general and administrative expenses; |
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| as a result of its larger size, greater public float, stronger balance sheet and greater access to multiple forms of capital, the Combined Company has the potential to improve its cost of capital over the long term compared to TSRE on a stand-alone basis; |
| the benefits of greater operating efficiencies and improved cost of capital, if realized, will allow the Combined Company to compete more effectively for acquisition and development opportunities, while improving the financial impact of those transactions; |
| Messrs. Ross and Pridgen will become members of the IRT Board upon closing of the Merger, allowing for stewardship over the Combined Company by board members familiar with TSREs portfolio and the multi-family business more generally; and |
| the expectation that the Combined Company will have enhanced dividend safety and growth potential. |
| Fixed Exchange Ratio: Because the IRT common stock portion of the Company Merger Consideration is based on a fixed exchange ratio, TSRE stockholders will benefit from any increase in the trading price of IRTs common stock before the closing of the Merger. |
| Significant Downside Protection: Because between 50% and 60% of the Company Merger Consideration is payable to TSRE stockholders in cash, and because the TSRE Board negotiated the ability to terminate the Merger Agreement if a decline in the price of IRTs common stock exceeds a decline in the MSCI US REIT Index by 15% or more, TSRE stockholders are protected from the full effect of any decrease in the trading price of IRT common stock between the date of the Merger Agreement and the closing of the Merger. |
| Robust Process: Based upon a thorough review by the TSRE Board of strategic alternatives and other alternative transactions available to TSRE, the TSRE Board believed that the Merger was more favorable to TSRE stockholders than the other potential strategic alternatives that were available to TSRE. |
| Stock Consideration Not Currently Taxable: The Merger is currently intended to qualify as a reorganization within the meaning of Section 368(a) of the Code and is, therefore, not expected to be taxable to TSRE stockholders with respect to the IRT common stock portion of their Company Merger Consideration. |
| Opinion of Financial Advisor: The TSRE Board considered the oral opinion of J.P. Morgan delivered to the TSRE Board, which was confirmed by delivery of a written opinion dated May 11, 2015, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger was fair, from a financial point of view, to such holders, as more fully described below under the caption Opinion of TSREs Financial Advisor beginning on page 95. The full text of the written opinion of J.P. Morgan, dated May 11, 2015, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering the opinion, is attached as Annex G to this joint proxy statement/prospectus. |
| High Likelihood of Consummation. The TSRE Board considered the commitment on the part of both parties to complete the Merger as reflected in their respective obligations under the terms of the Merger Agreement, and the likelihood that the stockholder approvals needed to complete the Merger would be obtained in a timely manner in part as a result of the voting agreements. |
| Terms and Conditions of the Merger Agreement: The TSRE Board considered the terms of the Merger Agreement, including that: |
| TSRE has the right under certain circumstances to consider and respond to an unsolicited written acquisition proposal, and, if after consultation with legal and financial advisers, the TSRE Board determines in good faith that such acquisition proposal is a superior proposal and determines, after |
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consultation with legal counsel, that failure to take such action would be inconsistent with the duties of members of the TSRE Board under applicable law, and IRT chooses not to negotiate improvements to the Merger Agreement to make it superior, TSRE may enter into an agreement with respect to such superior proposal and terminate the Merger Agreement upon the payment of a termination fee of $12.0 million; |
| in the event that the TSRE Board undertakes an adverse recommendation change, TSRE may terminate the Merger Agreement upon the payment of up to $5.0 million of IRTs expenses or, under certain circumstances, a termination fee of $12.0 million; |
| IRT does not have any financing condition with respect to its obligation to consummate the Merger; and |
| IRT is required to pay TSRE a $25.0 million reverse termination fee if the Merger Agreement is terminated (i) by either IRT or TSRE because (A) the Merger has not been consummated on or before October 15, 2015 (subject to extension by IRT in certain limited circumstances) or (B) if all conditions of IRT to consummate the Merger are satisfied (other than those conditions that by their nature are to be satisfied at the closing, provided that such conditions are reasonably capable of being satisfied) and IRT is unable to satisfy its obligation to effect the closing at such time because it is unable to obtain the financing that is necessary to pay the cash portion of the Merger Consideration, or (ii) the closing of the Merger has not occurred within two business days after TSRE has delivered written notice to IRT that all conditions of IRT to consummate the Merger are satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction of such conditions at such time) and TSRE is ready, willing and able to effect the closing of the Merger. |
The TSRE Board also considered a variety of risks and other potentially negative factors concerning the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. These factors included:
| the risk that, because the IRT common stock portion of the Company Merger Consideration is based upon a fixed exchange ratio, TSRE stockholders will be adversely affected by any decrease in the trading price of IRT common stock between the announcement of the Merger Agreement and the closing of the Merger, including as a result of the potential dilutive effect of any offering of common stock conducted by IRT in order to help finance the cash portion of the Merger Consideration; |
| the risk that the market perception of IRTs external management structure could have a negative effect on the trading of IRT common stock following the Merger; |
| the risk that the Merger may not be completed or may be unduly delayed because conditions to closing may not be satisfied, including: |
| the approval by TSRE stockholders of the Merger and the other transactions contemplated by the Merger Agreement; |
| the approval by IRT stockholders of the issuance of the IRT common stock issuable in the Merger (including shares of IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger); |
| the condition that certain lender consents and loan amendments be obtained; and |
| other conditions outside of TSREs control; |
| the risk that the Combined Company may not realize all of the potential strategic benefits and/or revenue and cost synergies of the Merger described above or otherwise; |
| the risks posed by the additional indebtedness to be incurred by IRT in connection with its financing of cash portion of the Merger Consideration; |
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| the risks posed by IRTs potential inability to obtain all financing necessary to consummate the Merger; |
| the significant costs involved in connection with entering into and completing the Merger and the substantial time and effort of TSREs executive management team required to consummate the Merger and the related disruptions in the operation of the TSRE business; |
| the restrictions on the conduct of TSREs business contained in the Merger Agreement, which could delay or prevent TSRE from undertaking certain activities and capitalizing on certain business opportunities that may arise prior to consummation of the Merger; |
| the pending Merger or failure to complete the Merger may cause substantial and irreparable harm to relationships with TSREs employees, tenants, service providers and other business associates and could divert the attention of TSREs executive management team and employees away from the day-to-day operation of the TSRE business; |
| the inability to solicit competing acquisition proposals and the possibility that a $12.0 million termination fee payable by TSRE upon termination of the Merger Agreement in certain circumstances could discourage potential bidders from making a competing offer to acquire TSRE; and |
| some of TSREs directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of TSRE stockholders. |
Although the foregoing discussion sets forth the material factors considered by the TSRE Board in reaching its recommendation, it may not include all of the factors considered by the TSRE Board, and each director may have considered different factors or given different weights to different factors. In view of the variety of factors and the amount of information considered, the TSRE Board did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its recommendation. The TSRE Board realized that there can be no assurance about future results, including results expected or considered in the factors above. However, the TSRE Board concluded that the potential positive factors described above significantly outweighed the neutral and negative factors described above. The recommendation was made after consideration of all of the factors as a whole.
THE TSRE BOARD HAS APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE ADVISABLE AND IN THE BEST INTERESTS OF TSRE AND ITS STOCKHOLDERS. ACCORDINGLY, THE TSRE BOARD RECOMMENDS THAT TSRE STOCKHOLDERS VOTE FOR APPROVAL OF THE COMPANY MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
In considering the recommendation of the TSRE Board to approve the Company Merger and the other transactions contemplated by the Merger Agreement, you should be aware that certain of TSREs directors and officers have arrangements that cause them to have interests in the transaction that are different from, or are in addition to, the interests of TSRE stockholders generally. See Interests of TSREs Directors and Executive Officers in the Merger beginning on page 105.
The explanation of the reasoning of the TSRE Board and all other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled Cautionary Statement Concerning Forward-Looking Statements.
Opinion of IRTs Financial Advisor
Deutsche Bank has acted as financial advisor to IRT in connection with the Merger. At the May 10, 2015 meeting of the IRT Board, Deutsche Bank rendered its oral opinion to the IRT Board, subsequently confirmed by
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delivery of a written opinion dated May 11, 2015, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Deutsche Banks opinion, the Merger Consideration to be paid by IRT in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to IRT.
The full text of Deutsche Banks written opinion, dated May 11, 2015, which sets forth the assumptions made, procedures followed, matters considered and limitations, qualifications and conditions on the review undertaken by Deutsche Bank in connection with the opinion, is included in this document as Annex F and is incorporated herein by reference. The summary of Deutsche Banks opinion set forth in this document is qualified in its entirety by reference to the full text of the opinion. Deutsche Banks opinion was approved and authorized for issuance by a Deutsche Bank fairness opinion review committee and was addressed to, and was for the use and benefit of, the IRT Board in connection with and for the purpose of its evaluation of the Merger. Deutsche Banks opinion was limited to the fairness of the Merger Consideration to be paid pursuant to the Merger Agreement, from a financial point of view, to IRT as of the date of the opinion. IRT did not ask Deutsche Bank to, and Deutsche Banks opinion did not, address the fairness of the Merger or any consideration received in connection therewith, to the holders of any class of securities, creditors or other constituencies of IRT or its subsidiaries, nor did it address the fairness of the contemplated benefits of the Merger. Deutsche Bank expressed no opinion as to the merits of the underlying decision by IRT to engage in the Merger or the relative merits of the Merger as compared to any alternative transactions or business strategies. Nor did Deutsche Bank express any opinion, and Deutsche Banks opinion does not constitute a recommendation, as to how any holder of IRT common stock should vote with respect to the Merger or any other matter. In addition, Deutsche Bank 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 the officers, directors, or employees of any parties to the Merger, or any class of such persons, in connection with the Merger whether relative to the Merger Consideration or otherwise. Deutsche Banks opinion does not in any manner address the prices at which the IRT common stock or any other securities will trade at any time.
Deutsche Banks opinion noted that, pursuant to the Merger Agreement, IRT may, subject to limitations provided therein, elect to increase the cash portion of the Merger Consideration to more than $3.80 per share of TSRE common stock or TSR OP Unit, which would result in a decrease in the number of shares of IRT common stock and IROP Units included in the Merger Consideration. Deutsche Banks opinion also noted that, pursuant to the Merger Agreement, the cash portion of the Merger Consideration may be further adjusted if IRT has made such an election to increase the cash portion of the Merger Consideration and the stock portion of the Merger Consideration (calculated using the closing price of IRT common stock on the NYSE MKT on the trading day prior to the closing date of the Merger) would be less than 40% of the total Merger Consideration. Deutsche Bank noted that, for purposes of its opinion, the IRT Board instructed Deutsche Bank to assume, and Deutsche Bank assumed, that the cash portion of the Merger Consideration will be $3.80 per share of TSRE common stock or TSR OP Unit, as applicable.
In connection with its role as financial advisor to IRT, and in arriving at its opinion, Deutsche Bank reviewed certain publicly available financial and other information concerning TSRE and IRT. Deutsche Bank also reviewed certain internal analyses, financial forecasts and other information relating to TSRE and IRT prepared by management of IRT. Deutsche Bank also held discussions with certain senior officers and other representatives and advisors of TSRE regarding the businesses and prospects of TSRE and with certain senior officers of IRT regarding the businesses and prospects of TSRE, IRT and the Combined Company. In addition, Deutsche Bank:
| reviewed the reported prices and trading activity for the TSRE common stock and IRT common stock; |
| compared certain financial and stock market information for TSRE and IRT with, to the extent publicly available, similar information for certain other companies it considered relevant whose securities are publicly traded; |
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| reviewed, to the extent publicly available, the financial terms of recent business combinations which Deutsche Bank deemed relevant; |
| reviewed the Merger Agreement; and |
| performed such other studies and analyses and considered such other factors as Deutsche Bank deemed appropriate. |
Deutsche Bank did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to it, concerning TSRE or IRT, including any financial information considered in connection with the rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche Bank, with the knowledge and permission of the IRT Board, assumed and relied upon the accuracy and completeness of all such information. Deutsche Bank did not conduct a physical inspection of any of the properties or assets, and did not prepare, obtain or review any independent evaluation or appraisal (other than certain third party appraisals of properties held by IRT and its subsidiaries) of any of the assets or liabilities (including any contingent, derivative or off-balance-sheet assets or liabilities), of TSRE, IRT or any of their respective subsidiaries, nor did Deutsche Bank evaluate the solvency or fair value of TSRE, IRT or any of their respective subsidiaries under any law relating to bankruptcy, insolvency or similar matters. With respect to the financial forecasts, including the analyses and forecasts of the amount and timing of certain cost savings, operating efficiencies, revenue effects, financial synergies and other strategic benefits projected by IRT to be achieved as a result of the Merger, which are collectively referred to in this document, including certain assumptions regarding IRTs management fee structure, as the synergies, made available to Deutsche Bank and used in its analyses, Deutsche Bank assumed, with the knowledge and permission of the IRT Board, that such forecasts, including the synergies, had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of IRT as to the matters covered thereby. In rendering its opinion, Deutsche Bank expressed no view as to the reasonableness of such forecasts and projections, including the synergies, or the assumptions on which they were based. Deutsche Banks opinion was necessarily based upon economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Deutsche Bank expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which it becomes aware after the date of its opinion.
For purposes of rendering its opinion, Deutsche Bank assumed, with the knowledge and permission of the IRT Board, that in all respects material to its analysis, the Merger would be consummated in accordance with the terms of the Merger Agreement, without any waiver, modification or amendment of any term, condition or agreement that would be material to its analysis, including, among other things, that (a) the Company Merger will be treated as a reorganization under Section 368(a) of the Code and (b) the Partnership Merger will be treated as an asset over form of merger governed by Treasury Regulations Section 1.708-1(c)(3)(i). Deutsche Bank further assumed with the knowledge and permission of the IRT Board that (a) the IROP Units, which are exchangeable into IRT common stock on a one-for-one basis, are economically equivalent to IRT common stock, and (b) that the TSR OP Units, which are exchangeable into TSRE common stock on a one-for-one basis, are economically equivalent to TSRE common stock. Deutsche Bank was advised by IRT that each of IRT and TSRE have operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes since its formation as a REIT, and Deutsche Bank assumed, at the direction of the IRT Board, that the Merger will not adversely affect such status or operations of IRT or TSRE. Deutsche Bank also assumed, with the knowledge and permission of the IRT Board, that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the Merger will be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, no restrictions, terms or conditions will be imposed that would be material to its analysis. Deutsche Bank is not a legal, regulatory, tax or accounting expert and has relied on the assessments made by IRT and its other advisors with respect to such issues.
IRT selected Deutsche Bank as its financial advisor in connection with the Merger based on Deutsche Banks qualifications, expertise, reputation and experience in mergers and acquisitions. Pursuant to an engagement letter
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between IRT and Deutsche Bank, dated May 10, 2015, IRT has agreed to pay Deutsche Bank a transaction fee of $4.0 million for its services as financial advisor to IRT, of which $2.0 million became payable upon the delivery of Deutsche Banks opinion (or would have become payable if Deutsche Bank had advised the IRT Board that it was unable to render an opinion) and the remainder of which is contingent upon consummation of the Merger. IRT has also agreed to reimburse Deutsche Bank for all reasonable fees, expenses and disbursements of Deutsche Banks outside counsel and all of Deutsche Banks reasonable travel and other out-of-pocket expenses incurred in connection with the Merger or otherwise arising out of the retention of Deutsche Bank, in each case on the terms set forth in its engagement letter. IRT has also agreed to indemnify Deutsche Bank and its affiliates to the full extent lawful against certain liabilities, including certain liabilities arising out of its engagement or the Merger.
Deutsche Bank is an internationally recognized investment banking firm experienced in providing advice in connection with mergers and acquisitions and related transactions. Deutsche Bank is an affiliate of Deutsche Bank AG, which, together with its affiliates, is referred to in this document as the DB Group. One or more members of the DB Group have, from time to time, provided, and are currently providing, investment banking, commercial banking (including extension of credit) and other financial services to IRT or its affiliates unrelated to the Merger for which the DB Group has received compensation of approximately 8,000,000 since January 1, 2013, and for which they may receive compensation in the future, including having acted as the sole bookrunning manager with respect to an offering of 8,050,000 shares of IRT common stock in January 2014, an offering of 8,050,000 shares of IRT common stock in July 2014, and an offering of 6,000,000 shares of IRT common stock in November 2014 and as joint bookrunner with respect to an offering of 4.00% Convertible Senior Notes due 2033 by RAIT, the owner of IRTs advisor, in December 2013 (aggregate principal amount $141,750,000), as joint book runner with respect to an offering of 10,000,000 common shares of beneficial interest of RAIT in January 2014, as joint bookrunning manager with respect to an offering of 7.625% Senior Notes due 2024 by RAIT in April 2014 (aggregate principal amount $60,000,000), and as joint bookrunning manager with respect to an offering of 7.125% Senior Notes due 2019 by RAIT in August 2014 (aggregate principal amount $71,905,000). One or more members of the DB Group have also agreed to provide financing to IRT in connection with the Merger, for which such members of the DB Group expect to receive compensation. The DB Group may also provide investment and commercial banking services IRT, TSRE and their respective affiliates in the future, for which we would expect the DB Group to receive compensation. In the ordinary course of business, members of the DB Group may actively trade in the securities and other instruments and obligations of TSRE, IRT and their respective affiliates for their own accounts and for the accounts of their customers. Accordingly, the DB Group may at any time hold a long or short position in such securities, instruments and obligations.
Summary of Material Financial Analyses of Deutsche Bank
The following is a summary of the material financial analyses presented by Deutsche Bank to the IRT Board at its meeting held on May 10, 2015, and that were used in connection with rendering its opinion described above.
The following summary, however, does not purport to be a complete description of the financial analyses performed by Deutsche Bank, nor does the order in which the analyses are described represent the relative importance or weight given to the analyses by Deutsche Bank. Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand the analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of Deutsche Banks analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 8, 2015, and is not necessarily indicative of current market conditions.
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Historical Trading AnalysisTSRE
Deutsche Bank reviewed the historical closing prices for the TSRE common stock during the 52-week period ended May 8, 2015, the last trading day prior to the public announcement of the Merger, which ranged from a low of $6.39 per share on October 14, 2014 to a high of $8.15 per share on December 19, 2014.
Deutsche Bank noted that the closing price of the TSRE common stock on May 8, 2015, the last trading day prior to the public announcement of the Merger, was $7.08. Deutsche Bank also noted that the closing price of the TSRE common stock on October 31, 2014, the last trading day prior to TSREs announcement that it intended to explore strategic alternatives, was $6.90 per share and that the one-month VWAP for the TSRE common stock was $7.30 per share as of May 8, 2015.
Deutsche Bank noted that the implied value of the Merger Consideration to be paid by IRT in the Merger is $7.32 per share of TSRE common stock or TSR OP unit, assuming the cash portion of the Merger Consideration is $3.80 per share and the exchange ratio is 0.4108 shares of IRT common stock or IROP Units per share of TSRE common stock or TSR OP Unit, as applicable, taking into account the closing price of IRT common stock of $8.57 per share on May 8, 2015. Deutsche Bank noted that this resulted in an implied enterprise value for TSRE of approximately $632.7 million and represented an implied premium of approximately 3.4% to the closing price per share of TSRE common stock on May 8, 2015. Deutsche Bank also noted that this resulted in an implied 2016 estimated capitalization rate (defined as 2016 estimated net operating income divided by enterprise value) of approximately 6.3% based upon IRT management projections for TSRE, including an additional $1.0 million of annual operating revenue resulting from planned capital expenditures.
Discounted Analyst Price TargetsTSRE
Deutsche Bank reviewed the stock price targets for TSRE common stock in four recently published, publicly available research analysts reports, which indicated low and high stock price targets (for the three reports with price targets) ranging from $8.00 to $9.50 per share, resulting in an implied range of value of approximately $7.40 to $8.48 per share when discounted back nine months at an assumed cost of equity of 11%.
Selected Public Companies AnalysisTSRE
Deutsche Bank reviewed and compared certain financial information and commonly used valuation measurements for TSRE with corresponding financial information and valuation measurements for the following six publicly traded multifamily REITs:
| Apartment Investment and Management Company |
| Camden Property Trust |
| Home Properties, Inc. |
| Mid-America Apartment Communities Inc. |
| Post Properties, Inc. |
| UDR, Inc. |
Although none of the above selected companies is directly comparable to TSRE, the companies included were chosen because they are publicly traded companies with financial and operating characteristics that, for purposes of analysis, may be considered similar to those of TSRE. Accordingly, the analysis of publicly traded companies was not simply mathematical. Rather, it involved complex considerations and qualitative judgments, reflected in the opinion of Deutsche Bank, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such companies.
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For each of the selected companies, Deutsche Bank reviewed the closing stock price on May 8, 2015 as multiples of estimated calendar year 2015 and estimated calendar year 2016 funds from operations, referred to as FFO per share. Deutsche Bank then compared these multiples for the selected REITs with corresponding data and multiples of TSRE, based on IRT management projections and research analysts consensus estimates. Deutsche Bank also compared these multiples with corresponding data and multiples for IRT based on IRT management projections, both including and excluding future acquisitions, and consensus estimates. The following table presents the high, mean, median and low multiples for the selected companies, as compared to the corresponding multiples for TSRE and IRT:
Price/FFO Per Share | ||||||||
2015E | 2016E | |||||||
Selected Companies |
||||||||
High |
20.3x | 19.3x | ||||||
Mean |
17.7x | 16.6x | ||||||
Median |
17.4x | 16.3x | ||||||
Low |
14.6x | 13.5x | ||||||
TSRE |
||||||||
IRT Projections |
15.1x | 13.9x | ||||||
Consensus Estimates |
16.1x | 13.6x | ||||||
IRT |
||||||||
Including Future Acquisitions |
11.3x | 10.5x | ||||||
Excluding Future Acquisitions |
11.3x | 10.4x | ||||||
Consensus Estimates |
10.6x | 9.5x |
Based in part upon the FFO multiples of the selected companies described above and taking into account its professional judgment and experience, Deutsche Bank calculated a range of estimated implied values per share of TSRE common stock by applying multiples of price per share to 2016 estimated FFO of 12.5x to 14.5x to IRT management estimates of TSREs 2016 Core FFO (FFO less transaction expenses), resulting in implied present values per share of TSRE common stock of approximately $6.37 to $7.39.
Selected Transactions AnalysisTSRE
Deutsche Bank reviewed publicly available information relating to the transactions described in the table below involving publicly traded multifamily REITs announced since October 2004. Although none of the selected transactions is directly comparable to the proposed Merger, the companies that participated in the selected transactions are such that, for purposes of analysis, the selected transactions may be considered similar to the proposed Merger.
Date Announced | Target | Acquirer | ||
4/22/15 | Associated Estates Realty Corp. | Brookfield Asset Management Inc. | ||
12/18/13 | BRE Properties, Inc. | Essex Property Trust, Inc. | ||
6/2/2013 | Colonial Properties Trust Inc. | Mid-America Apartment Communities, Inc. | ||
5/29/2007 | Archstone-Smith Trust | Tishman Speyer Real Estate Venture VIII, L.P./Lehman Brothers Holdings Inc. | ||
12/19/2005 | The Town & Country Trust | Magazine Acquisition GP LLC (Morgan Stanley Real Estate/Onex Real Estate) | ||
10/24/2005 | AMLI Residential Property Trust | Prime Property Fund (Morgan Stanley Real Estate) | ||
6/7/2005 | Gables Residential Trust | ING Clarion Partners, LLC | ||
10/22/2004 | Cornerstone Realty Income Trust | Colonial Properties Trust Inc. | ||
10/4/2004 | Summit Properties Inc. | Camden Property Trust |
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With respect to each selected transaction and based on publicly available information, Deutsche Bank reviewed, among other things, price per share, as a multiple of one-year forward estimated FFO per share and two year forward estimated FFO per share. Financial data for the selected transactions was obtained from public filings, research analysts estimates and other publicly available information. This analysis indicated the following high, mean, median and low multiples for the selected transactions:
P/FFO | ||||||||
FY +1 | FY +2 | |||||||
Selected Transactions |
||||||||
High |
26.5x | 24.4x | ||||||
Mean |
20.2x | 19.1x | ||||||
Median |
19.1x | 19.6x | ||||||
Low |
13.8x | 13.6x |
Based in part upon the per share multiples of the selected transactions describe above and taking into account its professional judgment and experience, Deutsche Bank calculated a range of estimated implied values per share of TSRE common stock by applying multiples of equity price per share to 2016 estimated FFO of 16.5x to 19.5x to IRT management estimates of TSREs 2016 Core FFO, resulting in implied present values per share of TSRE common stock of approximately $8.41 to $9.94.
Net Asset Value AnalysisTSRE
Deutsche Bank prepared a net asset value analysis for TSRE using IRT management estimates of TSREs cash net operating income for the 12-month period beginning July 1, 2015 and asset and liability balances as of June 30, 2015. Capitalization rate ranges varied by property based on the type of property, property age, location, property quality and other factors. This analysis resulted in a weighted average range of capitalization rates from 5.97% to 5.47% based on net operating income. Deutsche Bank selected the range of capitalization rates based on its professional judgment and expertise utilizing, among other things publicly available information and IRT management estimates for TSRE. This analysis indicated a range of implied values per share of TSRE Common Stock of approximately $7.77 to $9.30.
Discounted Cash Flow AnalysisTSRE
Deutsche Bank performed a discounted cash flow analysis of TSRE using financial forecasts and other information and data provided by IRTs management to calculate a range of implied equity values per share of TSRE common stock as of June 30, 2015.
In performing the discounted cash flow analysis, Deutsche Bank applied a range of discount rates of 6.5% to 8.5% to (i) IRTs management estimates of TSREs after-tax unlevered free cash flows for the period from June 30, 2015 through December 31, 2019, and (ii) terminal values derived by using exit capitalization rates of 6.1% to 5.7%.
This analysis resulted in a range of implied present values per share of TSRE common stock of approximately $6.95 to $9.15 per share.
Historical Trading AnalysisIRT
Deutsche Bank reviewed the historical closing prices for the IRT common stock during the 52-week period ended May 8, 2015, the last trading day prior to the public announcement of the Merger, which ranged from a low of $8.30 per share on May 5, 2015 to a high of $10.84 per share on July 10, 2014.
Deutsche Bank noted that the closing price of IRT common stock on May 8, 2015, the last trading day prior to the public announcement of the Merger, was $8.57 as compared to the $9.25 share price used to calculate the exchange ratio with respect to the equity portion of the Merger Consideration.
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Discounted Analyst Price TargetsIRT
Deutsche Bank reviewed the stock price targets for TSRE common stock in five recently published, publicly available research analysts reports, which indicated low and high stock price targets (for the four reports with price targets) ranging from $10.25 to $11.50 per share, resulting in an implied range of value of approximately $9.48 to $10.63 per share when discounted back nine months at an assumed cost of equity of 11%.
Selected Public Companies AnalysisIRT
Deutsche Bank reviewed and compared certain financial information and commonly used valuation measurements for IRT with corresponding financial information and valuation measurements for the other selected REITs described under Selected Public Companies Analysis-TSRE above.
Although none of the selected companies is directly comparable to IRT, the companies included were chosen because they are publicly traded companies with financial and operating characteristics that, for purposes of analysis, may be considered similar to those of IRT. Accordingly, the analysis of publicly traded companies was not simply mathematical. Rather, it involved complex considerations and qualitative judgments, reflected in the opinion of Deutsche Bank, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such companies.
Based in part upon the FFO multiples of the selected companies described above and taking into account its professional judgment and experience, Deutsche Bank calculated a range of estimated implied values per share of IRT common stock by applying multiples of price per share to 2016 estimated FFO of 9.5x to 13.5x to IRT management estimates of IRTs 2016 Core FFO, resulting in implied present values per share of IRT common stock of approximately $7.75 to $11.02.
Discounted Cash Flow AnalysisIRT
Deutsche Bank performed a discounted cash flow analysis of IRT using financial forecasts and other information and data provided by IRTs management to calculate a range of implied equity values per share of IRT common stock as of June 30, 2015.
In performing the discounted cash flow analysis, Deutsche Bank applied a range of discount rates of 6.5% to 8.5% to (i) IRTs management estimates of after-tax unlevered free cash flows for the period from June 30, 2015 through December 31, 2019, and (ii) terminal values derived by using exit capitalization rates of 6.625% to 6.375%.
This analysis resulted in a range of implied present values per share of IRT common stock of approximately $6.55 to $13.00 per share.
Net Asset Value AnalysisIRT
Deutsche Bank prepared a net asset value analysis for IRT using IRT management estimates of IRTs cash net operating income for the 12-month period beginning July 1, 2015 and asset and liability balances as of June 30, 2015. Capitalization rate ranges varied by property based on the type of property, property age, location, property quality and other factors. This analysis resulted in a weighted average range of capitalization rates from 6.78% to 6.24% based on net operating income. Deutsche Bank selected the range of capitalization rates based on its professional judgment and expertise utilizing, among other things, recent third-party property appraisals and IRT management estimates. This analysis indicated a range of implied values per share of IRT Common Stock of approximately $9.15 to $11.02.
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Relative Value Analysis
Based upon a comparison of the range of implied equity values for each of TSRE and IRT calculated pursuant to the historical trading analysis, discounted analyst price targets analysis, selected companies analysis, net asset value analysis and discounted cash flow analysis described above, Deutsche Bank calculated ranges of implied exchange ratios for the Merger. With respect to any given range of exchange ratios, the higher ratio assumes the maximum implied value per share of TSRE common stock less $3.80 per share divided by the minimum implied value per share of IRT common stock and the lower ratio assumes the minimum implied value per share of TSRE common stock less $3.80 per share divided by the maximum implied value per share of IRT common stock. This analysis indicated the following implied ranges of exchange ratios:
Range of Implied Exchange Ratios | ||
Historical Trading Levels |
0.2389x-0.5241x | |
Discounted Analyst Price Targets |
0.3387x-0.5253x | |
Public Trading Comparables |
0.2336x-0.4634x | |
Net Asset Value |
0.3603x-0.6011x | |
Discounted Cash Flow |
0.2420x-0.8169x |
Deutsche Bank noted that, assuming the cash portion of the Merger Consideration is $3.80 per share, the exchange ratio for the equity portion of the Merger Consideration would be 0.4108 shares of IRT common stock or IROP Units per share of TSRE common stock or TSR OP Unit, as applicable.
Miscellaneous
This summary is not a complete description of Deutsche Banks opinion or the underlying analyses and factors considered in connection with Deutsche Banks opinion. The preparation of a fairness opinion is a complex process involving the application of subjective business and financial judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to partial analysis or summary description. Deutsche Bank believes that its analyses described above must be considered as a whole and that considering any portion of such analyses and of the factors considered without considering all analyses and factors could create a misleading view of the process underlying its opinion. Selecting portions of the analyses or summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying the Deutsche Bank opinion. In arriving at its fairness determination, Deutsche Bank considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Rather, it made its fairness determination on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction in the analyses described above is identical to TSRE, IRT or the Merger.
In conducting its analyses and arriving at its opinion, Deutsche Bank utilized a variety of generally accepted valuation methods. The analyses were prepared solely for the purpose of enabling Deutsche Bank to provide its opinion to the IRT Board as to the fairness of the Merger Consideration, from a financial point of view, to IRT as of the date of the opinion and do not purport to be an appraisal or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty. As described above, in connection with its analyses, Deutsche Bank made, and was provided by the management of IRT with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Deutsche Bank, TSRE or IRT. Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of TSRE or IRT or their respective advisors, Deutsche Bank does not assume responsibility if future results or actual values are materially different from these forecasts or assumptions.
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The terms of the Merger, including the Merger Consideration, were determined through arms-length negotiations between TSRE and IRT and were approved by the IRT Board. Although Deutsche Bank provided advice to the IRT Board during the course of these negotiations, the decision to enter into the Merger Agreement was solely that of the IRT Board. Deutsche Bank did not recommend any specific consideration to IRT or the IRT Board, or that any specific amount or type of consideration constituted the only appropriate consideration for the Merger. As described above, the opinion of Deutsche Bank and its presentation to the IRT Board were among a number of factors taken into consideration by the IRT Board in making its determination to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.
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 these projections that were made available to the IRT Board and management in connection with the evaluation of the Merger. This information also was provided to Deutsche Bank to the extent noted below. Certain portions of the information were also made available to the TSRE Board and management as well as to TSREs financial advisor. The inclusion of this information should not be regarded as an indication that any of IRT, TSRE, their respective advisors or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results.
The unaudited prospective financial information was, in general, prepared solely for internal use and is subjective in many respects. As a result, there can be no assurance that the prospective results will be realized or that the actual results will not be significantly higher or lower than estimated. Since the unaudited prospective financial results cover multiple years, such information by its nature becomes less predictive with each successive year. The unaudited prospective financial information included below are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. IRT stockholders and TSRE stockholders are urged to review the risks and uncertainties described under Risk Factors and Cautionary Statement Concerning Forward-Looking Statements beginning on pages 37 and 47, respectively, as well as the risks described in the periodic reports of IRT filed with the SEC. See Where You Can Find More Information; Incorporation by Reference beginning on page 173. The unaudited prospective financial results 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 or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.
Neither the independent registered public accounting firm of IRT, nor any other independent accountants, have compiled, examined or performed any audit or other procedures with respect to the unaudited prospective financial results 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 IRT contained in IRTs Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated by reference into this joint proxy statement/prospectus, relates to the historical consolidated financial statements of IRT. It does not extend to the unaudited prospective financial results and should not be read to do so. Furthermore, the unaudited prospective financial results do not take into account any circumstances or events occurring after the respective dates on which they were prepared.
These unaudited prospective financial results were provided to Deutsche Bank in connection with the preparation of its financial analyses. IRT also evaluated certain unaudited prospective financial results of TSRE that were prepared by TSRE as described under Certain TSRE Unaudited Prospective Financial Information. IRT made certain immaterial adjustments to the unaudited prospective financial results prepared by TSRE to decrease revenue and net operating income in connection with its due diligence of the Merger and provided the unaudited prospective financial results of TSRE, as revised by IRT, to Deutsche Bank in connection with the preparation of its financial analyses. For a description of Deutsche Banks financial analyses, see The MergerOpinion of IRTs Financial Advisor.
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The following table presents selected unaudited prospective financial information for IRT that was prepared on a standalone basis. The prospective financial information for the fiscal years ending 2015 through 2019 under the heading Including Acquisitions was calculated using an assumption that IRT would acquire $400.0 million of assets in each fiscal year. The prospective financial information for the fiscal years ending 2015 and 2016 under the heading Excluding Acquisitions was calculated using an assumption that IRT would not acquire any additional assets in those fiscal years:
(in millions) | Including Acquisitions | Excluding Acquisitions |
||||||||||||||||||||||||||
Year Ending December 31, | ||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2015 | 2016 | ||||||||||||||||||||||
Revenue |
$ | 100.6 | $ | 161.5 | $ | 214.5 | $ | 270.2 | $ | 328.6 | $ | 88.8 | $ | 92.1 | ||||||||||||||
Net Operating Income (NOI) |
$ | 54.1 | $ | 86.9 | $ | 115.8 | $ | 146.5 | $ | 179.0 | $ | 48.0 | $ | 50.8 | ||||||||||||||
Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) |
$ | 47.2 | $ | 75.1 | $ | 100.0 | $ | 126.4 | $ | 154.4 | $ | 41.7 | $ | 43.8 | ||||||||||||||
Funds From Operations (FFO) |
$ | 24.1 | $ | 37.3 | $ | 47.9 | $ | 63.2 | $ | 78.6 | $ | 24.0 | $ | 25.8 | ||||||||||||||
Core FFO |
$ | 27.9 | $ | 41.7 | $ | 52.8 | $ | 68.6 | $ | 84.6 | $ | 25.1 | $ | 27.1 |
For purposes of the unaudited prospective financial information of IRT presented herein, NOI is a non-GAAP financial performance measure that represents property-related revenue less property-related expenses. For purposes of the unaudited prospective financial information of IRT presented herein, EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. IRT computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common stock (computed in accordance with GAAP), 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. Core FFO is a computation made by analysts and investors to measure a real estate companys operating performance by removing the effect of items that do not reflect ongoing property operations, including acquisition expenses, expensed costs related to the issuance of shares of IRTs common stock, gains or losses on real estate transactions and equity-based compensation expenses, from the determination of FFO. IRT incurs acquisition expenses in connection with acquisitions of real estate properties and expenses those costs when incurred in accordance with U.S. GAAP. As these expenses are one-time and reflective of investing activities rather than operating performance, IRT adds back these costs to FFO in determining Core FFO.
IRT and TSRE calculate certain non-GAAP financial metrics, including NOI, EBITDA, FFO and Core FFO, using different methodologies. Consequently, the financial metrics presented in each companys prospective financial information disclosures and in the sections of this joint proxy statement/prospectus with respect to the opinions of the financial advisors to IRT and TSRE may not be directly comparable to one another.
In preparing the foregoing unaudited prospective financial results, IRT made a number of assumptions and estimates regarding, among other things, future interest rates, IRTs future stock price, the level of future investments by IRT and the yield to be achieved on such investments, financing of future investments, including leverage ratios, future property sales by IRT, future mortgage and receivable loan payoffs to IRT, the ability to refinance certain of IRTs outstanding secured and unsecured debt and the terms of any such refinancing, and future capital expenditures and dividend rates. IRT management believes these assumptions and estimates were reasonably prepared, 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 Statement Concerning Forward-Looking Statements beginning on pages 37 and 47, respectively, as well as the risks described in the periodic reports of IRT filed with the SEC. All of these uncertainties and contingencies are difficult to predict and many are beyond the control of IRT and/or TSRE and will be beyond the control of the Combined Company.
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Readers of this joint proxy statement/prospectus are cautioned not to place undue reliance on the unaudited prospective financial results set forth above. While presented with numerical specificity, the inclusion of the above unaudited prospective financial results in this joint proxy statement/prospectus should not be regarded as an indication that the prospective financial will be necessarily predictive of actual future events, and such information should not be relied on as such. There can be no assurance that projected results or underlying assumptions will be realized, and actual results likely will differ, and may differ materially, from those reflected in the unaudited prospective financial results, whether or not the merger is completed. In addition, the above unaudited prospective financial results do not give effect to the Merger. None of IRT, TSRE, or their respective officers, directors, affiliates, advisors or other representatives has made any representations regarding the ultimate performance of IRT compared to the information included in the above unaudited prospective financial results.
IRT stockholders and TSRE stockholders are urged to review IRTs most recent SEC filings for a description of IRTs results of operations and financial condition and capital resources during 2014, including Managements Discussion and Analysis of Financial Condition and Results of Operations in IRTs Annual Report on Form 10-K for the year ended December 31, 2014 and Quarterly Report on Form 10-Q for the period ended March 31, 2015, which are incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
IRT DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL RESULTS 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 SUCH UNAUDITED PROSPECTIVE FINANCIAL RESULTS ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.
Opinion of TSREs Financial Advisor
Pursuant to an engagement letter dated June 19, 2014, TSRE retained J.P. Morgan as its financial advisor in connection with the proposed Merger.
At the meeting of the TSRE Board on May 10, 2015, J.P. Morgan rendered its oral opinion to the TSRE Board that, as of such date and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger was fair, from a financial point of view, to such holders. J.P. Morgan has confirmed its May 10, 2015 oral opinion by delivering its written opinion to the TSRE Board, dated May 11, 2015, that, as of such date, the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger was fair, from a financial point of view, to such holders. No limitations were imposed by the TSRE Board upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinions.
The full text of the written opinion of J.P. Morgan dated May 11, 2015, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex G to this joint proxy statement/prospectus and is incorporated herein by reference. TSREs stockholders are urged to read the opinion in its entirety. J.P. Morgans written opinion is addressed to the TSRE Board, is directed only to the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger and does not constitute a recommendation to any stockholder of TSRE as to how such stockholder should vote with respect to the Company Merger or any other matter. The summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinions, J.P. Morgan, among other things:
| reviewed the Merger Agreement; |
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| reviewed certain publicly available business and financial information concerning TSRE and IRT and the industries in which they operate; |
| compared the financial and operating performance of TSRE and IRT with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of TSREs common stock and IRTs common stock and certain publicly traded securities of such other companies; |
| reviewed certain internal financial analyses and forecasts prepared by the managements of TSRE and IRT relating to their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the Merger (the Synergies); and |
| performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion. |
J.P. Morgan also held discussions with certain members of the management of TSRE and IRT with respect to certain aspects of the Merger, and the past and current business operations of TSRE and IRT, the financial condition and future prospects and operations of TSRE and IRT, the effects of the Merger on the financial condition and future prospects of TSRE and IRT, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.
J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by TSRE and IRT or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did J.P. Morgan assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of TSRE or IRT under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of TSRE and IRT to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the Merger and the other transactions contemplated by the Merger Agreement will have the tax consequences described in discussions with, and materials furnished to J.P. Morgan by, representatives of TSRE, and will be consummated as described in the Merger Agreement. The management of TSRE also instructed J.P. Morgan to assume that the cash portion of the Company Merger Consideration will equal either $3.80 per share (the Minimum Cash Consideration) or $4.56 per share (the Maximum Cash Consideration). J.P. Morgan has also assumed that the representations and warranties made by TSRE, TSR OP, IRT, IROP, IRT LP LLC and OP Merger Sub in the Merger Agreement and any related agreements were and will be true and correct in all respects material to J.P. Morgans analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to TSRE with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on TSRE or IRT or on the contemplated benefits of the Merger.
The projections furnished to J.P. Morgan for TSRE and IRT were prepared by the respective managements of each company. Neither TSRE nor IRT publicly discloses internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgans analysis of the Merger, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections. For more information regarding the use of projections, please refer to the section entitled Certain TSRE Unaudited Prospective Financial Information beginning on page 101.
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J.P. Morgans opinion is based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the opinion. Subsequent developments may affect J.P. Morgans opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgans opinion is limited to the fairness, from a financial point of view, of the Company Merger Consideration to be paid to the holders of TSRE common stock in the proposed Company Merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration paid in connection with the Merger to the holders of any other class of securities, creditors or other constituencies of TSRE or TSR OP or as to the underlying decision by TSRE to engage in the Merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Merger, or any class of such persons relative to the consideration to be paid to the holders of TSRE common stock in the Merger or with respect to the fairness of any such compensation. J.P. Morgan has expressed no opinion as to the price at which TSRE common stock or IRT common stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. The financial analyses summarized below include information presented in tabular format. The tables are not intended to stand alone and, in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth herein without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgans financial analyses.
Public Trading Multiples Analysis
Using publicly available information, J.P. Morgan compared certain trading multiples of TSRE and IRT with similar data for publicly traded companies engaged in businesses which J.P. Morgan judged to be sufficiently analogous to TSREs and IRTs businesses or aspects thereof.
For TSRE, the companies selected by J.P. Morgan were as follows:
| Camden Property Trust |
| Apartment Investment and Management Company (AIMCO) |
| Mid-America Apartment Communities, Inc. |
| Post Properties, Inc. |
| Associated Estates Realty Corporation |
For IRT, the companies selected by J.P. Morgan were as follows:
| Camden Property Trust |
| Apartment Investment and Management Company (AIMCO) |
| Mid-America Apartment Communities, Inc. |
| Post Properties, Inc. |
| Associated Estates Realty Corporation |
| Milestone Apartments REIT |
| Preferred Apartment Communities, Inc. |
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These companies were selected for each of TSRE and IRT, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgans analysis, may be considered similar to those of TSRE and IRT based on the nature of their assets and operations and the form and geographic location of their operations. However, certain of these companies may have characteristics that are materially different from those of TSRE and IRT. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect TSRE or IRT.
For each company listed above, J.P. Morgan calculated and compared the multiple of equity market price per share to research analysts consensus estimates for adjusted funds from operations (AFFO) for the calendar year 2015 (P / 2015E AFFO) based on publicly available information and market data as of May 8, 2015.
Results of the analysis are as follows:
TSRE | IRT | |||||||
P /2015E AFFO | ||||||||
Peer high |
22.7x | 22.7x | ||||||
Peer average |
20.3x | 18.1x | ||||||
Peer median |
21.1x | 19.8x | ||||||
Peer low |
17.0x | 12.0x |
Based on the results of this analysis, J.P. Morgan selected multiple reference ranges for P / 2015E AFFO of 17.0x 20.0x for TSRE and of 12.0x 16.0x for IRT.
After applying such ranges to the respective estimated 2015 AFFO for each of TSRE and IRT based on projections by TSRE and IRT management, the analysis indicated the following implied equity value per share ranges for TSRE and IRT common stock, rounded to the nearest $0.05:
Equity value per TSRE share |
Equity value per IRT share |
|||||||
Public Trading Multiples Analysis |
||||||||
P / 2015E AFFO |
$ | 6.20 $7.30 | $ | 8.05 $10.75 |
The range of implied equity value per share for TSRE was compared to TSREs closing share price of $7.08 on May 8, 2015, and the range of implied equity value per share for IRT was compared to IRTs closing share price of $8.57 on May 8, 2015.
Net Asset Value Analysis
J.P. Morgan prepared a per share net asset value analysis for each of TSRE and IRT using calendar year 2015 estimated nominal net operating income (post management fee) and asset and liability balances as of March 31, 2015. J.P. Morgan applied a range of blended capitalization rates of 5.7% to 6.0% for TSRE and 6.4% to 6.7% for IRT to the calendar year 2015 estimated nominal net operating income (post management fee) of each company in order to arrive at an aggregate value for each companys real estate as of March 31, 2015. The capitalization rate ranges represented estimated blended rates based on the quality of assets held by each company and based on estimated private market capitalization rates by property type, market size and quality based on research analyst estimates. J.P. Morgan then deducted mortgage debt and revolver debt balances from these aggregate values, and added the value of other net tangible assets, in order to arrive at a range of implied net asset equity values for each company. The implied net asset equity values for TSRE and IRT were divided by the number of diluted shares outstanding at TSRE and IRT, respectively, to arrive at a range of implied net asset values per share of TSRE and IRT common stock. J.P. Morgan then deducted deferred maintenance liabilities to arrive at a range of implied adjusted net asset values per share of IRT common stock.
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The analysis indicated the following implied equity value per share ranges for TSRE and IRT common stock, rounded to the nearest $0.05:
Equity value per TSRE share | Equity value per IRT share | |||||||
Net Asset Value Analysis |
$ | 6.70 $7.65 | $ | 8.50 $9.55 |
The range of implied equity value per share for TSRE was compared to TSREs closing share price of $7.08 on May 8, 2015, and the range of implied equity value per share for IRT was compared to IRTs closing share price of $8.57 on May 8, 2015.
Discounted Cash Flow Analysis
J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for each of TSREs common stock and IRTs common stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered cash flows generated by the asset and taking into consideration the time value of money with respect to those cash flows by calculating their present value. The unlevered free cash flows refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. Specifically, unlevered free cash flow represents unlevered net operating profit after tax, adjusted for depreciation and amortization, capital expenditures and changes in net working capital. Present value refers to the current value of the cash flows generated by the asset and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital and other appropriate factors. Terminal value refers to the present value of all future cash flows generated by the asset for periods beyond the projections period.
J.P. Morgan calculated the unlevered free cash flows that TSRE and IRT are expected to generate during calendar years 2015 through 2024 based upon financial projections prepared by the respective managements of each company. J.P. Morgan also calculated a range of terminal values of TSRE and IRT at the end of the ten-year period ending 2024 by applying a perpetual growth rate ranging from 1.75% to 2.25% of the unlevered free cash flow of each company during the terminal period of the projections. The unlevered free cash flows and the range of terminal values were then discounted to present values as of June 30, 2015 using a range of discount rates from 7.25% to 7.75%. The discount rate range was based upon J.P. Morgans analysis of the weighted average cost of capital of each company.
Based on the foregoing, this analysis indicated the following implied equity value per share ranges for TSRE and IRT common stock, rounded to the nearest $0.05:
Equity value per TSRE share | Equity value per IRT share | |||||||
Discounted Cash Flow Analysis |
$ | 5.80 $8.15 | $ | 9.35 $13.00 |
The range of implied equity value per share for TSRE was compared to TSREs closing share price of $7.08 on May 8, 2015, and the range of implied equity value per share for IRT was compared to IRTs closing share price of $8.57 on May 8, 2015.
Relative Valuation Analysis
Based upon a comparison of the implied equity values for each of TSRE and IRT calculated in its public trading multiples analysis, net asset value analysis and discounted cash flow analysis described above, J.P. Morgan calculated a range of implied exchange ratios for the Company Merger.
For each comparison, J.P. Morgan compared the highest equity value for TSRE, less the cash portion of the Company Merger Consideration, to the lowest equity value for IRT to derive the highest implied exchange ratio implied by each set of reference ranges. J.P. Morgan also compared the lowest equity value for TSRE, less the
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cash portion of the Company Merger Consideration, to the highest equity value for IRT to derive the lowest implied exchange ratios implied by each set of reference ranges. Pursuant to instructions from TSREs management, J.P. Morgan calculated each comparison assuming that the cash portion of the Company Merger Consideration would equal either the Minimum Cash Consideration or the Maximum Cash Consideration.
The analysis indicated the following implied exchange ratios for each of the Minimum Cash Consideration or the Maximum Cash Consideration scenarios:
Range of implied exchange ratios | ||||||||
Minimum Cash Consideration |
Maximum Cash Consideration |
|||||||
Public Trading Multiples Analysis |
||||||||
P / 2015E AFFO |
0.223x 0.434x | 0.152x 0.339x | ||||||
Net Asset Value Analysis |
0.306x 0.450x | 0.226x 0.361x | ||||||
Discounted Cash Flow Analysis |
0.152x 0.463x | 0.094x 0.382x |
For each of the Minimum Cash Consideration and the Maximum Cash Consideration scenarios, J.P. Morgan then compared the respective ranges of implied exchange ratios above to the natural exchange ratio (calculated as the closing market price per share of TSRE common stock as of May 8, 2015, less the applicable cash portion of the Consideration, divided by IRTs closing market price per share of IRT common stock as of May 8, 2015) and the offer exchange ratio (calculated as the offer price of $7.60, less the Per Share Cash Amount, divided by a fixed price of $9.25 per share of IRT common stock, in accordance with the Merger Agreement). J.P. Morgan calculated a natural exchange ratio of 0.383x and an offer exchange ratio of 0.411x for the Minimum Cash Consideration scenario, and a natural exchange ratio of 0.294x and an offer exchange ratio of 0.329x for the Maximum Cash Consideration scenario.
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgans analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to TSRE or IRT. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgans analysis, may be considered similar to those of TSRE or IRT. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to TSRE or IRT.
As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise TSRE with respect to the Merger on the basis of such experience and its familiarity with TSRE.
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For services rendered in connection with the Merger, TSRE has agreed to pay J.P. Morgan a fee of approximately $5.0 million, a substantial portion of which will become payable only if the proposed Merger is consummated. In addition, TSRE has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.
Other than with respect to its engagement by TSRE in connection with the Merger, neither J.P. Morgan nor its affiliates have had any material financial advisory or other material commercial or investment banking relationships with TSRE, TSR OP, IRT or IROP during the two years preceding the date of J.P. Morgans written opinion. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of TSRE or IRT for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.
Certain TSRE Unaudited Prospective Financial Information
Historically, TSRE has not provided periodic earnings guidance nor does TSRE, as a matter of course, make public its managements forecasts or projections of future performance or earnings. In connection with the Merger, TSRE has determined to make available to TSREs stockholders projections of its anticipated future operating performance for the three fiscal years ending 2015 through 2017 (the TSRE Management Projections). The TSRE Management Projections were provided to J.P. Morgan in February 2015 in connection with the rendering of J.P. Morgans fairness opinion and to IRT in connection with their due diligence in anticipation of the Merger. The TSRE Management Projections were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for prospective financial information or GAAP. TSREs independent registered public accounting firm has not compiled or examined the TSRE Management Projections or expressed any conclusion or provided any form of assurance with respect to the TSRE Management Projections and, accordingly, assumes no responsibility for them.
The TSRE Management Projections included below are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. See Cautionary Statement Concerning Forward-Looking Statements beginning on page 47. They are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and recent developments. While presented with numerical specificity, the TSRE Management Projections were not prepared by TSRE in the ordinary course and are based upon a variety of estimates and hypothetical assumptions made by TSREs management with respect to, among other things, general economic, market, interest rate and financial conditions, the availability and cost of capital for future investments, TSREs ability to lease or re-lease space at current or anticipated rents, changes in the supply of and demand for its properties, risks and uncertainties associated with the development, acquisition or disposition of properties, competition within the industry, real estate and market conditions, and other matters. None of the assumptions underlying the projections may be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond TSREs control. Accordingly, there can be no assurance that the assumptions made in preparing the TSRE Management Projections will prove accurate, and actual results may materially differ. In addition, the TSRE Management Projections do not take into account any of the transactions contemplated by the Merger Agreement, including the Merger, which may also cause actual results to materially differ.
For these reasons, as well as the bases and assumptions on which the TSRE Management Projections were compiled, the inclusion of the information set forth below should not be regarded as an indication that the TSRE Management Projections will be an accurate prediction of future events, that any recipient of the TSRE Management Projections considered, or now considers, them to be a reliable predictor of future events, and they should not be relied on as such. No one has made, or makes, any representation regarding the information contained in the projections and, except as required by applicable securities laws, neither TSRE nor IRT intends
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to update or otherwise revise the TSRE Management Projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even in the event that any or all of the assumptions are shown to be in error.
TSRE Management Projections
The TSRE Management Projections assumes no additional debt or equity issuances and no operating properties will be acquired or disposed, except for the additional 100 units at TSREs Waterstone at Big Creek community that were acquired on March 26, 2015. Management of TSRE believed these projections to be its best estimates as to the future financial performance of TSRE on a stand-alone basis.
Trade Street Residential, Inc.
Management Projections Summary(1)
(in thousands) Metric |
Projected 2015 |
Projected 2016 |
Projected 2017 |
|||||||||
Net Operating Income (NOI)(2) |
$ | 38,502.3 | $ | 40,044.1 | $ | 41,483.7 | ||||||
Net Loss Attributable to Common Stockholders |
(692.4 | ) | (2,760.3 | ) | (3,786.0 | ) | ||||||
Funds From Operations (FFO)(3) |
15,267.7 | 16,721.9 | 17,764.7 | |||||||||
Core FFO(4) |
16,131.7 | 17,651.9 | 18,748.7 | |||||||||
Adjusted FFO(5) |
14,231.7 | 15,751.9 | 17,002.5 | |||||||||
EBITDA(6) |
31,489.9 | 32,502.7 | 33,417.5 | |||||||||
Dividends |
13,945.4 | 13,945.4 | 13,945.4 |
(1) | TSREs Management Projections do not assume any additional debt or equity issuances or the acquisition or disposition of any operating properties, except for the 100 additional units at TSREs Waterstone at Big Creek community that were acquired on March 26, 2015. |
(2) | TSREs management believes that NOI is a useful measure of TSREs operating performance and defines NOI as total property revenues less total property operating expenses, excluding depreciation and amortization. Other REITs may use different methodologies for calculating NOI, and accordingly, TSREs NOI may not be comparable to other REITs. TSREs management believes that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. NOI allows management to evaluate the operating performance of TSREs properties because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. |
(3) | As defined by the National Association of Real Estate Investment Trusts, FFO represents net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (or losses) from sales of property, bargain purchase gains, and recognized impairment of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. TSREs management considers FFO to be an important supplemental measure of TSREs operating performance, believes it assists in the comparison of TSREs operating performance between periods to that of different REITs and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their operating results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. |
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(4) | TSREs management also uses Core FFO as an operating measure. Core FFO includes adjustments to exclude the impact of straight-line adjustments for ground leases, gains and losses from extinguishment of debt, transaction costs related to acquisitions and recapitalization, management transition costs and certain other non-cash or non-comparable items. TSREs management believes that these adjustments are appropriate in determining Core FFO as they are not indicative of the operating performance of TSREs assets. In addition, TSREs management believes that Core FFO is a useful supplemental measure for the investing community to use in comparing TSRE to other REITs as most REITs provide some form of adjusted or modified FFO. |
(5) | TSREs management also uses Adjusted FFO (AFFO) as an operating measure, which is defined as FFO or, alternatively, Core FFO, depending on the existence of any non-cash, non-comparable items as described above, less recurring and non-recurring capital expenditures. TSREs management believes that AFFO is a relevant operating measure as it provides an indication as to whether a REIT can fund from its operating performance the capital expenditures necessary to maintain the condition of its operating real estate assets. |
(6) | EBITDA represents earnings before interest, taxes, depreciation and amortization. TSREs management includes EBITDA in this table because this metric was used by J.P. Morgan in its review and analysis of TSRE in connection with rendering its opinion to the TSRE Board. See Reconciliation of Net Loss Attributable to Common Stockholders to EBITDA in the table on page 104. |
Below are reconciliations between net loss attributable to TSRE common stockholders pursuant to GAAP and the non-GAAP measures noted in TSREs Managements Projection Summary above:
Reconciliation of NOI to Net Loss Attributable to Common Stockholders
(in thousands) | Projected 2015 |
Projected 2016 |
Projected 2017 |
|||||||||
NOI |
$ | 38,502.3 | $ | 40,044.1 | $ | 41,483.7 | ||||||
Depreciation expense |
(15,730.7 | ) | (19,477.0 | ) | (21,690.3 | ) | ||||||
Interest expense |
(13,902.8 | ) | (13,727.3 | ) | (13,655.3 | ) | ||||||
General and administrative expense |
(7,965.0 | ) | (8,622.8 | ) | (9,020.2 | ) | ||||||
Amortization of deferred financing cost |
(1,455.4 | ) | (1,123.6 | ) | (1,115.7 | ) | ||||||
Acquisition and recapitalization costs |
(150.0 | ) | | | ||||||||
Development and pursuit costs |
(35.0 | ) | (30.0 | ) | (30.0 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Loss |
(736.6 | ) | (2,936.6 | ) | (4,027.8 | ) | ||||||
Net loss allocated to noncontrolling interest |
44.2 | 176.3 | 241.8 | |||||||||
|
|
|
|
|
|
|||||||
Net Loss Attributable to Common Stockholders |
$ | (692.4 | ) | $ | (2,760.3 | ) | $ | (3,786.0 | ) | |||
|
|
|
|
|
|
Reconciliation of Net Loss Attributable to Common Stockholders to Adjusted FFO
(in thousands) | Projected 2015 |
Projected 2016 |
Projected 2017 |
|||||||||
Net loss attributable to common stockholders |
$ | (692.4 | ) | $ | (2,760.3 | ) | $ | (3,786.0 | ) | |||
Net loss allocated to noncontrolling interest |
(44.2 | ) | (176.3 | ) | (241.8 | ) | ||||||
Real estate depreciation expense |
15,730.7 | 19,477.0 | 21,690.3 | |||||||||
Amortization of property tax abatement intangible asset |
273.6 | 181.5 | 102.2 | |||||||||
|
|
|
|
|
|
|||||||
FFO |
$ | 15,267.7 | $ | 16,721.9 | $ | 17,764.7 | ||||||
Acquisition and recapitalization costs |
150.0 | | | |||||||||
Non-cash stock compensation expense |
714.0 | 930.0 | 984.0 | |||||||||
|
|
|
|
|
|
|||||||
Core FFO |
$ | 16,131.7 | $ | 17,651.9 | $ | 18,748.7 | ||||||
Capital expenditures |
(1,900.0 | ) | (1,900.0 | ) | (1,746.2 | ) | ||||||
|
|
|
|
|
|
|||||||
Adjusted FFO |
$ | 14,231.7 | $ | 15,751.9 | $ | 17,002.5 | ||||||
|
|
|
|
|
|
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Reconciliation of Net Loss Attributable to Common Stockholders to EBITDA
(in thousands) | Projected 2015 |
Projected 2016 |
Projected 2017 |
|||||||||
Net loss attributable to common stockholders |
$ | (692.4 | ) | $ | (2,760.3 | ) | $ | (3,786.0 | ) | |||
Net loss allocated to noncontrolling interest |
(44.2 | ) | (176.3 | ) | (241.8 | ) | ||||||
Add: Depreciation expense |
15,730.7 | 19,477.0 | 21,690.3 | |||||||||
Add: Amortization of property tax abatement intangible asset |
273.6 | 181.5 | | |||||||||
Add: Interest Expense |
13,902.8 | 13,727.3 | 13,655.3 | |||||||||
Add: Amortization of deferred financing costs |
1,455.4 | 1,123.5 | 1,115.7 | |||||||||
Add: Non-cash stock compensation expense |
714.0 | 930.0 | 984.0 | |||||||||
Add: Acquisition and recapitalization costs |
150.0 | | | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 31,489.9 | $ | 32,502.7 | $ | 33,417.5 | ||||||
|
|
|
|
|
|
Interests of IRTs Directors, Executive Officers and Affiliates in the Merger
Holders of IRT common stock should be aware that certain of IRTs affiliates have interests in the Merger and the other transactions contemplated by the Merger Agreement that are different from, or in addition to, the interests of holders of IRT common stock generally, which may create potential conflicts of interest or the appearance thereof. The IRT Board was aware of these interests, among other matters, in approving the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and in recommending that holders of IRT common stock vote for the proposal to approve the issuance of shares of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger). These interests include those discussed below.
Concurrently with the execution and delivery of the Merger Agreement, TSRE entered into a voting agreement with RAIT, which owned approximately 22.8% of the outstanding shares of IRT common stock as of May 8, 2015. Pursuant to the voting agreement, RAIT has agreed to vote in favor of the issuance of IRT common stock in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger), subject to the terms and conditions of contained in the voting agreement. For more information about this voting agreement, see Voting Agreements beginning on page 154.
The Advisor is a wholly-owned subsidiary of RAIT, and RAIT owns a 75% controlling equity interest in IRTs property manager, RAIT Residential. The Advisor is responsible for managing IRTs day-to-day business operations and identifying properties for IRT to acquire, while RAIT Residential provides services to IRT in connection with the rental, leasing, operation and management of its properties. All of the executive officers of IRT are also employees of RAIT. Each of Scott F. Schaeffer, IRTs Chairman of the Board and Chief Executive Officer, and James J. Sebra, IRTs Chief Financial Officer and Treasurer, also hold the same positions at RAIT. IRTs executive officers have been granted restricted stock awards and stock appreciation rights under IRTs Long Term Incentive Plan. IRT has an advisory agreement with the Advisor described below and expects to amend the terms of this advisory agreement to extend the term and modify the method to calculate the Advisors advisory fee as described below. While the changes to such methods would not necessarily increase the amount of advisory fees paid to the Advisor, due to the increased size of the Combined Company, the Advisor expects to receive increased advisory fees if the Merger is completed. IRT expects to have RAIT Residential serve as the property manager for each of the properties acquired from TSRE as a result of the Merger. While the terms of each property management agreement are expected to be substantially similar to those IRT has used for its properties currently in IRTs portfolio, due to the increased size of the Combined Company, RAIT Residential expects to receive increased property management fees if the Merger is completed.
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IRT has the following management agreements with affiliates of RAIT for the provision of management and advisory services to IRT: (i) an advisory agreement with the Advisor and (ii) property management agreements with RAIT Residential with respect to each of IRTs properties. Pursuant to the terms of the advisory agreement, the Advisor is compensated as follows:
| A quarterly base management fee of 0.1875% of average gross real estate assets as of the last day of such quarter. Average gross real estate assets means the average of the aggregate book value of IRTs real estate assets before reserves for depreciation or other similar noncash reserves and excluding the book values attributable to the eight properties that were acquired prior to August 16, 2013. IRT computes average gross real estate assets by taking the average of these book values at the end of each month during the quarter for which it is calculating the fee. |
| An incentive fee based on IRTs pre-incentive fee core funds from operations (Core FFO), a non-GAAP measure, as defined in the advisory agreement. The incentive fee is computed at the end of each fiscal quarter as follows: |
| no incentive fee in any fiscal quarter in which IRTs pre-incentive fee Core FFO does not exceed the hurdle rate of 1.75% (7% annualized) of the cumulative gross amount of equity capital IRT has obtained; and |
| 20% of the amount of IRTs pre-incentive fee Core FFO that exceeds 1.75% (7% annualized) of the cumulative gross proceeds from the issuance of equity securities we have obtained. |
By October 1, 2015, IRT intends to amend the advisory agreement such that the Advisor will receive (i) a quarterly base management fee of 0.375% of IRTs cumulative equity raised and (ii) a quarterly incentive fee equal to 20% of Core FFO in excess of $0.20 per share. The amendment to the advisory agreement would also extend the term of the advisory agreement until 2020.
The completion of the Merger by IRT will increase IRTs average gross real estate assets because of the addition of new properties, and is expected to increase its Core FFO. Under the proposed amended terms of the advisory agreement, if IRT sells IRT common stock as a means of financing the cash portion of the Merger Consideration, the amount of equity raised may be included in the equity used to calculate the base management fee thereunder and result in increased base management fees paid to the Advisor. Therefore, the completion of the Merger is expected to increase the fees to be paid by IRT to the Advisor under the advisory agreement, either as it currently exists or as it is proposed to be amended.
Pursuant to the property management agreements, IRT pays RAIT Residential property management and leasing fees on a monthly basis of an amount up to 4.0% of the gross revenues from the property for each month. In addition to these base management fees, RAIT Residential may be entitled to receive customary due diligence fees, construction management fees, lease-up fees and other similar fees for additional services to be provided by RAIT Residential at the request of IRT. Each property management agreement has an initial one year term, subject to automatic one-year renewals unless either party gives prior notice of its desire to terminate the management agreement. Following the completion of the Merger, IRT anticipates entering into new property management agreements for each of the new properties being acquired in the Merger, which will increase the fees paid by IRT to RAIT Residential.
Interests of TSREs Directors and Executive Officers in the Company Merger
In considering the recommendation of the TSRE Board to approve the Company Merger and the other transactions contemplated by the Merger Agreement, TSRE stockholders should be aware that the directors and executive officers of TSRE have certain interests in the Company Merger that may be different from, or in addition to, the interests of TSRE stockholders generally. These interests may create potential conflicts of interest. The TSRE Board was aware of those interests and considered them, among other matters, in reaching its decision to approve the Merger Agreement.
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Pursuant to the terms of their employment agreements with TSRE, Richard H. Ross, TSREs Chief Executive Officer, and Randall C. Eberline, TSREs Chief Accounting Officer, will be entitled to: (i) all accrued but unpaid wages through the termination date; (ii) all accrued but unused and unpaid vacation; (iii) any earned but unpaid bonuses relating to the prior year; (iv) all approved, but unreimbursed, business expenses; (v) if the executive is participating in TSREs group medical, vision and dental plan immediately prior to the date of termination, a lump sum payment equal to 18 times (or such lesser period that the executive (and his eligible dependents) are entitled to under COBRA) the amount of monthly employer contribution that TSRE made to an issuer to provide medical, vision and dental insurance to the executive (and his eligible dependents) in the month immediately preceding the date of termination; and (vi) a separation payment equal to the sum of three times the executives (a) then current base salary and (b) average annual bonus for the two annual bonus periods completed prior to the termination (if the change in control occurs prior to the date the executive was eligible to earn two bonuses, the average bonus for the two-year period will be deemed to be the executives target bonus in the year of termination), with such separation payment being payable in a lump sum within 60 days from the date of termination, subject to the executive executing a release that becomes effective and certain other conditions. Additionally all of the executives outstanding unvested equity-based awards (including restricted stock and restricted stock units) granted pursuant to TSREs Amended and Restated 2013 Equity Incentive Plan will vest and become immediately exercisable and unrestricted, without any action by the TSRE Board or any committee thereof.
Concurrently with the execution and delivery of the Merger Agreement, IRT entered into separate voting agreements with funds affiliated with Senator and Monarch, which collectively owned approximately 48.3% of the outstanding shares of TSRE common stock as of the TSRE Record Date. Pursuant to the voting agreements, Senator and Monarch have each agreed to vote in favor of the Company Merger and the other transactions contemplated by the Merger Agreement, subject to the terms and conditions of the applicable voting agreements, as described under Voting Agreements beginning on page 154. In addition, Senator and Monarch each also entered into a lock-up agreement in favor of IRT. Pursuant to the terms of the lock-up agreements, and subject to certain exceptions, each of Senator and Monarch are subject to restrictions on the sale of its shares of IRT common stock for a period of 180 days following the closing of the Merger. Michael Simanovsky and Adam Sklar, each a member of the TSRE Board, are employees of Senator and Monarch, respectively.
Security Ownership of TSREs Directors and Executive Officers and Current Beneficial Owners
The following table sets forth information regarding the beneficial ownership of TSRE common stock as of the TSRE Record Date by:
| each person known by TSRE to be the beneficial owner of more than 5% of the outstanding shares of TSRE based solely upon the amounts and percentages contained in the public filings of such persons; |
| each of TSREs officers and directors; and |
| all of TSREs officers and directors as a group. |
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Name of Beneficial Owner |
Common Stock Beneficially Owned |
Percent of Common Stock(1) |
||||||
5% Stockholders |
||||||||
Senator Investment Group LP |
9,316,055 | 25.31 | % | |||||
Senator Global Opportunity Fund LP |
8,299,002 | 22.55 | % | |||||
Senator Global Opportunity Intermediate Fund LP |
1,017,053 | 2.76 | % | |||||
Monarch Alternative Capital LP |
8,452,678 | 22.97 | % | |||||
Trade Street Property Fund I, LP Liquidating Trust |
3,466,534 | 9.42 | % | |||||
Forward Management, LLC |
2,777,693 | 7.55 | % | |||||
Michael Baumann |
2,640,432 | 6.75 | % | |||||
Private Management Group, Inc. |
1,964,777 | 5.34 | % | |||||
Westport Capital Partners, LLC |
1,926,309 | 5.23 | % | |||||
BHR Capital, LLC |
1,857,624 | 5.05 | % | |||||
NEOs: |
||||||||
Richard H. Ross |
99,091 | * | ||||||
Randall C. Eberline |
19,102 | * | ||||||
Directors: |
||||||||
Randolph C. Coley |
24,281 | * | ||||||
Mack D. Pridgen III |
86,994 | * | ||||||
Nirmal Roy |
| | ||||||
Michael Simanovsky |
| | ||||||
Adam Sklar |
| | ||||||
All NEOs and directors as a group |
229,468 | * | % |
* | Less than 1% |
(1) | Based on 36,799,570 shares of TSREs common stock outstanding as of the TSRE Record Date. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to shares of common stock. Shares of TSRE common stock that may be issued upon the redemption of TSR OP Units are deemed outstanding for computing the percentage ownership of the person, entity or group holding the securities but are not deemed outstanding for computing the percentage ownership of any other person. |
Regulatory Approvals Required for the Merger
IRT and TSRE 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 Merger or the other transactions contemplated by the Merger Agreement.
Litigation Relating to the Merger
On June 11, 2015, three purported stockholders filed a complaint against TSRE and the members of the TSRE Board in the Circuit Court of Maryland for Baltimore City. On July 15, 2015, the plaintiffs amended their complaint and added Senator, Monarch and BHR as defendants. The amended complaint purports to assert class action claims alleging that the members of the TSRE Board breached their fiduciary duties to TSRE and TSREs minority stockholders by approving the Merger for inadequate consideration, that the process leading up to the Merger was flawed, and that three directors of TSRE, by virtue of their affiliations with certain stockholders of TSRE, engaged in an alleged self-interested scheme to force the sale of TSRE. The amended complaint alleges that the stockholder defendants aided and abetted these alleged violations and were unjustly enriched by the Merger. Among other relief, the complaint seeks compensatory damages, together with pre- and post-judgment interest; a finding that the individual director defendants are liable for breaching their fiduciary duties; an order requiring that the directors affiliated with the stockholder defendants disgorge all profits, compensation and other
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benefits obtained by them as a result of their conduct in connection with the Merger; and an award of the plaintiffs costs and disbursements of this action, including attorneys fees. The amended complaint does not seek an injunction against the stockholder vote or the closing of the Merger. The deadline for an answer or other responsive pleading by the defendants has not yet passed. TSRE and the director defendants intend to vigorously defend against the claim.
IRT prepares its financial statements in accordance with GAAP. The Merger will be accounted for by applying the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date, the recognition and measurement, at fair value, of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the consolidated subsidiaries of the acquiree and recognition and measurement of goodwill or a gain from a bargain purchase. IRT will be considered the accounting acquirer and will therefore, recognize and measure, at fair value, the identifiable assets acquired, liabilities assumed and any noncontrolling interests in the consolidated subsidiaries of TSRE, and IRT will recognize and measure any goodwill and any gain from a bargain purchase, in each case, upon completion of the Merger.
Exchange of Shares in the Merger
IRT has appointed American Stock Transfer & Trust Company (the Exchange Agent) to act as the exchange agent and payment agent for the exchange of shares of TSRE common stock for shares of IRT common stock and the payment of the cash consideration and cash in lieu of any fractional shares of IRT common stock. As promptly as practicable after the effective time of the Company Merger, the Exchange Agent will send to each holder of record of shares of TSRE common stock at the effective time of the Company Merger who holds shares of TSRE common stock in certificated or book-entry form a letter of transmittal and instructions for effecting the exchange of TSRE common stock certificates or book-entry shares for the Merger Consideration the holder is entitled to receive under the Merger Agreement. Upon surrender of stock certificates or book-entry shares for cancellation along with the executed letter of transmittal and other documents described in the instructions, a TSRE stockholder will receive any whole shares of IRT common stock such holder is entitled to receive and the cash consideration and cash in lieu of any fractional shares of IRT common stock such holder is entitled to receive. After the effective time of the Company Merger, TSRE will not register any transfers of shares of TSRE common stock.
IRT stockholders need not take any action with respect to their stock certificates or book-entry shares.
The Merger Agreement permits IRT to pay (i) monthly distributions of up to $0.06 per share of IRT common stock, including for any partial month ending on the Effective Date, (ii) monthly distributions of up to $0.06 per IROP Unit, and (iii) any distribution that is required to maintain its REIT qualification. The Merger Agreement permits TSRE to pay (i) quarterly distributions of up to $0.095 per share of TSRE common stock for the quarter ending June 30, 2015 and for each quarter or partial quarter thereafter ending on or prior to the effective time of the Company Merger, (ii) a distribution per TSR OP Unit in the same amount as any distribution per share made with respect to TSRE common stock, and (iii) any distribution that is required to maintain its REIT qualification. Following the closing of the Merger, IRT expects to continue its current dividend policy for common stockholders of the Combined Company, subject to the discretion of the Combined Companys board of directors, which reserves the right to change the Combined Companys dividend policy at any time and for any reason. See Risk FactorsRisks Related to an Investment in the Combined Companys Common StockThe Combined Company cannot assure you that it will be able to continue paying dividends at or above the rate currently paid by IRT and TSRE on page 43.
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It is a condition to each partys obligation to complete the Merger that the shares of IRT common stock issuable in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) be approved for listing on the NYSE MKT, subject to official notice of issuance. IRT has agreed to use its reasonable best efforts to cause the shares of IRT common stock to be issued in the Merger (including IRT common stock issuable upon redemption of IROP Units issued in the Partnership Merger) to be approved for listing on the NYSE MKT, subject to official notice of issuance.
Delisting and Deregistration of TSRE Common Stock
After the Merger is completed, the shares of TSRE common stock currently listed on the NASDAQ Global Market will cease to be listed on the NASDAQ Global Market and will be deregistered under the Exchange Act.
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This section of this joint proxy statement/prospectus summarizes the material provisions of the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by reference. As a stockholder, you are not a third party beneficiary of the Merger Agreement and therefore you may not directly enforce any of its terms and conditions.
This summary may not contain all of the information about the Merger Agreement that is important to you. IRT and TSRE urge you to carefully read the full text of the Merger Agreement because it is the legal document that governs the Merger. The Merger Agreement is not intended to provide you with any factual information about IRT or TSRE. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement (and summarized below) are qualified by information each of IRT and TSRE filed with the SEC prior to the effective date of the Merger Agreement, as well as by certain disclosure letters each of the parties delivered to the other in connection with the signing of the Merger Agreement, which modify, qualify and create exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may apply contractual standards of materiality in a way that is different from what may be viewed as material by investors or that is different from standards of materiality generally applicable under the U.S. federal securities laws or may not be intended as statements of fact, but rather as a way of allocating risk among the parties to the Merger Agreement. The representations and warranties and other provisions of the Merger Agreement and the description of such provisions in this joint proxy statement/prospectus should not be read alone but instead should be read in conjunction with the other information contained in the reports, statements and filings that each of IRT and TSRE file with the SEC and the other information in this joint proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 173.
IRT and TSRE acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, each of them is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this joint proxy statement/prospectus not misleading.
Form, Effective Time and Closing of the Merger
The Merger Agreement provides for: (i) the merger of OP Merger Sub into TSR OP at the effective time of the Partnership Merger, with TSR OP continuing as the surviving entity (the Partnership Merger), and (ii) the merger of TSRE into IRT LP LLC at the effective time of the Company Merger, with IRT LP LLC continuing as the surviving entity and a wholly-owned subsidiary of IRT (the Company Merger and, together with the Partnership Merger, the 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 Company Merger will become effective upon the filing of the articles of merger with respect to the Company Merger being duly filed with the State Department of Assessments and Taxation of the State of Maryland and the certificate of merger with respect to the Company Merger being duly filed with the Secretary of State of the State of Delaware. Upon the closing of the Partnership Merger, IROP will own all of the limited partnership interests in TSR OP and IRT LP LLC will own the general partnership interest in TSR OP. Immediately following the consummation of the Merger, IRT will cause TSR OP to become a wholly-owned subsidiary of IROP.
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 Washington, D.C. on the second business day after the satisfaction or waiver of the conditions to closing (described below under Conditions to Completion of the Merger) 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 TSRE may agree in writing.
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Board of Directors of the Combined Company
As of the effective time of the Company Merger, the board of directors of the Combined Company will be increased to seven members, with the five current IRT directors, Scott F. Schaeffer, William C. Dunkelberg, Robert F. McCadden, DeForest B. Soaries, Jr., and Sharon M. Tsao, continuing as directors of the Combined Company. Scott F. Schaeffer, Chairman of the IRT Board, will serve as Chairman of the Board for the Combined Company. The IRT Board will fill the two newly created vacancies by appointing to the IRT Board, as of the effective time of the Company Merger, Richard H. Ross and Mack D. Pridgen III, to serve until the next annual meeting of the Combined Companys stockholders (and until their successors have been duly elected and qualified).
Merger Consideration; Effects of the Merger
Merger Consideration
At the effective time of the Company Merger, by virtue of the Company Merger and without any action on the part of any party to the Merger Agreement, the holders of TSRE common stock, or any other person, each issued and outstanding share of TSRE common stock (other than shares held by IRT, any subsidiary of IRT, or any subsidiary of TSRE as of immediately prior to the effective time of the Company Merger) will be automatically converted into the right to receive the following consideration (the Company Merger Consideration):
(i) | an amount in cash equal to the Per Share Cash Amount. The Per Share Cash Amount shall initially equal $3.80. IRT may, by delivering written notice to TSRE at least two business days prior to the date of the TSRE special meeting, elect to increase the Per Share Cash Amount from $3.80 to an amount that, at the time of such election, would not cause the stock portion of the Merger Consideration (with the value of the stock portion of the Merger Consideration calculated using the closing price of IRT common stock on the NYSE MKT on the trading day immediately prior to the date the election notice is given) to be less than 40% of the value of the total Merger Consideration; provided, however, that if (a) IRT makes such an election to increase the Per Share Cash Amount, (b) the stock portion of the Merger Consideration on the closing date of the Merger (with the value of the stock portion of the Merger Consideration calculated using the closing price of IRT common stock on the NYSE MKT on the trading day immediately prior to the closing date of the Merger) would be less than 40% of the value of the total Merger Consideration, and (c) TSRE does not exercise its right to terminate the Merger Agreement, then the Per Share Cash Amount will be reduced so that the cash portion of the Merger Consideration will equal 60% of the value of the total Merger Consideration on the closing date of the Merger (with the value of the stock portion of the Merger Consideration calculated using the closing price of IRT common stock on the NYSE MKT on the trading day immediately prior to the closing date of the Merger), rounded down to the nearest cent; and |
(ii) | a number of shares of IRT common stock equal to the quotient determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000 (the Exchange Ratio). |
At the effective time of the Partnership Merger, by virtue of the Partnership Merger and without any action on the part of any party to the Merger Agreement, the holders of TSR OP Units, or any other person, each issued and outstanding TSR OP Unit (other than TSR OP Units held by TSRE or any wholly-owned subsidiary of TSRE as of immediately prior to the effective time of the Partnership Merger) will be automatically converted into the right to receive the following consideration (the Partnership Merger Consideration and, together with the Company Merger Consideration, the Merger Consideration):
(i) | an amount in cash equal to the Per Share Cash Amount; and |
(ii) | a number of IROP Units equal to Exchange Ratio, together with exchange rights associated with such IROP Units substantially similar to the exchange rights previously granted to other limited partners of IROP. |
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No fractional shares of IRT common stock or fractional IROP Units will be issued, but instead holders of TSRE common stock or TSR OP Units will receive cash, without interest, in an amount equal to the product of (i) such fractional part of a share of IRT common stock or fractional part of an IROP Unit multiplied by (ii) the per share closing price of IRT common stock on the NYSE MKT on the last trading day prior to the closing date of the Merger.
The following table depicts the total value of the Merger Consideration a holder of TSRE common stock will receive based on various elections that IRT can make regarding the Per Share Cash Amount at a number of assumed per share prices of IRT common stock at the time the Merger is consummated. The table that follows sets forth the Per Share Cash Amount, the resulting Exchange Ratio (rounded for illustration purposes), and the value of the total Merger Consideration holders of TSRE common stock will receive if the price per share of IRT common stock on the closing date of the Merger is $7.00, $7.50, $8.00, $8.50, $9.00, $9.50 and $10.00. The amounts depicted in the following table are intended to be illustrative only and do not purport to include the exact value of the Merger Consideration holders of TSRE common stock will receive in the Merger, which will depend on the exact Per Share Cash Amount that IRT elects and the exact price of IRT common stock on the closing date of the Merger.
Per Share |
Exchange Ratio(1) |
Value of Merger Consideration if IRT Stock Price is $7.00 |
Value of Merger Consideration if IRT Stock Price is $7.50 |
Value of Merger Consideration if IRT Stock Price is $8.00 |
Value of Merger Consideration if IRT Stock Price is $8.50 |
Value of Merger Consideration if IRT Stock Price is $9.00 |
Value of Merger Consideration if IRT Stock Price is $9.50 |
Value of Merger Consideration if IRT Stock Price is $10.00 | ||||||||
$3.80 |
0.4108 | $6.68 | $6.88 | $7.09 | $7.29 | $7.50 | $7.70 | $7.91 | ||||||||
$3.95 |
0.3946 | $6.71 | $6.91 | $7.11 | $7.30 | $7.50 | $7.70 | $7.90 | ||||||||
$4.10 |
0.3784 | $6.75 | $6.94 | $7.13 | $7.32 | $7.51 | $7.69 | $7.88 | ||||||||
$4.25 |
0.3622 | $6.79 | $6.97 | $7.15 | $7.33 | $7.51 | $7.69 | $7.87 | ||||||||
$4.40 |
0.3459 | $6.82 | $6.99 | $7.17 | $7.34 | $7.51 | $7.69 | $7.86 | ||||||||
$4.56 |
0.3286 | $6.86 | $7.02 | $7.19 | $7.35 | $7.52 | $7.68 | $7.85 |
(1) | The Exchange Ratio represents the number of shares of IRT common stock that a holder of TSRE common stock will receive in exchange for each share of TSRE common stock they own and equals the quotient determined by dividing (a) $7.60 less the Per Share Cash Amount, by (b) $9.25, and rounding the result to the nearest 1/10,000. The Exchange Ratio is dependent solely on the Per Share Cash Amount elected by IRT and will not fluctuate as a result of changes in the market price of IRT common stock. |
Procedures for Surrendering Certificates for TSRE Common Stock
The conversion of shares of TSRE common stock into the right to receive the Company Merger Consideration will occur automatically at the effective time of the Company Merger. In accordance with the Merger Agreement, IRT has appointed an exchange agent to handle the payment and delivery of the Company Merger Consideration (including cash in lieu of any fractional shares). Prior to the effective time of the Company Merger, IRT will deliver to the exchange agent evidence of the IRT common stock in book-entry form sufficient to pay the stock portion of the Company Merger Consideration and cash in an amount sufficient to pay for the cash portion of the Company Merger Consideration and any cash to be delivered in lieu of fractional shares. As soon as reasonably practicable after the effective time of the Company Merger, but in no event later than three business days thereafter, IRT will cause the exchange agent to mail to each record holder of shares of TSRE common stock, a letter of transmittal and instructions explaining how to surrender certificates for TSRE common stock to the exchange agent.
Each holder of shares of TSRE common stock that surrenders its stock certificate to the exchange agent together with a duly completed letter of transmittal and any other required documentation, and each person that holds shares of TSRE common stock in book-entry form, will receive the Company Merger Consideration due to such holder (including cash in lieu of any fractional shares). After the effective time of the Company Merger, each certificate that previously represented shares of TSRE common stock will only represent the right to receive the Company Merger Consideration into which those shares of TSRE common stock have been converted.
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Withholding
All payments under the Merger Agreement are subject to applicable withholding requirements.
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 TSRE 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 TSRE and TSR OP, on the one hand, and IRT, IROP, OP Merger Sub and IRT LP LLC, 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 effective time of the Company Merger. 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 TSRE 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 TSRE and TSR OP
The Merger Agreement includes representations and warranties by TSRE and TSR 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 and registration statement; |
| absence of certain changes since January 1, 2015; |
| 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; |
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| interested party transactions; |
| required stockholder vote; |
| brokers, investment bankers, finders and other fees; |
| opinion of financial advisor; |
| inapplicability of takeover statutes; |
| inapplicability of the Investment Company Act of 1940, as amended; |
| absence of dissenters, appraisal or similar rights in connection with the Merger; |
| inapplicability of the Hart-Scott-Rodino Antitrust Improvements Act; and |
| disclaimer of other representations and warranties. |
Representations and Warranties of IRT, IROP, OP Merger Sub and IRT LP LLC
The Merger agreement includes representations and warranties by IRT, IROP, OP Merger Sub and IRT LP LLC 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 and registration statement; |
| absence of certain changes since January 1, 2015; |
| 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; |
| brokers, investment bankers, finders and other fees; |
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| opinion of financial advisor; |
| inapplicability of takeover statutes; |
| financing; |
| inapplicability of the Investment Company Act of 1940, as amended; |
| 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 TSRE and TSR OP, on the one hand, and IRT, IROP, OP Merger Sub and IRT LP LLC, 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, properti